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By Yehiura Hriehwazi of Wia News Service

PORT MORESBY, Papua New Guinea (December 22, 1998 - The National)---The Government has yet to receive the first part of a US$ 120 million (K 255 million) commercial loan it arranged with the Kredit Bank of Europe, Bank of PNG Governor Morea Vele said here yesterday.

Mr. Vele told a media conference that as a result the Government had to borrow the kina equivalent from the Central Bank as a stand-in arrangement while awaiting the release of the loan.

The first payment of US$ 60 million was to have been received by Nov. 10. However, that has not materialized.

Mr. Vele said he was concerned that if the loan did not come on shore by the end of the year, there would be pressure on the kina, forcing it downward.

"I urge the Government to quickly get it together," he said when releasing BPNG's third quarter economic bulletin which showed a subdued period of non-mining economy activity in the nine months to September.

Mr. Vele said the loan was held up because one or two requirements needed to be sorted out. He did not specify.

It is understood that all the receipts of the Mineral Resources Stabilization Fund would be used as security for the loan repayment period of five years.

This was done in the past when the State borrowed from another commercial entity and all MRSF receipts were paid into an account called Raggiana in a Cayman's Island bank and held as security until the State paid off the loan.

Mr. Vele said he was hopeful all approvals would be made soon for the Kredit Bank loan to be brought onshore for PNG to "enter the new financial year with proper financial management."

He also cautioned Government departments against going on a spending spree in the last two weeks of this year as had happened last year.

He said that in 1997, the departments spent up to K 300 million in the last two weeks of the year for fear of losing their allocations to the consolidated revenue fund. That high level of expenditure applied intense pressure on the kina.

The pressure on the kina was sustained at that time because of a better foreign exchange reserve situation, he said.

However, the same could not be said now, Mr. Vele warned.

On the general economic outlook, Mr. Vele said the inflation rate for the three months to September was 6.6 per cent while employment declined by 1.6 per cent compared with the June quarter.

Economic activity was subdued in the private sector, excluding mining and petroleum, in the first nine months of this year. Contributing factors included completion of some major construction projects, adverse impact of the drought in 1997 and lower prices of logs due to lack of demand by the Asian economies.

Mr. Vele said that all these factors caused weakness in the kina, which led to a decline in demand for imports.

In fiscal operations of the Government, there was a surplus of K 45.6 million in the nine months to September compared with the same period in 1997, when the surplus was K 167.7 million.

[NOTE: US$ 1 + Kina 2.12314 on December 21, 1998]

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

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