In the recent past, the NA led government was boasting about the performance of the economy. Government was running budget surpluses consitently for the past four years. There was no major concerns on inflation, exchange rate remained stable and GDP was growing steadily.

From observation, two factors were the result of this better performance.

1. Structural Changes carried out by the Mekere Government has finally produced it fruits. Sir Mekeres reforms, such as the Central Banking Act 2000 and Banks and Financial Institutions Act 2000. This particular policies gave the Central Bank total independence from any political interference. Consequently, politicians could not put their hands in the operation of the Central Bank, as a result monetary conditions were controlled by the Central bank without and fear. Decisions were based on intellectual debates. Main Objective of Monetayr policy was Price stability, that determine the Bank of PNG's policy path, not politicians. We can attribute the stability of the exchange rate and non-inflationary pressure in the economy to the actions of the Central Bank. On prudential guidelines of the banking system, the Banks and Financial Institutions Act took care of that.

Adding to this stability was the Political Integrity Law, which was passed by the Mekere Government. As a result we have seen for the first time after independence, a government served its full term in office. Consequently, no political pressure from opposition was felt and the government was able to see through its medium term strategies.

2. International price movements were favorable. Crude oil prices have sky rocketed, gold and copper prices have done better. Even the agricultural commodities prices performed better in the international market. As a result, PNGs exports proceeds spiraled. This has resulted in the central bank buying USD from the market, because there was lots of Foreign exchange in the market. Reserve levels of the central bank has sky rocketed to historical levels, and the exchange rate was kept stable. Government revenue from tax collection from mineral exports were substantially high due to higher income earned by the mineral companies as a result of increased international prices. Consequently, government revenues have been boosted, hence continously, the government has been running surpluses.


With the good fortune being realised by the government, the strategy forward as to be of spending money in project financing.

From this expereince that we are seeing, if Papua New Guinea has to move forward and become competitive with the rest of the world, more reforms and infrastructural development are needed in Papua New Guinea. Devlopment based infrastructural development is the way to go. Recurrent expenditure of the government has to be minimised and project financing to build infrastructures and encourage competition in the market is the way to go forward for the next government. If however, infrastructure development and institutional reforms are stalled, and more money is spend on recurrent expenditures, what has been gained so far will be like water under the bridge.

NA government has been preaching about the green revolution but hasnt done anything concrete to support that revolution. Agricultural commodities are not able to meet their desired destination because of poor road, wharf and airport facilities. transportation is a major problem in Papua New Guinea to transport this produces to its destination. If infrastructure is working in PNG, most of this produces will end up in desired markets and hence it will make cashless societies with a few cash, and the village economy will be able to sustain itself. Without good infrastructure, there is no village economy, people flock into the city to seek and economy where they can be able to see fluid cash.

If PNG has to move forward, infrastructure is a major impediment. Law and order and attitudes of PNG people is another issue, but that can be resolved when village based cash economy is provided for by the government of the day.

To be continued........

Thank you Cool_guy1 for the informative analysis of the PNG economy.

I agree that many of the benefits witnessed nows has been derived by reforms introduced by Mekere regime. Somare Government has been riding on the ripples created by the reforms.

Could you comment on the highlights by the Somare Government during the 1st full five year term. The much talked about green revolution has been a disaster.

looking forward to part 2.

Thank you.
kolwan

Continue......

With the manadate given by law to target price stability as the main objective of Monetary policy, the Central Bank has done its job well. Double digit inflation figures prior to the passing of the bill by the Mekere government were brough down to single digits. Double digit interest rates that thrived towards the end of the 1990's and the begginings of the 2000's were brough down to single digits. Exchange rate that has plumeted freely during the late 1990's and early 2000, remained steady and sometimes appreciating.

Since Papua New Guinea has a free floating exchange rate regime, international price movements is a major player to determine the direction of the fluctuation of exchange rate. It was such demand from China and India that has resutled in higher international prices during the past few years. This has filtered through to the domestic economy, with the realization higher export prices and subsequent effect it had on the foreign exchange market. All in all the central banks crucial responsibility to oversee monetary policy has been acheived. Central Banks performance can be commented for during the past 5 years.

As for Fiscal policy, government had a strict control on their budget when Bart Philemon was the treasury minister. Before there were no controls on expenditure, but, when Bart Philemon took over as the treasuury minister he achieved what others have tried to achieve. He finnally brought down a discipline budget, spending was controlled. It was like closing the tap and letting water run into the tank. The tank was full and capable of meeting necessary needs of the nation. As i pointed out earlier, the government has huge tax revenue from the mineral companies because of price increases in mineral products. This was partly the cause of consistent budget surplus.

Governments medium strategy on debt was something positive. This was another initiative of Bart Philemon. His focus was to reduce international debt, which is prone interest rate and exchange rate fluctuations. This is a major component of government budget, and reducing it and not borrowing expensive concessionary and commercial loans by the government is a positive move. The government tried to negotiate with borrowers to payoff the exsiting loans but they could not because there are binding agreements with international donars. Those agreements are legal and loan payment schedules are legally binding, as a result the government could not offset most of the international loans. However, the mere fact that the government tried to offset the loan can be seen as something positive.

