Without major reform, foreign loans won’t rescue PNG economy
27 August 2019
STEPHEN HOWES | DevPolicy Blog
CANBERRA - Media reporting of Papua New Guinea’s efforts to access foreign loans to finance the government’s budget has been far from accurate or complete.
But the efforts themselves are real. And they pose significant challenges for both the country’s suitors, China and Australia, and most importantly for PNG itself.
As reported in official PNG documents, PNG has been trying to obtain a loan from China since last year. The government is seeking K1 billion from China’s National Development Bank.
In principle agreement was reached at APEC last year, but the deal is still not yet done. The sticking points are the interest rate, and that China normally lends for projects, whereas PNG wants the money not be earmarked.
It needs the loan to pay salary bills and interest. Given the length of time the negotiations have taken, it is not clear when or indeed if China will come to PNG’s aid.
It’s not that China never provides non-earmarked budget support, but it is certainly the exception rather than the rule. Given the difficulties PNG is experiencing in obtaining K1 billion from China, talk of China refinancing PNG’s K27 billion of government debt is fanciful.
What about Australia? Australia used to provide all its aid to PNG as budget support but that was phased out over the 1990s and discontinued by about 2000.
PNG asked Australia to reconsider budget support in 2017. Australia said no then. That Australia has responded more positively this time round shows how things have changed.
Australia, like China, is not predisposed to providing budget support, but does have a history of helping out at times of crisis – for example, during the East Asian crisis of the late 1990s.
But Australia doesn’t go it alone. We get in behind an IMF or World Bank program, and that’s where the problem starts for PNG.
PNG is actually on a World Bank program, the first instalment of which was disbursed last year. But that program is badly off track.
One of the main conditions is that PNG’s deficit (technically, its non-resource primary deficit) is meant to be falling. In 2018, the year in which the Bank program was negotiated, that deficit measure was meant to fall to 1% of GDP. Instead, it increased from 1.6% in 2017 to 2.8% in 2018.
Another key target is that the salary bill should not increase by more than 5% in any one year. Last year it increased by 19%. Some of this was the payment of salary arrears, but even taking arrears out, it was a double-digit blowout.
However sensitive Australia is to China’s influence, there is simply no way that Australia would move forward with lending to PNG while the latter was in non-compliance with its World Bank program. That would undermine everything we say about the importance of multilateralism.
Indeed, one would hope that the same thing is true of China. After all, China is also an important shareholder in the World Bank.
The PNG government is certainly facing a difficult fiscal situation.
With revenue weak, it needs to borrow. But, more importantly, it needs to get serious about reform.
This does not only mean improved fiscal performance. The underlying problem is the lack of economic growth.
Reforms need to be put in place to address what the new PNG prime minister has called the “bleeding and struggling” economy, and what his new Treasurer has more diplomatically termed “very subdued domestic business conditions.”
Australia’s foreign minister Marise Payne has said that “the new government [of PNG] is looking at a comprehensive reform program.” That’s encouraging. Perhaps after yesterday’s Australia-PNG ministerial forum we’ll know more.
Comprehensive reform would unlock funding from numerous sources, not only Australia, but also, importantly, the International Monetary Fund. Without it, new foreign loans are not only less likely but also unlikely to make a difference.
Apropos the question about why we these travesties occur...,.
Years ago I wrote a poem about the intertwining of the promises of false gods with the deceiving ways of the devil, ...or something along those lines.
It wasn't a very popular subject but it has a few lines that could be considered as contributing factors to the latest economic developments. :-)
It is some type of verse, of dubious rhyme or reason and the title is meant to be ironic.
