PNG sees better days

ahead and revalues its kina

Papua New Guinea late in July up valued its currency by 5%, which puts the Australian dollar at 5% lower than the PNG kina.

The revaluation is the first move away from parity with the Australian dollar since PNG cut loose from the Australian monetary system just over six months ago.

The Finance Minister, Mr Julius Chan, who announced the revaluation, said the timing reflected an improving trend in world commodity prices, a stronger balance of payments position, and the prospects of rather more buoyant govern ment revenue. These factors taken together meant it now seemed sensible to make a “small currency adjustment,” Mr Chan said.

Mr Chan conceded that primary ex ports, which form a major part of the in come of rural villagers, would suffer slight ly in kina earned. But the government, ob viously, sees the better world prices on offer recently as offsetting this loss. The gains, which the government sees political ly and economically, will obviously be in the purchasing power of the wage-earning

community.

Consumer markets in PNG still rely heavily on imported foodstuffs, fabrics and materials, and most of the country’s in flationary pressures have in fact come from the rising prices of imported basic commodities.

Mr Chan said the government had been keeping down inflationary pressures by restricting its own expenditure. It had ask ed for sacrifices from the community, and

the response had generally been good. It now seemed appropriate to relax the pressure a little, and the government had decided on the 5% upwards revaluation.

He said that although export producers would suffer some loss on market values, he believed their gain as purchasing con sumers would be significant. In any event, the government proposed a compensation scheme for some producers whose contrac tual positions would involve them in losses because of the revaluation.

The revaluation is part of the basic hard currency strategy which PNG announced it would use when it introduced its own currency 15 months ago. Continuation of the policy was announced last December when PNG cut loose from automatic pari ty with the Australian dollar.

Although there are conflicting opinions from a number of sources about the rate of inflation, there seems little doubt that PNG has been fortunate in its first six months of currency independence.

The situation has not required any par ticular financial wizardry on PNG’s part because of the wide range of external fac tors which have been involved. Nonethe less, the overall picture is seen as reflecting a basic responsibility to financial control which should maintain confidence from outside in PNG commerce and investment.

There’s a sneaking tendency to view the revaluation as a heady piece of new nation advertising. This is not to suggest that the revaluation is ill-founded or motivated purely by politics.

Thanks to increases in the world market prices of some tropical products, there’s every reason to believe that the Kina an old tribal word for shells used as currency is now worth the extra five per cent value the government has given it. But the gains and losses involved in the revaluation seem to cancel out so closely, and the political reactions are so difficult to forecast, that the change seems hardly worth the trouble.

The obvious conclusion is that PNG no doubt with justification is keen to assure the world that its currency is sound and that its management is good. “Only 10 months of political independence, and look where our currency is already,” is the theme of the message.

The opportunity to upvalue within a mere seven months was too good to miss for a new nation seeking to es tablish its reputation. In addition, the fact of being able to call the tune would appear to have ranked high in the government’s decision.