Australian Financial Review Aug 14
Opinion: Helen Hughes

Papua New Guinea has become a dysfunctional state. Per capita income is falling, public services are non existent and robbery, rape and murder occur every day.

At least 30 people were killed during the past month's election. Twice as many people voted as were registered. Yet parliamentarians are taking their seats as if all was well. Several corrupt politicians, who have already absconded with millions, are sitting as members of Parliament instead of in jail. Some are even about to assume parliamentary offices.

Australia is not an innocent bystander. We have contributed to the demise of Papua New Guinea.

Australia was an appalling coloniser, doing too little too late so that a tribal society was totally unprepared for self-government.

The institutions the Australian colonial administration left were inappropriate. The establishment of 19 provincial governments in addition to an overblown central government on the recommendation of the marxist Faber Committee created an enormous fiscal problem. The bureaucracy and Parliament became the paths to personal wealth. Most provincial budgets were stolen. The $1million annual development grant for each central parliamentary member mostly went on "six-packs" for voters.

But the main contribution to Papua New Guinea's problems since independence has been Australian aid. Some $7billion of Australian taxpayers' money has gone to subsidise an urban elite. A significant proportion has been stolen. When the Jackson Committee recommended in 1984, on strong economic grounds, that Australia should cease to write blank cheques for "untied" budget support because little, if any, went to the people, Michael Somare called his "mate" Bob Hawke to complain about this attempt to funnel aid into productive uses. The Jackson recommendations were ignored.

The taxes on Papua New Guinea's mineral output went the way of aid funds. A mineral fund that collected super-profits on mineral output has been emptied. So has the public service superannuation fund. Papua New Guinea's governments not only spent like drunken sailors on projects that lined their own pockets for more than 20 years, they also borrowed abroad. These loans are to be repaid out of mostly indirect taxes, by low income earners.

Mekere Morauta was the first prime minister to make an effort to run the economy for the benefit of the nation rather than enriching himself and his cronies.

Trying to constrain expenditure to revenue (that included large aid inflows), trying to privatise banks, energy, the airline and other public enterprises run hitherto for the benefit of their managers and workers, proved to be incredibly difficult. His efforts were sabotaged at every turn.

The public service trade union benefited from egregiously high wages that were totally inappropriate to Papua New Guinea's level of development. These had famously been negotiated by Bob Hawke. This was a new approach to de-colonisation. Instead of working up the ladder of productivity to higher wages, Papua New Guinea was to start at the top for the privileged few with jobs in the formal sector. The outcome has been predictable. Business has not been able to take off and nor has employment.

In addition to $350 million a year in aid during the past two years, Australia has led a donor's group that provided an additional $500 million for structural assistance. Not even this volume of aid - one of the highest per capita in the world - could halt the decline in per capita income in the face of the sabotage of Morauta's efforts.

When John Howard visits Port Moresby today on his way to the Pacific Forum, he should make it clear Australia will not contribute any more aid on the old basis and will not encourage others to do so.

The World Bank and the Asian Development Bank will never halt old-style aid. Their very existence depends on shovelling out loans which the low income people of Papua New Guinea have to repay.

It is, indeed, up to Australia to take the lead.

Emeritus Professor Helen Hughes is a Senior Fellow at the Centre of Independent Studies. She was the Deputy Chair of the Jackson Committee to Review the Australian Overseas Aid Program.

totally agree