Capitalism: No morality outbreak any time soon
'Crisis' if PNG doesn't ratify B’ville result

PNG has options to solve its budget crisis

David Kitchnoge
David Kitchnoge - "PNG does have options and we need to go into negotiations knowing what they are"

DAVID KITCHNOGE

PORT MORESBY - The fact that the International Monetary Fund admitted its failure in its assistance to Greece showed it was willing to learn from its mistakes and avoid the pitfalls in similar cases.

The key is always that, whatever solution Papua New Guinea adopts to get our economy going again, would be a negotiated outcome with multilateral financial institutions like IMF.

This means we have as much say in the solutions as they do.

We have certain strengths we can lean on. First being land.

Communal ownership of and utilisation of land shields our people from the headwinds of the cash economy. This is a great strength.

Any austerity measure implemented would therefore be less catastrophic for a majority of our people than if the same were implemented in a totally cash dependent economy.

Given the importance of land for our sustenance, whatever economic solution that seeks to alienate land from us is a no-no and must be rejected outright.

Multilaterals like IMF should know this basic fact about PNG by now and must steer clear of land when considering measures to help stabilise our economy.

The second opportunity for government is to sell the state-owned enterprises (SOEs) to raise funds and bridge the funding gap.

While only a few SOEs would be saleable, given the poor state of each of them, the privatisation agenda should be pursued regardless.

Third, the government should change the mandate of Kumul Petroleum and simplify it so it exists to raise financing only to enable the government to fulfil its legislated back-in rights in petroleum projects.

Back-in rights allow the government to acquire an equity participation once the commercial discovery has been made without carrying the risk of exploration.

Furthermore, the government’s share of dividends that flow to Kumul Petroleum should be diverted straight into consolidated revenue to fund the government budget.

We also have a portion of the around K6.7 billion held in the PNG Sustainable Development Company that could be released under some arrangement to help restore the economy.

Perhaps the IMF and other multinational institutions could guarantee a loan from PNGSDP to the government in exchange for state-owned enterprises being privatised in an orderly manner over a period of time.

Papua New Guinea does have options and we need to go into negotiations knowing what those options are.

Let’s get on the front foot and suggest ways in which we can help ourselves and then invite others to help us help ourselves.

David Kitchnoge is head of research and advisory at Kina Funds Management

Comments

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David Kitchnoge

Privatisation is a complex exercise even without the politics of it.

This is the reason why Sir Mekere created a Privatisation Commission back in the day to focus on these issues as we think about how best to sell down the State’s equity interest. This commission evolved into IPBC and has now been rebranded to KCH.

When we sell the SOEs, we will have to invite strategic partners in as equity participants in the new ownership structure going forward. Partners who know the nuances of the industry in which each of the SOEs operate in. Someone who can operate the businesses for us.

Most PNG institutional investors are passive investors who would simply buy a stake and then go away and wait for their dividends. So to protect their interests, they would normally be looking to partner with strategic investors who know the business to run it for them.

When PNGBC was sold, we had four other banks in the local market who could potentially acquire it without lessening competition (ICCC concern). BSP eventually acquired PNGBC and the rest is history.

We don't have the luxury we had with PNGBC for most of our SOEs. Apart from the telcos, most of the SOEs are the only participants in their industry. So we will necessarily have to attract external participants in as equity partners and operators in the new ownership structure.

The telcos could be sold to Digicel in theory. But this won't get past the ICCC as that would mean a significant lessening of competition in the market. So an external industry participant will have to be invited in.

This is from an ownership and management structure point of view.

But high on the agenda will be the commerciality of the SOEs. The success or failure of the privatisation program will depend, in the first instance, on whether these SOEs could be run profitably for their new owners.

Jeffrey Febi

I am interested to see privatisation of some state owned enterprises.

The government should sell Telikom to our super funds and other PNG based companies, so this company can achieve its potential to rival and beat Digicel.

I also would like Air Niugini to partly sold to the private sector. This may help improve service quality without internal routes.

