PNG PM SKATE PLANS TO STRENGTHEN ECONOMIC REFORMS

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By Neville Togarewa

PORT MORESBY, Papua New Guinea (September 1, 1998 - The National)---Prime Minister Bill Skate will announce a series of measures to strengthen the country's economic reforms to ensure stability and sustainable development.

Mr. Skate said the economy had been subjected to tremendous pressures in the past 15 months and the measures he would announce in the lead-up to the 1999 budget would be framed to ease these pressures.

"The measures will include tough actions to deal with law and order in the country, to make the public service more efficient, to improve the working of the financial sector and streamline the incentive regime for investment, including that for mining and petroleum," he said.

Parliament will also consider the Value Added Tax legislation during the session which starts tomorrow.

The Prime Minister said the unprecedented pressure on the Australian dollar, the economic turmoil in Russia, continued sluggishness of the Japanese economy, the recession in Malaysia and economic meltdown in Indonesia and South Korea were all clear indications that what started as an East Asia financial crisis was spreading very rapidly throughout the world,.

He said many experts were predicting that a worldwide recession was around the corner.

"Papua New Guinea, being an open and resource-based economy as well as heavily dependent on imports, is subject to pressures from economic slowdown in its key trading partners as well as falling world market prices for its primary exports such as oil, gold, copper and agricultural commodities," Mr. Skate said.

"These factors hit our economy like a gigantic hammer in late 1997 and the first half of 1998. The combination of external shocks and a series of natural disasters in 1997 and more recently the Aitape tidal wave disaster disrupted our economic progress.

"As a result, the first half of this year witnessed a sharp deterioration in our international reserves, a rapid fall in the value of the kina against the U.S. dollar and to a lesser extent, the Australian dollar, and a subsequent increase in domestic prices of many basic items."

He said the PNG economy was too small to influence the global situation and the country did not have the experience of managing such an unprecedented situation.

The Government had foreseen some of the problems and took measures back in April to safeguard against further deterioration in the economy, he said, adding these preventive measures had proved effective in cushioning the economy against the latest problems.

He said all these international events had occurred despite a strong performance by the Government in managing its expenditures.

Managing the budget alone, however, was not sufficient to stop the pressure on the kina, whose fall, combined with a continued loss of confidence in the economy and the Government's ability to manage it, greatly aggravated the deterioration in the economic situation, Mr. Skate said.

He said he had introduced a series of measures last month to ease the economic pressures.

"These measures are beginning to work. The kina has stabilized and the interest rates on treasury bills have fallen rapidly," he said.

"Commercial bank lending rates have risen sharply, but this is a natural reaction by those who have been used to taking advantage of ineffective regulations but now find the Government in charge again. This is a temporary phenomenon and we expect lending rates will also fall."

For additional reports from The National, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/The National (Papua New Guinea).

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