Prime Minister's new ally - Top Aussie group warns of economic decline under new leadership

Prime Minister's new ally - Top Aussie group warns of economic decline under new leadership

The National, 29 April 2004

By Yehiura Hriehwazi

An influential Australian group has warned that if the Somare-government is changed in a no-confidence motion, it would be replaced by a "lower caliber government".

The Export Finance Insurance Corporation (EFIC) has given the government the thumps-up for providing political stability and good economic management.

However, it said: "One widespread concern is that the government could succumb to one of PNG's frequent no-confidence motions when Parliament resumes in June and be replaced by a government of lower caliber." If that happens, it warned, "the socio-economic decline could well resume".

EFIC said in its latest report that there was now more promising investment and growth outlook in PNG than it was apparent a year ago.

But it said more needs to be done in the areas of law and order, corruption and structural impediments to growth such as exchange controls. It said a good turn-around could happen if the government could start turning some of its words into actions.

The report named Ministers Bart Philemon (Treasurer), Sir Moi Avei (Petroleum and Energy) and Dr Puka Temu (Public Enterprises) as three of the key Cabinet members who, along with their colleagues, have steered the country out of the doldrums. ( Mr Philemon's response / Page 3).

In its report titled "PNG - Back from the brink?", EFIC said: "Recent developments suggest a more promising investment and growth outlook than was apparent a year ago."

Many saw PNG a year ago as "on the brink of collapse". It was showing signs of following its Melanesian neighbour, the Solomon Islands, down the path to economic paralysis, government collapse and social despair. EFIC said the reason for pessimism then was: "Poor fiscal management, corruption, 'hijacked' democracy, high population growth, spreading crime. This all added up to high political risk, which in turn scared away investors. The end-result, not enough new mining and petroleum projects coming through to replace existing dwindling projects despite PNG's vast resource potential. The nation faced a steep income decline - perhaps a halving over a decade - and eroding fiscal and external solvency."

Since then several things have happened to temper this pessimism, it said.

Among them, it said, the government has made a good impression in terms of both broad good "governance" and narrow policy-making.

It said ministers like Bart Philemon, Sir Moi Avei and Dr Puka Temu have been given "high marks" by the business community with the IMF singling out and praising the government's disciplined budgetary policy.

EFIC also said the PNG economy looks as if it grew by 2.5% in 2003 and will expand again this year.

"Though this is less than population growth and partly due to outside factors - better weather and higher commodity prices - it is a marked improvement on the long string of GDP contractions PNG has experienced this past seven years," said EFIC.

It said other indicators also include improved inflation, the interest rates are down, and the exchange rate and foreign exchange reserves are up.

EFIC also praised the new five-year Enhanced Cooperation Program (ECP) between Canberra and Port Moresby.

It said "hope has also begun to dawn that the root causes of PNG's malaise will start to be tackled. The ECP will attempt to tackle these root causes by stressing the importance of building sound institutions such as strong policing and an effective judiciary and treasury".

It said investors have started to commit money, and stated their intention to do more.

It named the Chinese Metallurgical Construction Company's announcement to enter the Ramu Nickel project to take an 85% equity stake and 100% of the output as one major positive indicator for the economy.

Another included Oil Search Limited's renewed commitment to commercialise its vast gas reserves including making PNG-Queensland gas pipeline bankable plus fallback options such as an LNG project, a fertiliser plant, a methanol plant, a compressed natural gas project, or a gas pipeline to Port Moresby.

It said other smaller projects are also coming on-line or going into preparation. They include InterOil's Napa Napa oil refinery, Highlands Pacific's US$30m funding to develop the Kainantu gold deposit, and the construction of the Hidden Valley gold mine which is expected in June.

In the non-mining/petroleum area, Fisheries Minister Alois Kingsley recently stated that tuna industry revenue would reach 1 billion kina p.a. (A$400m, US$300m) within a decade.