Culture, national interest & identity in foreign policy
PNG celebrates 37th anniversary of independence

O’Neill: Scooping a K6 billion loan for a K500 million deficit

SAMUEL ROTH | Foreign Affairs Commentary

THE UNITED STATES GOES TO THE POLLS in November when President Obama’s leadership will be challenged by Republican Mitt Romney. Will the non-white president survive his second term?

What stands out in every American’s mind is the economy, the pivotal issue in this year’s election. Should he lose this election in a multiracial society, Obama’s only legacy may be that he was the first black president.

The US federal government yesterday bought debt and pumped in more money to boost the economy. And this week the Obama administration did well with positive opinion poll results. But there is weak growth in manufacturing and jobs’ growth missed expectations.

In Papua New Guinea, the K500 million budget deficit in the O’Neill-Dion government gives the new prime minister a taste of time. A good number of people have commented critically about why a deficit of that magnitude. Some have blamed it on commodity prices, while others on over-spending before the election by the O’Neill-Namah government.

The reason for pointing this out is not because we have a deficit to worry about but we are amazed that the PM is looking for a K6 billion loan from the Exim Bank of China. Is this loan a solution to patch up the deficit or is it to honour commitments to all the ground-breaking ceremonies and promises that the government has made over the recent months?

No loan is free, as the saying goes, but I like this quote from one of my favourite Hollywood actors, Chris Tucker, in one of his movies: “You loan your friend money. You see them again, they don't say nothin' 'bout the money. 'Hi, how ya doin'? How's ya mama doing?' Man, how's my money doin'?”

This actor reminds me of the tough times PNG went through juggling privatisation, land mobilisation, the 2001 UPNG protest deaths, and all the crap about the 1989 World Bank/IMF loans that drive third world countries like ours crazy.

Our debt is said to be around the K14.6 billion mark, which is 45% of GDP, and that is phenomenal.

One could imagine how stressful it will be to repay such a hefty debt. We are paying about K440 million in interest every year. Fortunately we have 7-8% annual economic growth. Do we have other workable solutions to meeting the deficit?

India this week raised its fuel prices by 14% to meet its budget deficit of $34 billion. India is the third-largest economy in Asia and many people fear this policy could hurt overall economic growth in India, which is already struggling with slow growth, inflation and currency weakness.

How many Papua New Guineans would accept such a sudden fuel price hike? I guess none. Then the question, where do we get the money to meet the K500 million deficit?

Malaysian prime minister Dr Mahathir Mohammad sacked his deputy, Anwar Ibrahim, for supporting the IMF’s conditions and directions at the height of the 1997 Asian Financial Crisis. He did not like the IMF intervention.

Instead, Dr Mohammad initiated a series of bold infrastructure projects: the Bakun electricity dam, the soaring Petro Towers and others that remain the cornerstones to Malaysia’s advance today. Mohammad improved the economy much faster than any other Asian country and rescued it.

He was Asia’s economic and political mastermind who set Malaysia on track for progress. Now Malaysia is considered as a member of the NIC (newly industrialized countries) – a step PNG can only dream about.

Some countries, like Malaysia, are cautious when it comes to loans or raising debt. They just tell IMF or Exim Bank, “Go to hell with your loans and conditions”.

Others, like the US and PNG, which have extreme internal disparities, seek more loans and become indebted. The key commonality between the US and PNG is that both are on the creditor’s list in Beijing’s Exim Bank. The US owes China $1.17 trillion and PNG now intends to add to its own mushrooming debt.

It boils down to rationality and pursuing the national interest. Sustained growth is a requirement to produce change on the ground.

Will the O’Neill-Dion government manage its debt without the need to borrowing more from international financial institutions and banks? No Papua New Guinean in this hype-filled Independence Week would want to feel indebted and “owned” or even “tamed” by foreign lenders.

Have we run out of ideas on economic and fiscal management? We should close parliament after the Independence celebrations and let the NEC attend a short course on the above. I will put my hands up to run the short course.

Happy Independence Day!


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Zenitram Dee

Definitely it is very true, I agree with Bernard Yegiora.

There must be workshops and short courses about the stated subjects to increase the knowledge of the parliamentarians especially.

Otherwise, instead of bringing PNG forward, they will put on a backwards march!

Tony Flynn

Thanks to Zenitram Dee for bringing up Malaysian prime minister Dr Mahathir Mohammad.

His brilliant ideas included a religious surcharge on all businesses owned by people who did not belong to the state religion.

All businesses have to be substantially owned by ethnic Malaysian citizens. The percentage, I believe, has been recently reduced.

You can appreciate the enormous difference these two alone would make in PNG. Christianity could be made our official religion and receive this type of assistance.

