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Australia to loan PNG K1 billion

Marape Morrison
James Marape and Scott Morrison - Australia's billion kina loan equals about what PNG lost in its ill-fated venture into Oil Search

TOM McILROY
| Australian Financial Review | Extracts

SYDNEY - Australia will loan Papua New Guinea $442 million (K1 billion)) in direct budget assistance designed to secure essential government services and rebuff financial overtures from China.

The Morrison government agreed to the loan request from PNG prime minister James Marape, offering immediate financial support linked to his plans for longer-term economic reforms in the struggling nation.

A deal was agreed on Friday, said Alex Hawke, Australia’s minister for international development and the Pacific.

It will be provided by Export Finance Australia through its national interest account and will be structured to incur no cost to the Australian taxpayer or the federal budget bottom line.

In the past, Australian governments have baulked at providing direct budget support to PNG. It ended this practice in June 2000, opting instead to concentrate on funding of targeted aid programs.

PNG's economy has struggled amid a collapse in oil and gas prices, growing government debt and corruption problems.

The country owes more than K25 billion, with public debt making up about 30% of its gross domestic product.

Estimates of PNG's obligations to China alone run to more than $580 million, nearly 25% of the country's total external debt.

"This assistance reflects the Australian national interest in a stable and prosperous PNG, and it builds on our two countries’ strong economic partnership, which includes support for economic reform," Mr Hawke said.

"It will also benefit PNG and Australian businesses by increasing the availability of foreign exchange in the country and by supporting trade and investment.

"As PNG’s enduring partner and friend, we are committed to its development and wellbeing and we are pleased the government of PNG has taken the steps necessary to give us confidence in its economic reform agenda."

Australia typically works through multilateral organisations including the World Bank and International Monetary Fund when financing budget support.

The change in approach comes as China looms larger as a strategic competitor and generous financial patron in the Pacific, and as the Morrison government seeks to re-focus on the region as part of its ‘Pacific step-up’ policy.

After becoming prime minister in May, PNG said the government had asked Beijing for assistance with its debt, but Mr Marape later back-pedalled and gave assurances that other countries had been asked to help.

His predecessor Peter O'Neill resigned after months of unrest over his role in controversial UBS loans and the handling of a K37 billion gas project.

The Swiss investment bank funded the PNG government's moves to buy a 10% stake in Oil Search, which in turn used the money to buy into a gas field development.

PNG lost nearly K1 billion after the price of Oil Search shares slumped in line with the oil price.

A foreign exchange shortage in PNG has stifled private sector growth and the Australian government believes the economy will improve conditions for Australian companies selling to PNG and repatriating profits.

PNG has never defaulted on its debts, including on previous Australian loans.

Comments

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Philip Fitzpatrick

Australia's decision to give Papua New Guinea a $440 million loan is "completely unrelated" to the Federal Government's desire to curb China's influence in the Pacific, according to Finance Minister Mathias Cormann.

David Kitchnoge

You make an important point about accountability Paul.

PNG government's first and foremost responsibility is to be accountable to Papua New Guineans. When it is accountable to its citizens, the government will be accountable to everyone else including its financiers with its eyes closed.

We have seen the re-convening of the Parliamentary Public Accounts Committee (PPAC), a key lever for accountability at the highest level, since Marape took office.

We have since seen the PPAC tangoing with a very reluctant Kumul Petroleum Holdings (recipients of the nation's proceeds of its petroleum endowment) to drag them out of theri supposed 'protected species' status.

We have seen deputy chairman of the PPAC and Oro governor Gary Juffa grilling the health secretary and his executives dumb over the awarding of health supplies procurement contract to Borneo Pacific. The video of this excellent probing has been shared widely on social media to the applause of citizens.

Then there's Minister Kramer's efforts to get our police force to operate as they should.

Marape has allowed the wheels of accountability to start turning again and it is very encouraging to see. His next big project must be to get the Independent Commission Against Corruption (ICAC) legislation passed, have the office set up and functioning.

Our economic woes would be dealt with effectively when all stakeholders have confidence in the ability of the system to be fair and equitable. That the system can hold people accountable and create a level playing field for all.

Paul Oates

The relief in the PNG government and its supporters could well be palpable but the essence of this proposal is responsibility.

A loan is not a gift. Australia has hitherto sought to have some accountability imposed after gifting finances to PNG. To date that has come very close to nothing.

To state that this is a loan implies responsibility for the temporary ownership of the funds and accountability for their repayment.

Responsibility and accountability are not necessarily concepts that have been well understood or implicitly followed in the past.

So exactly what results have there been achieved so far in following up those responsible for PNG’s current situation?

The media has apparently gone ghostly quiet about this aspect for some reason? Is that a sign of an essential and complex investigation/s that have yet to be publicly revealed after a water tight court case is commenced?

Hopefully this deathly quietness isn’t a sign of a forgiveness process for past transgressions in trade off of political power at the highest level.

Bihain bai yumi lukim gut lo haus bilo ol laga?

David Kitchnoge

First things first; thank you Australia.

PNG needs to quickly secure the development of P'nyang and Papua LNG gas fields to bring in construction dollars while this assistance from Australia provides some respite in the near term.

I see Minister Kua is trying to meander through another standoff with Exxon Mobil on the P'nyang project.

Hope they can agree the terms of that project sooner. My fear is that we might lose the war while focusing on the battles.

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