The devil made me do It.
he guides my hand,
and hardens my heart,
he dazzles me with clever inventions,
he tells me I have good intentions,
and that my friends, is just for a start.
he is the the cosmic up-ender of the rhythm of life,
he is the unforgiving world of nature,
the diabolical disruptor of the familiar,
that lays us low,
that brings us undone.
he is the all consuming fire,
the destructive tempest,
the desiccating wind,
the capricious drought,
the merciless expanse of the sea,
he is the pitiless stare of the desert sun,
the moon induced madness,
the star that heralds dog days,
the bolt out of the blue,
the jolt that upsets the apple cart,
he is the rain of rocks,
the blinding dust storm,
the scouring flood,
the sterilizing salt,
the shifting sands of the desert.
he is the brooding mountain,
the forbidding forest,
the sinister hinterland,
the unchecked bloom,
the overwhelming imbalance of the plague,
he is the stealer of immortality,
the minefield of the trickster,
the icy countenance of contempt,
the corrosion of hatred,
the demoralizing derision of the disparager.
he is the wrenching hand of death,
the pain of separation,
the devastation of betrayal,
the corrupting dividend of power,
the shallowness of obsession,
he is the gnawing pangs of famine,
the mimetic fear of exclusion,
the enchantment of beauty,
the assurance of the secret,
the smugness of the loop.
he is the divisive power of mammon,
the snaring allure of the painted face,
the the disappointment of the false prophet,
the obliteration of the triumphant,
the civilization rending blowback of aggression.
he is the invigoration of the gun,
the invincibility of the shield,
the smoking power of the powder,
the slender columns in the desert,
the complacency of the high walls of our redoubts.
he is the alienation of modernism,
the dispossession of the machine,
the heartlessness of efficiency,
the false promise of science,
the heartbreak wrought by idealism.
he is the twister of the story,
the dismisser of allegory,
the paralysis of superstition,
the ignorance of literalism,
the diabolical distorter of the truth.
he is the mesmerizing spectacle,
the sly assurance of the media,
the herding of the advertisement
the escaped goat of enchantment,
the satisfaction of gossip,
he is the destiny stealing lie,
the loneliness of selfishness,
the disruption of sorcery,
the demoralization of doubt and confusion,
the deluded rejection of mystery.
he is the debilitation of excess
the mischief of imposture
the straitjacket of conformism
the power of maliciousness
the empty promise of progress.
he is the exploiter of patience,
the weakness of the flesh,
the destruction of innocence,
the fetid swamp of confusion,
and last but not least,
the slavery of the personification of the devil.
Many of these things can, depending on one's perspective, be a blessing or a curse, for example machines can also banish much drudgery, so context is important.
The last line refers back to the title and how we are reluctant to take responsibility when we find we may have become the devil's useful idiots, so to speak.
And the line, he is the stealer of immortality, refers to a story about how a snake stole the herb of eternal life from Gilgamesh when he took a nap under a date palm on his way back from visiting Utnapishtim in the land of rivers, ...it's a long story :-)
The original version is here:
http://niqnaq.wordpress.com/2009/08/09/the-germs-of-gnosticism/#comment-6579
Posted by: Michael Lorenz | 07 September 2019 at 09:16 PM
Apropos the question about why we have to endure these travesties..., years ago I wrote a poem about the intertwining of the promises of false gods with the deceiving ways of the devil, ...or something along those lines. It wasn't a very popular subject but it has a few lines that could be considered as contributing factors to the latest economic developments. :-)
It is some type of verse, of dubious rhyme or reason and the title is meant to be ironic.
The devil made me do It.
he guides my hand,
and hardens my heart,
he dazzles me with clever inventions,
he tells me I have good intentions,
and that my friends, is just for a start.
he is the the cosmic up-ender of the rhythm of life,
he is the unforgiving world of nature,
the diabolical disruptor of the familiar,
that lays us low,
that brings us undone.
he is the all consuming fire,
the destructive tempest,
the desiccating wind,
the capricious drought,
the merciless expanse of the sea,
he is the pitiless stare of the desert sun,
the moon induced madness,
the star that heralds dog days,
the bolt out of the blue,
the jolt that upsets the apple cart,
he is the rain of rocks,
the blinding dust storm,
the scouring flood,
the sterilizing salt,
the shifting sands of the desert.
he is the brooding mountain,
the forbidding forest,
the sinister hinterland,
the unchecked bloom,
the overwhelming imbalance of the plague,
he is the stealer of immortality,
the minefield of the trickster,
the icy countenance of contempt,
the corrosion of hatred,
the demoralizing derision of the disparager.