There is absolutely no hope of it happening given our leaders weak record in failing to reserve businesses to PNG citizens.
Cottage industries are for us, such as shoe repairs etc.

Zenitram Dee

Many Papua New Guineans are saying that they want young and vibrant leaders. They have the trust in them - like O'Neill - to move the country forward, to come out of the old ways of handling the country, to come out of dependency syndrome.

But now it seems that the young and vibrant leaders are not being creative and coming up with a new approach of really developing the country through self-reliance.

I hope O'Neill takes the same brilliant approach that the Malaysian prime minister Dr Mahathir Mohammad took instead of looking for loans that have strings attached to it.

Most of the time we boast about being rich in natural resources,if all the money made from them is put into good use I think we won't look for loans that will leave PNG in debt for years.

It is also very clear to all the living creatures in this land of the unexpected that most of the money have been use in a short period of time especially during the election period for political gains, thats why O'Neill runs out and needs more to run the country.

And it is also a shame because that money used by his recent government is the money the government before him has made and he should use it on purpose and wisely.

Is the new and vibrant leaders being boasted about before the recent National Election will really establish new approach to really bring development into the lives of the people and the country?

Truthfully, if O'Neill and the troops continue to be a puppet or the bargaining chips it will slow down the development of this young 37 year old man.

David Kitchnoge

Thanks Samuel.

I remember reading in the press about a trip to China before the general elections by Francis Awesa the then Minister for Works to initiate discussions on this loan. So I'm not sure that it took at "whistle blower" to make this known to the public.

There is some correlation between future mineral revenues and such key infrastructures. At the risk of being too simplistic, the basic premise is that we can't have a project if we don't have the infrastructure to support it. And no project means no future revenues. So it does make sense in my mind that the funding could be tied to such future revenue streams.

But I still would like to know a little bit more about the loan and its terms and conditions including the extent of the involvement of Chinese contractors (their version of Boomerang) and whether the fact that a great proportion of their loan money will return to China via these contractors had been considered in structuring the loan such that we are not penalised more than we should.

Samuel Roth

Yes, David, I was well aware of the "intended purpose" of the loan as stated in recent media - to rescue the falling infrastructure including the Highlands Highway. That is bravo!

The question here is; why were all these kept secret until a whistle blower announced that PNG government was after a loan at a time when the budget deficit was announced?

The loan and the deficit directly do not relate very much but my commentary was intended to stimulate discussions on how countries, including PNG, have struggled to meet deficits, instill economic stimulus packages, etc.

The falling infrastructure does matter as much as the stressful loan repayment. Keep in mind that we already have outstanding debts in billions and projecting repayments from future revenues is just like "counting the hens before they hatch". Is this too much for an expectation?

My belief is that out of the many financial institutions across the world that provide concessional loans (with low interests and grace periods), the Chinese Exim Bank is a better choice that O'Neill has opted for. I congratulate O'Neill on that.

However, I agree with the theory that Diplomacy and Negotiations are, in most cases, kept secret until good things happens to deals. In this case, the cat was let out of the bag before the good things could actually happen.

Funny diplomacy.

David Kitchnoge

I think the proposed Chinese loan is required to urgently rescue some of our key economic infrastructure assets such as the Highlands Highway and not to cover the budget deficit as insinuated here.

Regardless of the pros and cons of a borrowing of such a magnitude, one thing is for sure: that our key economic infrastructure is in urgent need of repair.

So I have no particular qualms about looking for money (I don't care from where!) to get these fixed quickly.

I hate to imagine the "opportunity costs" of allowing this key economic infrastructure to collapse completely.

My feeling is that the Chinese loan would be secured against future revenues from the resource projects.

I can see the importance of the loan but its magnitude warrants careful consideration of all factors concerned before committing to it.

O’Neill must not rush this. Its full terms and conditions must be disclosed and debated properly before we accept the first yuan of this lending from Beijing.

I know the Chinese have a habit of being secretive but we owe it to ourselves to openly talk about it and understand its implications fully before committing ourselves to it.

Christine Hufantoui

Can these politicians come up with some bright ideas about how to run this country rather than borrowing as the solution for PNG deficit?

It is a shame to see such leaders who promote anti-corruption and yet cannot stand up with their words. They are like hypocrites, saying one thing but behave otherwise.

My question is where are those highly educated PNG economist going? Why can’t they help with some of their economic ideas?

37 years of independence and yet we are borrowing more and more to repay the sins of those politicians and blaming the name of this unique country.

Leaders should not use the name of their county for their self-interest when dishing out cash...It is about time that those politicians must appreciate wisdom of God and use things wisely.

