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By Brian Gomez

SYDNEY, Australia (November 30, 1999 – The National)---Prime Minister Sir Mekere Morauta has signaled that today's budget for year 2000, the first he has framed, would be "the most austere that has ever been brought down in PNG."

The Prime Minister also signaled that only six priority areas will receive increased funding in the 2000 budget. They are Health, Education, Infrastructure Maintenance, Agriculture, Law and Order and Revenue Generation.

All other departments and agencies will receive the same allocation as they did in the Supplementary Budget this year.

Sir Mekere said he would deliver "a balanced budget" that would also represent "an unremitting attack on waste, inefficiency, mismanagement and malpractice."

In a speech at the Fifth PNG Mining and Petroleum Investment Conference in Sydney delivered on his behalf by Mining Minister John Kaputin, Sir Mekere said: "We have no money to throw away on non-essentials. Nor do we have a desire to do so."

Despite the warning of a tough budget, Sir Mekere's comments were made in a framework of optimism and expression of a personal determination to remove obstacles to private sector-driven economic growth.

Sir Mekere forecast that the economy should grow by a respectable 4.6 per cent next year, with real non-mining gross domestic product performing even better to increase by 5.8 per cent.

It was not clear where this growth would be generated. The US$ 838 million (K 2.4 billion) Ramu nickel-cobalt project only hopes to start construction in the second half of next year and there are expectations that next year's coffee crop will overtake the record set in 1998.

West New Britain Palm Oil is also planning a A$ 100 million (K 181 million) expansion.

Sir Mekere said next year's balance of payments would record a surplus of K 364 million (US$ 134.6), with foreign exchange reserves continuing to grow. He also predicted a gradual increase in private sector investment.

"This is an economic picture that nobody expected Papua New Guinea to be able to paint six months ago. It is hardly rosy -- there are figures there that remain totally unacceptable -- but it is not the complete blackness of the past two years," he said.

Sir Mekere said "extraordinary achievements" had been made since he came to office five months ago, even though the current economic crisis "is now at a peak."

The achievements include making a start towards stabilization of the economy and the kina, with interest rates beginning to fall. Inflation would gradually decline and government finances "have been put on a sound and proper footing."

"These essential reforms to the economic, social and political fabric of the nation are as profound as those undertaken some years ago by New Zealand and more recently by Australia," he said.

Sir Mekere indicated his budget would introduce cuts in many areas of recurrent expenditure, except for those affecting health, education, primary industry, infrastructure, law and order and revenue generation.

Others will remain at nominal levels set in the 1999 supplementary budget, without adjustments for the decline in the exchange rate and inflation of the past few years.

A code of conduct that has been approved for the public service and other related initiatives "will prevent much of the mismanagement and malpractices of the past few years."

"Accountability and transparency are the twin pillars of efficient and fair government operation, and they are what we are building our new systems on."

On the regulatory front, Sir Mekere said the national ailments of high inflation and interest rates had been due to excessive domestic borrowing and the government has taken steps to restore the respect and independence of the Central Bank.

"Proposed new legislation will make it impossible for the illegal borrowing of the past to reoccur," he said, adding that a program of extensive privatization in the coming three years would help to dramatically reduce the high level of domestic debt.

Sir Mekere said last week that there would be no domestic borrowing next year to fund the budget and no new tax measures would be introduced.

The 2000 Budget would, therefore, be funded fully by the rescue package from the World Bank and IMF of US$ 300 million and a further US$ 200 million from Friends of PNG and from existing revenue measures.

He also said proceeds from asset sales under the privatization program would not be included in the budget.

He assured that privatization would be achieved with "a full and fair price" for all Papua New Guineans with built-in protection for stakeholders, especially employees and customers.

"A competition policy, on which work has already begun, will ensure a much higher level of service delivery at lower prices," he said.

Sir Mekere said it was "appalling" that mineral exploration expenditure had fallen to US$ 14 million last year from US$ 83 million in 1988, while oil exploration spending had dropped to US$ 40 million from US$ 150 million.

Noting that resources were critical to the economy, providing 70 percent of exports and 25 percent of tax revenue, he said: "Investment in exploration is an investment in our future, and I confess that our future at present looks bleak."

The government has been fully supportive of the Ramu project and the US$ 3.5 billion PNG to Queensland gas project and Sir Mekere said he was pleased that there has been a strong increase in the oil price "and some relief for gold and copper miners."

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

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