community

Papua New Guinea

Special problems of a highly diversified community

Sir Julius Chan, a former finance minister and later prime minister of Papua New Guinea, cast a somewhat cynical eye over the 1984 budget papers when they were tabled in parliament late last year. He said he couldn’t help but comment on govern ment intentions to “cool down” some sections of the economy. In his view. Sir Julius said, no economy could be cooled down until it was first heated up. “And we have never been in that fortu nate position,” he added.

Through all the changing for tunes of his long political career, one thing can never be taken away from Sir Julius: his record as a finance minister. His con tribution to financial stability and investment confidence and his commitment to a hard currency concept when there were tempt ing short-term alternatives are important in PNG’s modem fi nancial history. The role which Sir Julius played in retaining international confidence in PNG’s financial management is often overlooked, overshadowed perhaps by the dissent which accompanied his later identity as prime minister.

Viewed against this back

ground Sir Julius does himself and PNG a disservice by suggest ing that the economy needs warming up, or that it is unfortu nate economy. The truth is that PNG’s economy, of all Third World and new-nation economies, is singularly well founded and is in a strong posi tion for immediate development.

PNG has a national budget which exceeds $lOOO million, it has a

self-sustaining subsistence

economy for those of its people who are outside the mainstream cash economy, and it has estab lished an extremely successful marriage with outside investment interests. About 27 per cent of its budget revenue comes from an Australian grant in aid, but in today’s climate, and given the relationship existing between the two countries, this is not a weakness. It is providing an as sured and important bridging fund while PNG develops its internal financial resources.

Other credit aspects of the PNG economy are its mineral resources, mainly copper and gold at present. One major mine already operates, a second will soon be commissioned, and there is clear potential for more. The

terms of PNG involvement in the

multi-national mining companies

are good and the relationships are

generally untroubled.

On paper PNG also has a good agricultural potential, but it is very much the victim of the mercurial international com modities market, a situation shared by many countries in the tropical belt. Real agricultural export prices are at present well below the average prices of the 19705. The crop export slump has particularly affected coffee and cocoa, and there is no im mediate indication of recovery.

During the period of Australian administration in PNG the gener al belief was that agricultural exports would provide the back bone of the future economy. Pre sent thinking still attaches big

importance to agriculture, but

there is a continual process of revision on what the crops should be. The recent opening of a PNG sugar industry is part of the new thinking. Another aspect of the new thinking is the development of crops which can save overseas expenditure rather than directly earn money. Ethanol additives for petroleum fuels is one

example.

In summary, rural industry at present is not prospering, but nor is it in disarray. The system of rural production by big estates, once criticised as an arm of col onialism, is proving to be some thing of a salvation. Peasant farming tends to collapse when

the going gets tough. But big

centralised estates are forced to practise new methods and to try new crops and new ideas to ensure survival. They have much more to lose than the peasant farmer or small-holder.

At base PNG has an economy with very sound potential. Polit ical leaders across party boun daries and economic advisers see the real problem as socio economic rather than purely economic. This is not as fine a point as it may appear. An economic seminar at the Univer sity of Papua New Guinea in Port Moresby was once told: “There’s nothing wrong with the money, the stability and the viability of this country it’s how money is spent at home and how it is shared around in a widely diver sified community that causes trouble.”

Andy Vickerman, lecturer in economics at the university, add ed to this when he discussed recently the problems of for

mulating taxation policies. So

many people were outside the cash economy, he said, that PNG had an excessively narrow tax base for the size of its population and the extent of its national budget. This was not an uncom

mon problem among developing

countries, he said, and placed constraints on financial planning.

Prime Minister Michael So mare has acknowledged that the financial, social and cultural dis parities of his country’s three million people create one of the

biggest problems facing his gov

ernment, and the greater part of this problem is composed of socio-economic factors.

The world-wide recession of the past three years has affected the PNG economy, but to a lesser degree than in developed coun tries. Regional economists es timated that PNG suffered a 6 or 7 per cent setback to its overall economic structure as a result of the world conditions. The PNG government believes it has turn ed the comer and that 1984 will see a rise of 4.5 per cent in the gross domestic product. The gross domestic product figure is seen as a particularly important indicator in PNG. This is be cause only part of the community is in the cash economy, and many standard indicators such as employment and cost of living figures are of only limited value in assessing national trends. Af ter 1984 the government believes that the gross domestic product will show a growth rate of about 6 per cent a year. Inflation in PNG, on a number of recent estimates, has been running at 10 per cent and the government be lieves that the overall figure for 1984 will be 9 per cent. PNG’s inflation has been largely a pro duct of external forces, although perhaps not to the extent the government likes to claim.

Finance Minister Phillip Bouraga sees the economy at present as just emerging from a trough which was marked by a drying-up of investment and de cline in export earnings. He told parliament in November: “But now we are poised for a climb to prosperity. As a government we have reached the end of our

expenditure cuts. The founda tions of confidence and stability have been laid, the groundwork is present for a major revival of private investment, and we have created the conditions for recov ery. It is now up to the country to get to work.”

Disregarding the element of

tub-thumping, Mr Bouraga’s

statement describes two impor tant aspects of the PNG

economy. The first is that suc cessive governments (the Chan government as well as several Somare governments) may not have been financially bold but they have created financial sta bility. The other is that PNG’s immediate prosperity is very much dependent on an upturn in the international economy, and given this break the country is likely to enter a period of impor tant financial consolidation.