Our nation will perish one day if we continue to neglect the wisdom God given us. As the saying goes, people perish because of lack of wisdom and knowledge.

It is about time that those politicians must do things with wisdom and not with their ego.

Please any capable Papua New Guineans out there who can provide short course on fiscal management as Mr Roth suggested, please can we do something for those arrogant politicians. They definitely need some training.

Tony Flynn

Does this huge Chinese loan fit in with the method of indebtedness laid out below and will PNG be forever be in the hands of China?

Put Chinese names instead of American ones. With an enforced choice between America and China I would take America. Americans are not going to compete and take over the SME's the way that Chinese are and will. We would retain at least the lower levels of business.

This is an excerpt from "Confessions of an Economic Hitman" by John Perkins....


Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars.

They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign "aid" organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet's natural resources.

Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization. I should know; I was an EHM.

I wrote that in 1982, as the beginning of a book with the working title, "Conscience of an Economic Hit Man".

The book was dedicated to the presidents of two countries, men who had been my clients, whom I respected and thought of as kindred spirits — Jaime Roldos, president of Ecuador, and Omar Torrijos, president of Panama. Both had just died in fiery crashes. Their deaths were not accidental. They were assassinated because they opposed that fraternity of corporate, government, and banking heads whose goal is global empire.

We EHMs failed to bring Roldos and Torrijos around, and the other type of hit men, the CIA-sanctioned jackals who were always right behind us, stepped in.

First, I was to justify huge international loans that would funnel money back to MAIN and other U.S. companies (such as Bechtel, Halliburton, Stone & Webster, and Brown & Root) through massive engineering and construction projects.

Second, I would work to bankrupt the countries that received those loans (after they had paid MAIN and the other U.S. contractors, of course) so that they would be forever beholden to their creditors, and so they would present easy targets when we needed favors, including military bases, UN votes, or access to oil and other natural resources.

My job...was to forecast the effects of investing billions of dollars in a country.

Specifically, I would produce studies that projected economic growth twenty to twenty-five years into the future and that evaluated the impacts of a variety of projects. For example, if a decision was made to lend a country $1 billion to persuade its leaders not to align with the Soviet Union, I would compare the benefits of investing that money in power plants with the benefits of investing in a new national railroad network or a telecommunications system.

Or I might be told that the country was being offered the opportunity to receive a modern electric utility system, and it would be up to me to demonstrate that such a system would result in sufficient economic growth to justify the loan.

The critical factor, in every case, was gross national product. The project that resulted in the highest average annual growth of GNP won. If only one project was under consideration, I would need to demonstrate that developing it would bring superior benefits to the GNP.

The unspoken aspect of every one of these projects was that they were intended to create large profits for the contractors, and to make a handful of wealthy and influential families in the receiving countries very happy, while assuring the long-term financial dependence and therefore the political loyalty of governments around the world.

The larger the loan, the better. The fact that the debt burden placed on a country would deprive its poorest citizens of health, education, and other social services for decades to come was not taken into consideration.

......the deceptive nature of GNP. For instance, the growth of GNP may result even when it profits only one person, such as an individual who owns a utility company, and even if the majority of the population is burdened with debt.

The rich get richer and the poor grow poorer. Yet, from a statistical standpoint, this is recorded as economic progress.

Peter Kranz

Consider the words of the great Will Rogers. "The problem with practical jokes is that sometimes they get elected."

And... "A fool and his money are soon elected."

A wise man.

Bernard Yegiora

Like the humour towards the end.

I guess no MPs will turn up for such a short course because of their ego. As MPs they should know everything, that is the dominant perception in PNG.

Then again, with the new breed of MPs like the Governor for Oro Province and others, it might be possible.

The parliament or the government should conduct more monthly workshops and short courses about international politics, state of the national economy, decentralization, function of mainline government agencies and other issues for parliamentarians to build capacity.

It is a fact that not all the parliamentarians are university graduates, as such, through such workshops and short courses we can improve and increase their knowledge.

Thank you Samuel.

Frank Daosak

Adding more to our debt will definitely not will advance us as a nation. How can the O'Neill government borrow more than the national budget? There's no sense in that.

We will become beggars and slaves in our own land if that's the way the government wants to progress this nation.

Flinstone Segeben

Peter O'Neil should come out and clearly tell Papua New Guineans the terms and conditions of the loan he would be drawing from China's Exim Bank.

I am just wondering if the issue should be debated in the Parliament before he attempts it? Can anyone anyone shed some light on this?

Leonard Roka

What liars we have in the Waigani parliament who are turning PNG into a cheap prostitude...

Honestly, I don't see any room for change.

Joe Wasia

I totally agree with you, Samuel. That's nice and well constructed commentary. With you mate.

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