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Papua New Guinea is set for costly & unpredictable poll

Election day (Development Policy Centre)JONATHAN PRYKE | Nikkei Asian Review

PAPUA New Guinea is about to start its ninth general election, with voting taking place from tomorrow to 8 July, followed by counting over subsequent weeks. The coalition government led by prime minister Peter O'Neill enters the election under siege, facing battles on political, legal and economic fronts.

From the outside, O'Neill looks to be in a strong position. His government holds a significant majority in parliament, and the opposition is fractured. However, alliances in Papua New Guinea are often unstable, and the result of the election is far from certain.

O'Neill, then treasurer, wrested power in 2011 from long-serving prime minister Sir Michael Somare, widely known as Papua New Guinea's "Grand Chief." The country was starting the construction of its largest natural resource project, a $19 billion liquefied natural gas project that was expected to transform the nation's economy.

Anticipating overflowing coffers, the government made bold expenditure commitments, including free education, free healthcare and a massive decentralization program. The expected windfall from the project even emboldened the prime minister to make a dubious deal to acquire a stake in Papua New Guinea's largest company, Oil Search, an oil and gas explorer that has a stake in the LNG project.

The government also committed to hosting the Asia-Pacific Economic Cooperation leaders' summit in November 2018. The summit, which will attract thousands of delegates and journalists, will be the largest conference gathering ever held in Papua New Guinea.

O'Neill thought he could have it all, and had commodity prices remained at historic highs he might well have been right. Instead, the resources-dependent economy was hit hard by the collapse of global commodity prices at the end of 2014.

The dramatic fall, combined with record deficit spending, has left the government in an untenable fiscal situation, worsened by an overvalued exchange rate -- a result of central bank policy propping up the domestic currency -- that is choking private sector investment.

Government revenues per capita have collapsed to 2004 levels after adjusting for inflation and population growth, and are expected to remain low for the foreseeable future. The government has responded by slashing its budget, but has protected major expenditure items, resulting in deep cuts to essential services.

It is easy to see how all of this could have worked out better for the government. The economy was hit by the global downturn at the worst possible time, only two years into the government's five-year term. But the government has not done itself many favors in the sluggish way it has responded to its sudden reversal of fortune. Whatever advances the government has made during its five-year tenure have been outweighed by unforeseen and unnecessary backward steps.

Other cracks have formed around O'Neill. Numerous allegations of corruption came to a head last year with student protests that ended in violent clashes with police. Corruption has become a lightning rod for broader frustration about the country's problems, which goes far beyond the actions of the prime minister. But the allegations have distracted him from the task of managing Papua New Guinea's weakened economic position, especially as the election approached.

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