PORT MORESBY, Papua New Guinea (The National, Aug. 5) - The completion of the Somare Government's first year in office is a good time for a stock-take on the PNG economy. When it came to office, this government had inherited one of the worst budget deficits in the country's history. 

It brought down a supplementary budget to repair the situation. They were trying times. It seems a distant memory now, but towards the end of last year, the kina slid to an all-time low of US19 cents, a shocking signal of the parlous condition of the state.

Finance Minister Bart Philemon opined that there was little the government could do directly about the kina, but he tried to rectify the situation by slashing government expenditures. The market did not take long to recover and the kina soon stabilised, having made steady gains in recent times to hit current levels of around US28 cents.

Other policy measures were put in place to engender confidence and create a better climate for investment as part of the government's policy agenda focussing on export-led economic recovery.

One of the boldest measures was the decision to abandon the previous government's additional tax policies on the resources sector and to put in place a series of incentives. In making these changes, Sir Michael Somare had to jettison policies, bordering on an ideology, which has been set in place when he was first at the helm of government during independence.

The economic advisers of those days, including Professor Ross Garnaut, who continues to play an important role with companies such as Lihir Gold and PNG Sustainable Development Company, were great believers in forcing mining companies to pay resource rents. By and large, these have acted as a turn off for investors.

Sir Michael over the years came to understand the folly of such taxes, a subject of great delight to academics and Treasury boffins, who are focussed on extracting the maximum tax possible from corporate entities. They appear to have no knowledge that many countries in the west and in the developing world in such situations would look at ways of reducing taxes and costs to attract even more investors.

By jettisoning these policies PNG has set itself a path that is already bearing fruit through increased investment plans of companies such as InterOil and Oil Search, and a resurgence in mineral exploration, which was up 160 per cent from a very low base in the first half of this year.

Without a steady flow of investments, the country could well become the basket case that some academics and commentators are claiming it is. But mining and oil could well show the way to greatly improved economic performances.

Some investments that are coming to fruition had their genesis prior to the Somare Government, two notable ones being the Wewak tuna processing plant and the Napa Napa oil refinery. Both are in an advanced state of construction.

However, they will be coming into production in a climate of greater confidence as shown by the news that the economy this year should grow by 2.4 per cent. While it will take several years to make up for the losses in national income that has been inherited, this is a hopeful start and there should be no looking back. 

The government has already promised that a range of new incentives will be offered for agricultural enterprises in the coming budget and Treasury has responded in typical fashion by calculating the claimed losses in government revenue without any comment on the likely impacts of increased investments.

The government has also recognised that it has been the recipient of much good fortune, courtesy of the US war on Iraq, which caused prices of two key export commodities, gold and crude oil, to soar to new heights.

If it can continue to maintain a tight rein on government expenditures and expand its development budget and encourage greater investments, the path will be set for a brighter future.

August 5, 2003

The National: www.thenational.com.pg/


Rate this article: 
No votes yet

Add new comment