he is the wrenching hand of death,
the pain of separation,
the devastation of betrayal,
the corrupting dividend of power,
the shallowness of obsession,
he is the gnawing pangs of famine,
the mimetic fear of exclusion,
the enchantment of beauty,
the assurance of the secret,
the smugness of the loop.
he is the divisive power of mammon,
the snaring allure of the painted face,
the the disappointment of the false prophet,
the obliteration of the triumphant,
the civilization rending blowback of aggression.
he is the invigoration of the gun,
the invincibility of the shield,
the smoking power of the powder,
the slender columns in the desert,
the complacency of the high walls of our redoubts.
he is the alienation of modernism,
the dispossession of the machine,
the heartlessness of efficiency,
the false promise of science,
the heartbreak wrought by idealism.
he is the twister of the story,
the dismisser of allegory,
the paralysis of superstition,
the ignorance of literalism,
the diabolical distorter of the truth.
he is the mesmerizing spectacle,
the sly assurance of the media,
the herding of the advertisement
the escaped goat of enchantment,
the satisfaction of gossip,
he is the destiny stealing lie,
the loneliness of selfishness,
the disruption of sorcery,
the demoralization of doubt and confusion,
the deluded rejection of mystery.
he is the debilitation of excess
the mischief of imposture
the straitjacket of conformism
the power of maliciousness
the empty promise of progress.
he is the exploiter of patience,
the weakness of the flesh,
the destruction of innocence,
the fetid swamp of confusion,
and last but not least,
the slavery of the personification of the devil.
Many of these things can, depending on one's perspective, be a blessing or a curse, for example machines can also banish much drudgery, so context is important,
The last line refers back to the title and how we are reluctant to take responsibility when we find we may have become the devil's useful idiots, so to speak.
And the line, he is the stealer of immortality, refers to a story about how a snake stole the herb of eternal life from Gilgamesh when he took a nap under a date palm on his way back from visiting Utnapishtim in the land of rivers, ...it's a long story :-)
The original version is here,
http://niqnaq.wordpress.com/2009/08/09/the-germs-of-gnosticism/#comment-6579
Posted by: Michael Lorenz | 07 September 2019 at 09:13 PM
All that, plus what David mentions below, and more I guess Philip.
In addition, the commercial-in-confidence doctrine probably helps facilitate these one-sided agreements.
Sometimes confidentiality is justified, other times it is just a cover for various criminal activities.
The dog eat dog/devil take the hindmost ethos of the some parts of the business and public sectors is bad news for the wider community.
Posted by: Michael Lorenz | 05 September 2019 at 08:17 PM
I wonder why these terrible deals happen Michael.
Is it because PNGs are trusting and gullible (a colonial hangover?) or is it because the companies pay bribes to the key players?
In both cases it doesn't say much for the morality of the companies.
But, then again, we don't expect ethical responses from profit-driven capitalists.
Posted by: Philip Fitzpatrick | 05 September 2019 at 09:42 AM
I have to take back what I said about the PNG financial system, well partly at least.
I have discovered that the PNG reserve bank has a very informative quarterly report on financial matters. The latest edition is available here:
https://www.bankpng.gov.pg/wp-content/uploads/2019/04/March-2019-MPS-3.pdf
However the bank's refreshing openness is not matched when it comes to the various deals on which so much of PNG's financial well-being depend. The above mentioned report regrets these developments:
".... The current policies in relation to the extractive industries give a lot of tax concessions to the project partners for the development of major projects in PNG.
"These tax concessions have resulted in lower foreign exchange and tax revenue to the Government. The Bank supports the Government’s medium-term revenue strategy from 2018-2022 to review tax concessions.
"It is the Bank’s firm view that the Papua LNG and Wafi-Golpu projects be included in this review so that much needed revenue for the Government can be raised. Other national interests must also be considered for inclusive growth."
In addition, the report has an appendix which among other things has a couple of graphs which depict the "divergence between GDP and tax revenue".
