By Mark Forbes, Foreign Affairs Correspondent Canberra

Papua New Guinea, Australia's closest neighbour and largest aid recipient, is close to a terminal breakdown that would threaten Australia's interests, security and international reputation.

Chaos is spreading, with the Government having lost control of parts of the country, corruption is rampant, the economy stagnant, law and order broken down and the social safety net disintegrating, a report says.

The Centre for Independent Studies will release the report today. PNG Institute of National Affairs director Mike Manning co-wrote the report.



The report calls for a fundamental review of Australia's policy and aid program, and says that Australia would have to intervene if PNG collapsed.

Australia's recent "hands-off" approach to PNG has failed and the $28 billion in aid pumped in since independence in 1975 has contributed to the nation's problems, the report says. "Australia will not be able to ignore any fallout," it says. "There is no exit strategy as far as the neighbourhood is concerned."

PNG cannot effectively monitor and defend its land and sea borders, presenting a convenient base for criminal and other operations inside Australia. "Should PNG's downward spiral continue so that it unarguably becomes a failed state, it could attract transnational criminals, people smugglers, drug and arms traffickers and terrorists," the report says.

The country also faces a "demographic time bomb. Economic growth is negligible so that the country is going backwards. Job creation is totally inadequate."

Growing numbers of unemployed young in the cities is causing social breakdown and escalating crime. "The extent of lawlessness scares off investors and tourists, reinforcing a downward spiral whereby no jobs are created and law and order get worse," the report says.

"This decline is accelerating. In the past, PNG has always muddled through despite grim economic conditions and dire prognoses because people could fall back on subsistence farming and local markets to survive. But this social safety net now appears to be disintegrating under the impact of crime, which has spread to villages."

The central government was corrupt, lacking legitimacy and authority. "PNG is becoming close to ungovernable" and risks degeneration into a patchwork of local fiefdoms, the report states.

"The Government appears to have lost control of parts of the oil-rich Southern Highlands, which are contested by strongmen and criminals. This chaos is spreading to other parts of the country."

Australia would be expected to resolve the problems created by PNG's collapse, the report says.

Australia must rethink its relationship with PNG and consider radical options such as withholding aid funds until corruption is addressed.

"A more activist approach might involve sending teachers, doctors and policemen rather than short-term consultants and advisers."

Generous Australian aid of more than $400 million a year had entrenched a "handout mentality" and encouraged irresponsible policies.

By ROBERTA MANCUSO and AAP

A REPORT saying Papua New Guinea is on the brink of collapse and will drag Australia into its fallout has been rejected by Townsville Mayor Tony Mooney and local developer Geoff Plante as sensationalist and untrue.

The Centre for Independent Studies report said PNG could degenerate into a state of lawlessness like the nearby Solomon Islands.

And Australia -- as neighbour and PNG's largest aid donor, providing $351 million this financial year -- would be dragged into the fallout of the collapse, it said.

The report came as the Australian Democrats warned that the nation's attention was being diverted to helping the United States in a war on Iraq, while an "arc of instability" surrounded Australia.

This took in Indonesia, Papua New Guinea, the Solomon Islands and Fiji.

Cr Mooney said the centre's report was a "massive overreaction" and that the North would continue to do business with PNG.

"We've had a long term relationship with our sister city Port Moresby, and while I don't deny that the city has its fair share of problems, I see no reason to discontinue our relationship with them," he said.

"It is vitally important for the North Queensland economy that the relationship is maintained because North Queensland is a major beneficiary of investments and there is no reason why that should stop."

He said the city had a council employee exchange program with Port Moresby and was working on a major environmental project with the country.

Plante and Associates' principal architect and project manager Geoff Plante, who has been commissioned as a consultant and project manager by a range of entities in PNG, said the report was a "less than informed opinion".

"Generally the country is in difficult times but there is great opportunity in PNG," he said.

"Certainly our work there has not been diminished and I think that PNG does have challenges like a lot of Pacific islands, but I think with time and with cautious investment that the rewards are there for both them and for investors."

The report said mining revenues and generous aid had been siphoned off to subsidise the lifestyle of a small group of business and political leaders at the expense of investment in roads, education and health.

It claimed PNG's government appeared to have completely lost control over oil-rich areas in the southern highlands, which were now ruled by criminal gangs.

Violent crime rates were soaring, law and order had broken down and the country could not monitor and defend its land and sea borders, the report said.

