PNG ECONOMIC FORECAST GLOOMY

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MELBOURNE, Australia (Nov. 9, 2002 – Radio Australia)---A gloomy economic outlook is persisting for Papua New Guinea, with almost every measure pointing to more bad news in store and no immediate prospect of improvement. The kina, the local currency, took a savage tumble recently, last week setting a new record low of less than 20 U.S. cents. That's a long way down from the heady days when the Kina was worth around one and a half Australian dollars.

The plummetting curency is already having a direct impact on the lives of everyday Papua New Guineans. Earlier this week the country's main importer of rice announced a 20 percent jump in the price of one of the nation's dietary staples.

Government-regulated petrol prices are going up too, as is just about everything else in a nation that relies heavily on arriving shipping containers for everyday items.

The pressing question is, how low can it go?

"I would like to say that I'm confident," said Bart Philemon, PNG Treasurer.

Philemon has been charged with leading the fight.

"The people, the private sector, the non-government organization, the government -- if we all work together we can manage," he said. "In the past, we have gone through similar situations. We have demonstrated our resilience towards coming back and I believe we can manage this problem that we are facing now."

A special cabinet meeting earlier this week considered a number of options, including pegging the kina to an international currency, or putting restrictions on capital flows.

But those suggestions have been rejected as "quick fixes" that won't address the underlying problems of the PNG economy.

"It was agreed that recent weakening of the kina was only a symptom of much broader problems of past economic management or mismanagement," he said. "The government has decided it cannot afford simply to affect the kina alone. It must address all macreconomic policies at the same time."

The country’s central bank this week upped interest rates by 1 ½ percent to 14 percent, to try to slow the slide in the kina's value.

It cited a lack of confidence brought on by concerns about security around major mining projects, and a court decision in September that put a big question mark over the legality of the tax system.

But it's inflation in the price of everyday basics like a bag of rice that represents the big danger for the government in the kina's devaluation.

Treasury Secretary Koiari Tarata said inflation will also have an impact on PNG's budget.

"You have the depreciation against the U.S. dollar and foreign currencies and that depreciation will translate into (more kina required) as a result, to service us in U.S. dollars or foreign currency," Tarata said. "So in terms of the kina, that servicing cost will increase."

The PNG is asking Australia for help in restructuring some of its foreign currency loans ahead of next year's budget, to be delivered later this month.

It's also asking for a redirection of some of the $300 million Australian dollars in aid Australia sends every year.

Those negotiations will continue when Alexander Downer leads the annual PNG-Australia ministerial talks in Port Moresby next week.

In the meantime, it's getting into that time of year where the country’s imports jump and mining revenues traditionally fall.

That means the question of how low the kina can go may not be answered yet -- and might prove to be an answer many Papua New Guineans don't want to hear.

For additional reports from Radio Australia, go to PACIFIC ISLANDS REPORT News/Information Links: Radio/TV News/Radio Australia.

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