The Chief Plans His Legacy

Photo: Post Courier

There has been some good news for the Papua New Guinea economy in recent months. Recent initiatives include the signing of the Framework Agreement between PNG stakeholders and the Chinese Metallurgical Construction Company (MCC) to develop the K2 billion (US$600 million) Ramu Nickel Cobalt project in the Morobe Province, the securing of a K2 billion Enhanced Cooperation Package, on top of the K600 million (US$180.3 million) annual Australian development aid to PNG, and the launch of the South Seas Tuna Project in Prime Minister Michael Somare's hometown of Wewak. In the following edited interview, Pacific Magazine asked Sir Michael to describe this economic vision.

Pacific Magazine: Prime Minister, how do you describe the PNG economy now compared to when you first assumed government and after a mini budget, and two full budgets?

Sir Michael Somare: Well, you are already aware that the Kina has gone over the US$0.30 mark, which has been an uphill battle for a while. Our international reserves are at levels of US$500 million or seven months of non-mining import cover. The international ratings agency Fitch has also given an improved long-term foreign currency rating of "B+" and the International Monetary Fund has also given PNG a favorable nod.

During the Australia-PNG Business Council Conference recently, various speakers described our current level of foreign reserves as the highest since PNG attained independence (in 1975). As you are aware, funds from the World Bank and the Asian Development Bank were withheld and Treasurer Bart Philemon's attempts to restore funding have not been forthcoming. So these accomplishments are through our own efforts, especially the stringent controls on expenditure that the Government has imposed since we came into Government in August 2002.

PM: Is the K4 billion 2004 Budget still on track?

Somare: The 2004 Budget is on track. We are maintaining strict expenditure control consistent with our Medium Term Fiscal Strategy. The K4 billion (US$2.4 billion) 2004 Budget comprises K3 billion (US$1.8 billion) for recurrent expenditure and debt serving and K1 billion (US$600 million) for development projects. Our revenue collection in the first quarter performed within projections and indications are that this trend will be maintained throughout the year.

The planned deficit for 2004 is K195.6 million (US$58.7 million) or 1.5 per cent of GDP. The financing strategy involves capping net domestic borrowing at around two per of GDP or K266 million (US$80 million) for 2004. For the domestic borrowing requirement, up to K346 million (US$104 million) will be required. This will be offset by negative non-market financing of K80 million (US$24 million).

While raising external loans to finance important economic infrastructure like the Highlands Highway is an option, we are mindful of the country's total debt position which is relatively high at 70 percent of GDP. I recently asked government officials to explore domestic options, including revisiting the Inscribed Stock Program that was part of the 2004 Budget Strategy, to restructure and reduce government debt. The option of the International Bond Offering is presently on hold due to the strengthening of the U.S. dollar and developments in both U.S. and PNG domestic condition.

We had pursued this option vigorously due to the fact that when we took office, the World Bank had withheld funding on the Highlands Highway Rehabilitation Project and other projects due to conditions of the Forest and Conservation Project, which we are working towards accomplishing.

PM: Where do you see the key areas of growth for the PNG economy?

Somare: My government has identified the economic and infrastructure sectors as requiring priority allocation of resources to lead the recovery process. These sectors are the engine of growth.

As you may know, despite the positive indications of growth in our economy, our cash flow situation is still fragile. (However) this government has managed to improve our country's economic outlook and we have successfully restored confidence in our country's ability to attract investment and reinvestment by overseas and local businesses.

PM: What key areas is the government watching in order to ensure that the economic gains made in the last 21 months are not lost?

Somare: Stringent controls on expenditure is possibly our biggest challenge -- and ensuring that strategic expenditure is made in areas where the government can make more money or collect more money. Aside from that, there is a strong need to ensure that the social services like education, health, policing of law and order, and infrastructure maintenance are not deprived of needed funds.

But we are still on shaky grounds if we ignore political stability. For this reason, we will still be working at legislative changes to our National Constitution that allows a government to govern for 36 months as opposed to facing constant destabilizing challenges every 18 months. This - and other-reforms will enable us to make some savings by tightening up and improving our operations and efficiency, but it will not create new money. I have been appealing to all PNG people to develop their land in partnership with the Government and the private sector. So far the response from landowners throughout the country has been positive.

On our 28th Independence Anniversary celebration in Port Moresby last September, I said that aid from other countries and loans from financial institutions have brought about some positive changes to our ways of life. But they have also created a deep sense of dependency, complacency and huge debts that must be paid. As I approach the end of my political career, I want to use the time remaining to transform PNG from a country dependent on aid into a country whose economy is reflective of the abundant resource that she has. I want to leave behind a legacy of an economically independent country.