SO WHAT WILL HAPPEN IF PNG HAS A FINANCIAL CRISES



The financial crisis that has crippled the Greek economy serves as a cautionary tale against irresponsible spending.
GreeceFirst, it may be helpful to students to explain that government finances are not much more difficult to calculate than the numbers in one’s personal bank account. A country earns X and spends Y; Y should not exceed X. Just as responsible borrowing and credit are an important part of personal money-management skills, countries should borrow only what they need to get by, under strict rules of payback.
Greece not only eschewed the rules of responsible spending, the country also completely ignored the rules of responsible borrowing. The result was catastrophic debt that the country is unable to repay, potentially leading to financial crises in the countries that loaned money to Greece.
The Greek financial trouble started decades ago when government after government increased the size of the country’s payroll. A “you scratch my back…” system rewarded supporters of the two biggest political parties with government jobs. This practice eventually led to a Greece where one in five citizens of working age held a government job.
At one point politicians stopped offering so many government jobs and instead began handing out raises to those already working for the government. This, coupled with notoriously poor tax collection enforcement, had Greece scrambling to keep the money flowing.
The country turned to its neighbors and began to borrow. The lenders offered money with little question, because as a member of the European Union, Greece was required to adhere to strict financial restrictions including not allowing its national budget deficit to exceed 3 percent of its economic output. Greece’s debt soared, but no one was concerned because the Greek government continued to report a national deficit of 3.4 percent.
The final blow was struck with the election of a new government that discovered the country’s financial books had been “cooked” for years. The 3.4 percent deficit was a lie, and Greece was really operating on a national deficit of just over 15 percent. This revelation, coupled with the demise of Lehman Brothers Holdings—a New York City-based investment bank—in 2008 and the worldwide economic crisis that followed, led Greece’s lenders to enact stricter borrowing rules. The country’s borrowing costs skyrocketed, and in an instant, it became impossible for Greece to repay its debt without taking further loans.
European Union countries and the International Monetary Fund stepped up in 2010 with a 110-billion-euro bailout (a euro equals about 1.33 U.S. dollars). The money was given with the condition that Greece implement severe “austerity” measures including deep government spending cuts and wage lowering. These measures led to a dangerously sluggish Greek economy. A second bailout of 130 billion euros has been agreed to, with 30 billion going to the country’s private debtors and 40 billion going to the Greek banks, which are expected to report massive losses.
Despite all of the austerity measures and bailouts, experts estimate that Greece may not reach financial stability until the year 2020 or later.
- See more at: http://www.educationworld.com/a_lesson/explaining-the-greek-economic-crisis-with-students.shtml#sthash.Z1GT9GwN.dpuf
PNGBLOGS CONTRIBUTOR NETWORK

The financial crisis that has crippled the Greek economy serves as a cautionary tale against irresponsible spending.

Greece not only eschewed the rules of responsible spending, the country also completely ignored the rules of responsible borrowing. Similar to that of Papua New Guinea,  The result was catastrophic debt that the country is unable to repay, potentially leading to financial crises in the countries that loaned money to Greece.

The Greek financial trouble started decades ago when government after government increased the size of the country’s payroll. A “you scratch my back…” system rewarded supporters of the two biggest political parties with government jobs. This practice eventually led to a Greece where one in five citizens of working age held a government job.

At one point politicians stopped offering so many government jobs and instead began handing out raises to those already working for the government. This, coupled with notoriously poor tax collection enforcement, had Greece scrambling to keep the money flowing.

The country turned to its neighbors and began to borrow. The lenders offered money with little question, because as a member of the European Union, Greece was required to adhere to strict financial restrictions including not allowing its national budget deficit to exceed 3 percent of its economic output. Greece’s debt soared, but no one was concerned because the Greek government continued to report a national deficit of 3.4 percent.

The final blow was struck with the election of a new government that discovered the country’s financial books had been “cooked” for years. The 3.4 percent deficit was a lie, and Greece was really operating on a national deficit of just over 15 percent. This revelation, coupled with the demise of Lehman Brothers Holdings—a New York City-based investment bank—in 2008 and the worldwide economic crisis that followed, led Greece’s lenders to enact stricter borrowing rules. The country’s borrowing costs skyrocketed, and in an instant, it became impossible for Greece to repay its debt without taking further loans.

European Union countries and the International Monetary Fund stepped up in 2010 with a 110-billion-euro bailout (a euro equals about 1.33 U.S. dollars). The money was given with the condition that Greece implement severe “austerity” measures including deep government spending cuts and wage lowering. These measures led to a dangerously sluggish Greek economy. A second bailout of 130 billion euros has been agreed to, with 30 billion going to the country’s private debtors and 40 billion going to the Greek banks, which are expected to report massive losses.

Despite all of the austerity measures and bailouts, experts estimate that Greece may not reach financial stability until the year 2020 or later.

Now that we set the scene on what has happened to PNG and what has caused its financial demise,

let’s take a look at history and what has happened to other countries that have been bankrupt.

The most basic systems and institutions that people have come to depend on will simply disappear. Power companies stop operating, the police stopped working, gas stations close, grocery stores run out of food, postal workers stop delivering mail, retirement checks stopped coming, and banks close their doors with bankers fleeing the country, taking people’s life savings with them.

Here are some of the things you can expect that will happen;

• When a country declared bankruptcy its debt is restructured and it only pays very little of it back but the problem with that is the rating agencies in the world issue a warning which stops international companies from operating and investing in the country.
This means all the money that comes into PNG from foreign businesses will stop, resulting in businesses closing down and people losing jobs.
Current overseas companies operating in PNG will close their doors, take their money and leave the country.

• PNG’s currency will basically become worthless meaning buying anything from overseas will be very expensive and some countries will refuse to accept Kina for goods or services. This will result in cost of goods in PNG becoming very expensive.
People might start using other countries currencies like Australian or US dollars similar thing happened in Argentine in 1999, when its currency became worthless.

• Many foreign countries might refuse to buy/ import goods from PNG because they think they might not be of good quality or be damaged by the time it arrives.

• Property prices will drop massively meaning bank’s will want to get back as much money before the currency drop’s so there will be a fire sale by the banks to liquidate all properties that have loans with it.

• PNG Stock markets will stop trading all companies trading on the stock market stocks will either be delisted or holt in trading meaning if you own stocks you won’t be able to get your money back.

• Pension schemes if not invested in other currencies will become worthless as the KINA devaluates.

• People will make a run on the local banks meaning people will want to take out all their savings asap before the banks close their doors this will cause allot of problems for the banks. In some countries banks were closed indefinitely until order was restored in the country.

• When a country cannot pay for its public servants and defence force this will give people an easy reason to loot and cause riots. As a result of these civil protests many infrastructures will be destroyed in the process as a result of up rise in the country.

• Most or all wealthy people will take all their money and leave the country