PNG On The Brink

Sir Michael Somare’s government has been criticized for its dependence on a resource development strategy. Photo: Samantha Magick

An Australian think-tank has warned that Papua New Guinea faces disintegration unless its government undertakes major political and economic reforms. But most senior PNG government officials and leaders barely looked over their shoulders when Australian National University Emeritus Professor and Senior Fellow at the Sydney-based Centre for Independent Studies (CIS), Helen Hughes, released a damning report in July recommending that the PNG government undertake major political and economic reforms to rescue the country.

Her report, Can Papua New Guinea Come Back From The Brink?, while embracing the PNG government's decision to accept the $A2 billion Enhanced Co-operation Program allowing 250 Australian police and officials to work in PNG to restore law and order and good governance, strongly criticized the government of Prime Minister Sir Michael Somare for continuing to follow a failed resource development strategy, allow illegality to go unabated in the forestry sector, and failing to maintain infrastructure and fund health and education programs.

"Papua New Guinea's low per capita merchandise exports illustrate the failure of its resource-based development strategy," says Hughes, who further argues that the Pacific's largest island nation needed a decade of at least 7 percent annual growth, doubling its income every decade, to bring it back from the brink.

Hughes says that Australian aid to PNG can only succeed in a framework of "mutual obligation." "Australian aid to PNG cannot be open-ended…The Papua New Guinea component of 'mutual obligation' also has to be evident to Australian voters. If components of the aid program are not working, they have to be suspended until performance improves."

However, PNG Foreign Affairs Minister Sir Rabbie Namaliu, who was instrumental in getting the PNG Parliament to pass the Enhanced Co-operation Program and Australia Act 2004, takes exception to Hughes' report, describing it as "outdated and badly ill informed."

"We are given no credit for anything in a paper that contributes absolutely zero to a constructive and informed public debate about the state of the nation today and about our relationship with Australia," Namaliu says. He added that non-Papua New Guineans who read Hughes' report could assume that Australia's $A300 million a year aid program to PNG was sent as an "open cheque" to the PNG government to spend it as it liked.

"Her totally pessimistic doomsday approach is not shared by the World Bank, the IMF (International Monetary Fund), Asian Development Bank or by the major international resource sector and finance companies currently investing in or considering investing in Papua New Guinea," he says.

A situation report by the PNG Central Bank recently on major economic indicators showed favorable economic performance in the first half of 2004, which included a stable (PNG) kina exchange rate, a decline in annual headline inflation to 2.9 percent, increased international reserves to an unprecedented $US550.2 million at the end of June, declining interest rates and sound fiscal management by the PNG government.

IMF deputy managing director Agustin Carstens praised the achievements during a short visit to Port Moresby. He said the Somare Government had reduced the budget deficit by tightening expenditure controls while a prudent monetary policy by the PNG Central Bank helped reduce inflation.

But the PNG deputy Opposition leader Andrew Baing, who will make another attempt with his colleagues to topple the Somare Government through a vote of no confidence when Parliament sits in November, describes Hughes' report as a "wake up call" which the PNG government should not sweep under the carpet.

"Professor Hughes' economic analysis exposes the macroeconomic policy weaknesses of the present government," Baing says, and warns off Namaliu and Treasurer Bart Philemon from rejoicing about PNG's economic recovery when social indicators point to escalating lawlessness, high inflation, inadequate medicine supplies, the rising threat of the HIV/AIDS epidemic and poor infrastructure.