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SUVA, Fiji (PINA, Mar. 13) - Certain that money isn't the cure, the World Bank has no plans to embark on a fresh loan program for impoverished Papua New Guinea, the Dow Jones Newswires reports.

Better management of resources and a government bureaucracy free of corruption is the tonic needed to drag it out of its parlous position, said World Bank director for PNG and the Pacific, Zhu Xian.

Papua New Guinea is resource-rich, with oil, gas and gold mines crucial props for its ailing economy, the Dow Jones Newswires said.

But corruption, tribal violence and crime continue to prove troublesome for some global resource companies, it said. This is in turn hindering the nation's financial development.

Papua New Guinea's mining revenues are falling and new resources projects are thin on the ground, the Dow Jones Newswires said.

Sir Michael Somare's coalition government, which came to power last year, has promised an export-driven recovery. It has moved quickly to slash spending and suspend asset sales to avoid fire sale deals.

But the World Bank, having completed its last US$90 million structural adjustment program to PNG in December 2001, is looking for more fundamental changes, Dow Jones Newswire reported.

Zhu told Dow Jones Newswires when questioned about the possibility of a new structural adjustment loan: "We are not considering that kind of general budgetary support. What is needed badly in PNG isn't money. It's institutional changes; it's capacity building. The message is, we need to see some progress, modest or limited as it may be. We don't want one step forward, two steps backward."

Zhu has a World Bank team in the Papua New Guinea capital of Port Moresby in the past week examining the government's fiscal situation.

He told Dow Jones Newswires: "They specifically requested our assistance. We are encouraged because the government is fully aware it must do something to put its budget situation in order."

His comments coincide with the release of a dire assessment which describes Papua New Guinea as sliding into lawlessness.

According to the analysis, compiled by Australian think tank Center for Independent Studies, "Papua New Guinea shows every sign of following its Melanesian neighbor, the Solomon Islands, down the path to economic paralysis, government collapse and social despair."

It said lucrative mining revenues and generous levels of aid have "subsidized a small political elite" at the expense of investment in roads, education and health.

"Population growth is high but economic growth is negligible so that the country is going backward," the report warned.

Violent crime rates are soaring, law and order have broken down and PNG can't effectively monitor and defend its land and sea borders, the report said.

A planned A$6.5 billion project to pipe gas from PNG's Southern Highlands to the Australian city of Brisbane, could help alleviate Papua New Guinea's ills. But the Center for Independent Studies warns such developments tend to be counter-productive, as mineral rents encourage more exuberant spending and borrowing.

For its part, the World Bank is currently focusing on helping PNG prepare key agriculture and infrastructure projects, including the US$100 million rebuilding of its crucial Highlands Highway.

Rehabilitation of the road which connects its mountainous villages with key ports is critical if PNG's economic revival is to occur.

But Zhu, having conducted his first trip to PNG in January since starting his World Bank post, said he doesn't underestimate the challenges ahead.

"In many ways it's a quite complex situation. But the World Bank wants to be a partner for development and be engaged continuously," he told Dow Jones Newswires.

March 14, 2003

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