Australian Democrats' Senator John Cherry said yesterday the Federal Government was ignoring human rights abuses on Australia's doorstep in favour of helping the United States in a war over Iraq.

Australia was pressuring the government of Papua New Guinea into forcibly deporting 400 asylum seekers back to Papua, where most of them faced certain death within 24 hours at the hands of Indonesian militia groups, he said.

The Australian March 12, 2003

WITH the impending war on Iraq and growing tensions on the Korean peninsula understandably dominating media headlines, economic decline and government collapse in Australia's closest and largest neighbour, Papua New Guinea, is being ignored at our peril.

The threat that PNG could become a "failed state" suggests that Australia needs to rethink its relationship with PNG now to avoid high costs in the future. The alternative is the prospect of Solomon Islands style disintegration, but on a much larger scale.

Two issues are at stake. The first is Australia's security. PNG cannot effectively monitor or defend its land and sea borders, nor control parts of its territory. A drugs-for-arms trade is growing across the Torres Strait while terrorists could take advantage of PNG's turmoil to establish operations on our doorstep. The potential for a flood of uncontrollable immigration poses both a health and security risk given the alarming rates of HIV/AIDS infection in PNG.

The second, no less important, issue is the further impoverishment of PNG's five million people, expected to increase to 10 million by 2025.

Living standards have barely improved since independence. PNG per capita income (in 1998 dollars) has risen from $1200 in 1975 to $1310 now, a mere increase of $110 per head. The country's mineral wealth – gold, copper, oil and natural gas – has turned out to be more of a curse than a blessing. "Windfall" mining revenues, and more than $12 billion in Australian aid alone, have subsidised a small urban-political elite at the expense of roads, schools and health facilities in rural areas where most people live. Many villagers are now worse off than they were 20 or so years ago. Infant and maternal mortality rates are closer to some sub-Saharan African countries than to Asia-Pacific nations.

This decline is accelerating. Population growth is high but economic growth is negligible so that the country is going backwards. Unemployment is about 40 per cent. The number of young people without formal jobs is appalling, leading to demoralisation, social breakdown and escalating levels of so-called raskol crime, particularly in urban areas. The extent of lawlessness scares off investors and tourists, reinforcing a downward spiral whereby no jobs are created and law and order get worse.

In the past, PNG has always muddled through despite grim economic conditions because people could back on subsistence farming and local markets to survive. But this social safety net is now disintegrating under the impact of crime, which has spread to villages. Gardens and houses are no longer safe from thieves, while villagers are robbed taking their coffee to market. The resulting hardship is taking a heavy toll on traditional village life, fuelling urban drift. Democracy has been hijacked by those responsible for, and benefiting from, what former prime minister Mekere Morauta called the "systemic and systematic" corruption of public institutions. Some exemplary prosecutions for high level graft would help restore legitimacy to government, but the legal system seems incapable of bringing either small or large crooks to justice. Raskols at the street level mimic the corrupt behaviour of political leaders, enriching themselves through theft and operating with relative impunity. When criminals and corrupt politicians go unpunished, people lose respect for state laws and the authority of central government collapses.

Australia will not be able to ignore any fallout. A fundamental review of our policy towards PNG is urgently needed. It is clear that the longstanding "hands-off" approach of respecting PNG's sovereign right to make its own choices by supporting its development since independence through generous aid has not worked in spite of AusAID's best efforts.

Little development has taken place. The dilemma is that more intrusive options – such as withholding funds until corruption is addressed – may adversely affect Australian interests and are bound to attract charges of callousness and "neocolonialism" on both sides of the Torres Strait, as well as stiff opposition from those with a personal stake in the status quo.

But the deteriorating condition of PNG and Australia's obligations with respect to it are too important for debate to be inhibited by tagging alternative policy directions as "recolonising" PNG and continuing with more of the same.

Australia has a responsibility to help because it is best placed to do so and because PNG's well-being is in our self-interest. If for a lack of imagination or willingness to address hard issues PNG sinks into terminal decline, we will not be able to quarantine the consequences. There is no "exit strategy" as far as the neighbourhood is concerned. Susan Windybank is editor of Policy, the quarterly magazine of the Centre for Independent Studies. Mike Manning is director of the Institute for National Affairs in Port Moresby. This is based on a CIS paper, Papua New Guinea On the Brink, released today.