In particular the mineral GDP vs tax graph is a real shocker, for while mineral GDP has increased threefold since 2013, the actual tax paid has decreased to the point where it hardly registers on the scale used. There is no explanation for this revenue collapse.
Posted by: Michael Lorenz | 04 September 2019 at 09:14 PM
In any political and economic reform, the IMF and World Bank only step in to destabilise economies with enormous debts.
Even other foreign loans do no better to develop our country.
This country has nothing left to build our economy because we are incurring debt after debt. Beggars have no choice but to keep borrowing to support corruption.
Posted by: Philip Kai Morre | 30 August 2019 at 12:06 AM
I might add that targeted aid is not the magic bullet that some claim. Given the fervour with which some promote the concept, one could be forgiven for thinking it was some sort of religious principle. :-)
In short, is not all upside. It has its own problems.
Effective targeting needs detailed and complex data collection to ensure proper aid delivery. However obtaining reliable data can often be a challenge (e.g.reliable traffic projections for a road project).
And as we now know, big data is a great opportunity for those looking to exploit a situation. And the data collection itself can be a very intrusive process. It has 'big brother' written all over it.
Another problem with the target approach is that it is ultimately a kind of subsidy, and subsidies are notorious for distorting markets and misdirecting resources.
For instance, fuel subsidies (the more you drive the greater the subsidy) have mostly been abandoned in favour of more universalist schemes.
Anyone interested in the pros and cons of the targeted vs universal approach can find discussion on the subject by a search on the net.
Posted by: Michael Lorenz | 29 August 2019 at 05:50 PM
I'm sure we can think for ourselves enough to decide what's good for us. Why are we afraid to engage?
Let them open their books to us. Let us engage with them in open, honest and frank discussions. Engaging and discussing with them is not agreeing with them. We still control our own destiny and we can walk away if we don't like it.
But one thing is for sure. The issues we face with how we have been running our country will be effectively dealt with by having some kind of an oversight mechanism that is sufficiently divorced from the local power base but still has some influence over that power base.
We ourselves are too compromised, too weak and too nice to demand the change we need to set us on the path to a safe, healthy and happy nation.
Posted by: David Kitchnoge | 29 August 2019 at 02:20 PM
There is untold rot, tax evasion and loosening of safety mechanisms as a direct result of corporate conglomerate agenda driven policies that have been peddled during the 1970s which catapulted the demise of the middle class in the United States.
The decay there is not something that any developing countries or any third world country for that matter would fathom importing and hoping for a different outcome.
One has to carefully look at the level of disenfranchisement, homelessness and displacement of the ordinary citizens of such a country first before considering whether a debate in this forum is even warranted.
Papua New Guinea cannot and must not blindly accept such reform nonsense that sounds good on paper but is catastrophic and disastrous in reality.
Posted by: Corney Korokan Alone | 29 August 2019 at 10:46 AM
Thank you Michael Lorenz for calling it out.
The so-called 'structural adjustments' is a politically correct phrase for an inefficient public service structure, inadequate governance regime, corrupt mindsets and attitudes and a propensity for 'me me me' and wastage that is prevalent in PNG public life.
If we are being asked to fix these, then bring it on!
Posted by: David Kitchnoge | 29 August 2019 at 09:02 AM
If it produced less opportunity for rorting by fronts for crooked bigshots and such, then perhaps providing part of the financial aid for general budget assistance might, with some provisos*, be worth trying again.
But as everyone knows, it won't fix what are politely termed 'structural issues', e.g., poor management, dodgy bureaucracy etc.
In addition to the seemingly intractable structural issues, the PNG system is very opaque. For example there doesn't appear to be any clear information on how liquidity is managed in the PNG economy.
It doesn't appear to be bond/credit based. And they do have a chronic kina liquidity problem (in addition to the perennial shortage of foreign exchange). The imperviousness of the kina to financial gravity is a wonder to behold.
As an added benefit to reducing the aid rorts, and rorts in general, it may take some pressure off foreign exchange demand as the crooks won't be getting it off to Singapore or Luxembourg or wherever quite so easily. :-)
* If it's not already, one qualifier might be that foreign aid must be converted to local currency. If it is used to pay international suppliers then there is no lift in local liquidity, and probably more opportunity for scamming.
