Foreign minister Bill Hayden told cabinet in a paper discussing political stability in PNG that in the event of a military coup, Port Moresby could easily fall although it would be hard for the army to consolidate control over the entire country.

"There would be great likelihood of bloodshed," he said.

Superpowers had begun courting the Port Moresby government – the United States wanted to develop defence links, Russia sent a trade delegation, Japan increased aid and there had been a visit from Beijing.

In the years before 1988/1989, changes in the political dynamics of the South Pacific in the aftermath of the coups in Fiji and the Kanak independence campaign in New Caledonia brought indigenous nationalism into sharper focus and were perceived by PNG as challenging Australia's leadership role in the region.

In addition, a cabinet briefing in March 1988 showed Hawke government concern at the Gaddafi regime in Libya putting feelers out to Vanuatu, New Caledonia and Fiji.

As a consequence, the Hawke government had been anxious to develop a joint  declaration of principles guiding relations with Port Moresby.

But Hayden told cabinet in July 1988 that in view of "public perceptions of political instability" it was time to review Australia's interests.

Normally, Canberra was super sensitive about the language used when referring to PNG but foreign minister Bill Hayden told cabinet in July 1988 that the Melanesian nation had entered a period of heightened ambivalence towards Australia and laid it on the line.

"The marked deterioration in administration, law and order, education and health standards is generating frustrations for the government of Papua New Guinea at its seeming inability to manage on its own, leading to a tendency by PNG both to fall back on Australian support and to seek Australian advice. At the same time there seems to be a resentment on the part of PNG that it has to resort to this sort of dependency.

"Australian investment and commercial activity in PNG, while being officially encouraged, is yet often perceived as exploitative, too heavily weighted in Australia's favour, detrimental to national, environmental or customary land owners' interests.

"PNG is diversifying its political contacts, sources of aid and (to a lesser extent) defence links, to assert its independence from Australia. At the same time PNG is coming to realise its vulnerability to the corrupting and destabilizing activities of external powers (notably Indonesia), and the necessity of its reliance on Australia in the last resort."

Hayden said Australia's interests required a stable, well-governed, prosperous and friendly PNG.

"Our overriding objective should continue to be to keep PNG committed to Australia as PNG's primary defence, development, trade and investment partner," he said.

"By maintaining good relations and good influence we aim to keep PNG well disposed to us and alien to those influences which might be a threat of some sort to Australia and might use PNG territory for this purpose if it became available for them."