Agriculture production remains stagnant in Papua New Guinea. Over the past years, the green revolution solution of the government never realised. PNG grew coffee before even Vietnam started growing coffee. Today, in volume-wise, Vietnam is one of the worlds top coffee growers. It has overtaken PNG and produces large volumes of coffee. Whats the reason? The government made everything possible for the industry to prosper. Coffee volume in PNG has either shrinked or remained stagnant over the years. Whats the reason? there is no attention given to this industry by the government.

Take mining away from PNG, and agriculture is the main back-bone of this country, generating foreign exchange and employing unskilled people in agricultural production. This sector of the economy has been consistently overlooked by most of the governments. As a result, most agriculture commodities havent seen an increase in volume of exports except for Palm Oil. Palm oil is a different story, the company is adamant in developing the commodity and spening millions in research and information, which is a driving force behind the increase in production. Exports have spiraled in the recent past as a result of the company agressively investing in new areas to increase its production.

Apart from palm oil, other commodities in PNG havent done well. The commodity boards are politicised with the appointment of cronies, who walk out with hundres of thousand when they are removed. Lots of policiticians are involved in such industries, not bringing any incentives to the people of the country, but looking for opportunities to drain what ever that is there in those organisations.

So where next? If no notice is given to the agricultural sector as what has happened in the past, then PNG is in for a gloomy future when the mining industry is no longer existant. Mining is enclave in nature and their feed through to the rest of the economy is not that much. Given the current situation where, government is dependent on mineral taxes, a time will come when, there wont be enough foreign currency available to meet import demand, bringing the exchange rate down. This would result in exchange rate and financial crisis ultimately.

Mining is here and gone tomorrow, agricultural products are here to stay. Investing in agriculture is the way forward for PNG, otherwise, the road ahead does not seem promising.

Thank you Cool Guy,

I remember sometime ago, then Minister for Agriculture launched a K100m plan. I don't know if the policy is part of the green revolution framework. I hope it is, if not, we are rest assured that such unconsolidate vision is just like a puff of smoke.

Its very fustrating that people talk colorful and prepared beautiful documents, cermonial launching and fanfare when simple things in life are the foundations to better living. Food, health and education.

Agriculture sector so neglected yet 80% of our people live in rural areas and do farming. Its so simple for our leaders to notice, yet they opt for other extravagant projects.

Land is a very interesting issue and an important one at that I think. In order for whole of PNG to part take in national development, somehow customary land must be considered by financial institutions. Land mobolisation is something that must be relooked at by present government.

RDB story is a positive venture for the people also. I hope they foster easier loan approvals and rates.

Cool.Guy na Kolwan,

Let’s not forget that the NA-led government is the first government to come up with a national development strategy, ie the MTDS and that they were sensible enough to maintain Central Bank independence and endorse Mr. Philemon's belt tightening. He made his own bed in his untimely challenge for the NA leadership.

The lack of development in the agriculture sector can be partly attributable to the political instability that was once a feature of politics in this country. Unfortunately, the responsibility for providing extension services that was once performed by the Department of Agriculture and Livestock was given to the districts but there was a huge lack of capacity and no funding .Once again the National Agriculture Development Plan launched under the NA government will provide a blueprint for agriculture development in the country.

Two issues that need to be addressed are:
1. Capacity - Both in the technical skills of the extension officers and the numbers of people on the ground.
2. Land - We must free the land. NBPOL is also a commercial success because they have got the land use model right(among other things of course). Their model works best because it combines western ideas of mass production and commercialization with Melanesian forms of land use and property rights.

But the enforcement of property rights is a major stumbling block for any investor. Land registration is a step in the right direction but it would be a brave government that would embark upon some sort of National Land Registration Scheme given the unrest it caused in the late 90's and the speculation and misunderstanding that could arise.

Cheers

Wanna Be, very well thoughout points you raised. I dont disagree with you that the Somare Government didn't do much. I salute them for maintaining what Sir Mekere has put up. The Achitect of Economic prosperity seem to remain in the fundamentals. When the foundation is laid down well, realisation of economic growth and development becomes a reality. Economic fundamentals were set out right by Sir Mekere, consequently the path to economic growth and prosperity. Yes, NA has been belt tightening, but, more has to be done, given the huge windfall gained from mineral taxes over the years.

As for Land Mobilzation, the National Research Institute, led by Dr. Webstar and Dr. Yala, were tasked by the then lands minister Dr. Puka Temu to gauge views and expressions on land mobilation. I dont know the current status of it, but you have hit the nail. Land is one of the factors of production. Only about 3% of the land has a 99 year state lease. 97 percent of the land is customary owned, and this task force was set up to look at trying to free up some of this 97% of the land, in collaboration with customary land owners. I dont know the current status.. but land is truely a major issue in PNG. Would be investors are turned off because of land-owner issues.

My hope is, the model used in NBPOL is used all over the country. The idea in NBPOL was a pilot project for the land mobilization committee. Success has come out of this particular project, and i sure hope most parts of the country use the same model.

I still feel that, if the right infrastruture and technical support is provided for to the rural areas, local cash economies can be easily achieved. It does not need a rocket scientist to tell someone about the realities of life. Life has to be made easy by the government, providing all necessary services to enhance life expectancy and create village based economies.