Posted by: Michael Lorenz | 28 August 2019 at 09:40 PM
Let's put them on the table and discuss and debate them. The pros and cons. What is it they want and does it make sense to us? What would we rather do ourselves and does it make sense?
I think we have enough thinking Papua New Guineans who care to engage in meaningful discussions.
Posted by: David Kitchnoge | 27 August 2019 at 11:45 PM
Corney is quite right to say that PNG does not need to be reformed according to the ideology of the World Bank or the IMF.
Their prescription for reform is that neo-liberal favourite, austerity. By this they mean that ordinary people must pay the bill for the unsuccessful gambles of the wealthy and influential who play the stock market or indulge in bets on currency movements or commodity prices or similar deals.
An IMF bureaucrat safely ensconced in an office at 555 12th Street NW, Washington DC, would not know the meaning of the word austerity as it applies in PNG.
I'd like to see an IMF executive spend a few weeks living in a village on the Kikori River or in some remote hamlet in the Southern Highlands. Then he or she would truly come to understand what austerity is in a local context.
As for China, surely by now even the dimmest PNG (or Australian!) politician has come to understand that China, in accordance with its ancient legends, is truly the home of dragons.
But they are not the benign and lucky dragons of Chinese legend.
Rather, they are a more sinister and malignant kind, hiding their reptilian features and nature under the guise of besuited communist party bureaucrats.
Tiananmen Square was a case where their true nature was put on display. Hong Kong may ultimately suffer the same fate, if the party's need to maintain control at all costs necessitates letting the dragons loose once more.
If you take a dragon's gold you must necessarily do its bidding when it deems the need has arisen for you to repay its generosity and kindness. Refusal is not an option.
Perhaps the poor Australian taxpayers will once again ante up the cash, although the current government's irrational mania about achieving a budget surplus may well preclude this.
Posted by: Chris Overland | 27 August 2019 at 08:03 PM
We do need change but certainly not at the direction and lopsided view of the IMF and the World Bank.
Local ownership and participation, a view that is often scolded and undermined is the best approach to a "take back PNG movement".
Otherwise the failed policies and the interventionist models of the IMF and the World Bank are not needed in this country.
Posted by: Corney Korokan Alone | 27 August 2019 at 05:19 PM
The devil is in the detail and whatever reforms sought by the World Bank and its agents need to be discussed openly and transparently so we understand what we are in for.
I wouldn't simply paint everything with one brush and say 'no reforms or no deal'.
We do need reforms in PNG. We do need to re-examine some of our ways and make some adjustments. We need to be open minded about suggestions for change that actually make sense to us. Not all reform is bad.
If the reforms suggested are those that will get us back onto the straight and narrow and not live recklessly, then I say bring it on.
Posted by: David Kitchnoge | 27 August 2019 at 02:51 PM
Corney - The real financial clout in our area of the world, Oceania, is Singapore.
And with Hong Kong becoming a Beijing-created political basket case, even more so.
The Lee Kuan Yew inspired dynasty is firmly entrenched.
Unlike the current emperor for life in Bejing with 1.4 billion citizens to get disgruntled and offside.
An awful lot of muscle power. 10% = 140 million!
Posted by: William Dunlop | 27 August 2019 at 11:54 AM
I have heard the the word, "reform", championed by the IMF and/or the World Bank around the world and once attempted in Papua New Guinea.
A crafty word that literally means: fire sale of state owned entities, key utilities, land reform in the name of Monsanto based genetically modified mono-culture agri-industries and other vital services.
These sales pitches and currency devaluation maneuverings which are mostly targeted to their major corporations to continue the enslavement of colonies.
Such discussions will not fly in this decade...with the current crop of leaders and the citizenry.
When one looks at the deficit and debt situation in the United States (the home of IMF and the World Bank), Australia (with a precarious housing market) and the UK, it's hard not to see the glaring hypocrisy and double-standard lectures they try to give to their so-called colonies.
Posted by: Corney Korokan Alone | 27 August 2019 at 09:08 AM