David Kitchnoge

There is a funding crunch coming if what Treasurer Ian Ling-Stuckey is saying is true. And we need to be sensible about how to manoeuvre through the challenge and get out the other side stronger for our troubles.

Lessons are there to be learnt. Not ignored. We already know what those lessons are with IMF and others. Question is, what are we going to do with what we know to help set our own economic recovery agenda?

Let’s be pragmatic. Let’s do it our own way. Let’s find our own solutions with some help from others. And not be paralysed by what might not even be applicable to us and shout and wail aimlessly.

BSP wasn’t sold to outsiders. We sold it to ourselves and now look at how many Papua New Guinean institutions and the real PNG people behind these institutions benefit from BSP's growth and prosperity under private ownership..

I’m sure we are not that stupid to not decide in our best interests. I trust our PM and Treasurer with others like Sir Mekere to make the right calls for us. They have their hearts in the right place and the brains to discern and adopt appropriate responses to our current economic challenge.

There is no hiding from the fact that we will need outside help to reset our economy. Let’s do it.

Paul Oates

Hi David,
When I visited Greece 10 years ago the average person seemed to have no problem in not paying for almost everything including where possible, taxes, public transport and government services. Many people had holiday weekenders on the Greek islands as well as large houses. It was not a situation that could last. But how did it occur? Well. after joining the EU, Greece found it could borrow as much as it wanted, given the EU would back up the security of the loan. But that couldn't last could it? Politicians had a great time with borrowed money and for a short time, everyone thought money grew on trees.

The Greek farmers had also virtually left the nation at the point of staving and dependent on outside food deliveries as the EU had offered substantial benefits for a few years to Greek farmers to grow cotton, a product that requires a lot of water. Greece is a very dry country.

The reason that Greek farmers were being paid to grow cotton and not food was simply that the EU wanted to shun Egyptian cotton as Egypt was not part of the EU.

Is it any wonder the Brits are (well some of them at least), keep to rid themselves of the EU and Brussels's clutches?

In the case of PNG, group ownership of land is a central part of the PNG culture. Yet that factor is a known stumbling block to so called development. Large scale land use is more productive and economically more viable yet that very aspect flies in the face of PNG traditional culture. Look at how the Oil Palm industry has caused endless heartache over the use of traditional land that used to grow food?

Look at how the mining industry has been allowed to develop, irrespective of any collateral damage to the traditional landowners or their ability to grow or harvest food.

The issue of lending funds is simply one of control and political influence. There is no such thing as a free lunch. That is, unless you are on the limited receiving end of a 'deal'.

Mate. How can you be sure this is not just another variation on the age old schematics?

Corney Korokan Alone

I tend to pay more attention to "actual activities of IMF" to see whether they adjust their polices.

The Greece catastrophe would have given some pause to deliberate their policy agendas.
It clearly shows they haven't done so. What does that tell us?

The current upheaval and mayhem in Ecuador has IMF's fingerprints all over it.
https://www.theguardian.com/commentisfree/2019/aug/27/imf-economics-inequality-trump-Ecuador

And this https://www.equaltimes.org/despite-its-new-rhetoric-the-imf#.XZ0iA0YzbIU

Project Management 101 is not part of IMF's DNA.
The developing and third world countries need to sack IMF and give them a marching order than hoping and dreaming that their recipes will change anytime soon. It hasn't changed for donkey years since its formation.

Papua New Guinea's social key sectors of education and health are mostly funded by the government, notwithstanding its myriad funding challenges. The church operated and managed facilities under these key areas also depend on the government for their operational upkeep.
IMF's lectures are not worth paying attention to in these areas.

Privatization of SOE's has to and must happen with local veto ownership rights. Not the usual nonsense where a minority foreign shareholder has all manner of rights under the sun. In fact, the profit centered doses that IMF serves are insipid and demonstrably inapplicable to PNG settings.

David Kitchnoge

Thanks Keith for putting this out. Just to clarify, my comments and observations have been made in my capacity as a private citizen and does not represent in any way that of my employer or any other organisation that I am a part of.

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