Top PNG banks

push for realism

BANKING leaders in Papua New Guinea are trying to inject an element of realism into the country’s economic decisionmaking. Two of the country’s top bankers, representing both the central bank and the largest trading bank, have criticised basic econ omic strategies, particularly the kina devaluation and the country’s high wage structure which makes it uncompetitive with other Third World nations.

The more forthright was the managing director of the nationally-owned trading bank, the Papua New Guinea Banking Corporation, Sir Mekere Morauta, who said publicly what many business people and officials in Port Moresby have been thinking for some time: that last year’s 10 per cent devaluation of the kina was a bad mistake. The devaluation, intended to help producers of coffee, cocoa, palm oil and copra - all suffering a decline in world prices - in fact did more harm than good as more prices of all imported good shots up. The benefits it brought were soon undermined by further drops in world crop prices.

PNG relies heavily on imports for much of its daily supplies, including food, clothing and fuel. Morauta said the currency adjustment, instead of restrict ing imports, forced prices up by more than 40 per cent in many cases.

“In theory, prices should have gone up by 10 per cent, but people used the devaluation as an excuse to make more money.” He said small wage earners were hard hit. “It nearly killed them.”

Mortauta said Papua New Guinea was too dependent on imported food to make price increases bearable, and the country had to become more self-sufficient.

Successive governments since indepen

deuce have seen rural development as the cornerstone of economic policy, both because it is the only realistic source of large-scale employment and also to keep too many from drifting to the towns and joining the ranks of the unemployed and criminal classes. This worked well while export agricultural commodity prices stayed high, but the reliance on just a few crops has proved a liability in the current slump.

Industrial development, other than some import substitution, is not on the cards simply because factory workers get paid several times more than their Asian counterparts, and the cost of transport and energy is extremely high.

The governor of the Bank of Papua New Guinea, Sir Henry Torobert, said recently that the country was being priced out of the international market by the economy’s high cost structure.

He said efforts were needed to improve the country’s infrastructure and lessen the dependence on a few crops.

Torobert called for value-adding to forestry, agriculture and fisheries which would absorb the unemployed and growth in the size of the work force.

The central bank’s quarterly report shows employment- in the non-mining private sector dropped six per cent in the first three months of 1990. □