A SPECIAL REPORT ON THE 2017 BUDGET TO BE HANDED THIS WEEK - A BUDGET STRUCTURED FOR FAILURE TO KEEP PNC IN POWER
Treasurer
Patrick Pruaitch is scheduled to hand down the 2017 Budget in Parliament this
week. Given that 2017 is election year, the Budget is certain to be dominated
by the usual O’Neill Regime spin and deceit, along with wasteful and irresponsible
spending measures.
But the central
feature will be drastic cuts to essential social services such as health and
education, and further suffering for ordinary Papua New Guineans.
Every
successive O’Neill Budget has been a failure, creating more problems than they
solve, and driving the nation further towards total collapse.
This special
PNG Blogs report reveals the ongoing damage Prime Minister Peter O’Neill’s
corruption, greed and mismanagement is doing to Papua New Guinea.
POVERTY
INCREASING UNDER O’NEILL REGIME
The new announcement by the O’Neill Regime that it has obtained a
K1 billion rescue package from the Asian Development Bank proves that Prime
Minister Peter O’Neill’s economic and financial policies are continuing to
fail, dragging more and more Papua New Guineans into poverty and the nation
further and further into debt.
The K1 billion is to be used to support the Prime Minister’s
failed 2016 Budget, his failed 2016 mini-budget and the forthcoming 2017
Budget, and to consolidate the huge debt burden that his reckless and illegal
borrowings have imposed on Papua New Guinea.
But the rescue package is likely to make Papua New Guinea’s
problems worse.
All it will do is allow Mr O’Neill and his political cronies to
spend billions more on beer, bribes and self-glorifying buildings during the
election campaign and leave the people to suffer when the party is over.
The Asian Development Bank has a poor record on enforcing
disbursement and acquittal requirements in its lending to PNG, and the pirates
in the O’Neill Regime are world masters at diverting funds for their own use.
Its country head, Prime Ministerial sycophant Marcelo Minc, does
not have the skills, knowledge, capacity or strength of character to ensure every
toea of the entire K1 billion is used honestly and only for the public benefit.
The bank is dealing with one of the most corrupt nations on earth, and a Prime
Minister internationally regarded as the most corrupt leader in the Pacific.
The reasons for the O’Neill Regime to go begging for money round
the world are clear.
RISING COST OF
O’NEILL CORRUPTION AND MISMANAGEMENT
More economic data and analysis has become available for PNG, and
it is universally bad news for the nation, as well as exposing the rising cost
of O’Neill’s corruption and mismanagement.
The latest information, from the Bank of Papua New Guinea, Treasury,
the World Bank and prominent Australian economic analyst Paul Flanagan, shows
that grassroots Papua New Guineans are getting poorer and poorer under the
O’Neill Regime.
The World Bank’s latest update on PNG paints a gloomy picture. It
states, for example, that there has been dramatic fall in economic activity,
including a year-on-year decline of 3.8% in total non-resource sector
employment.
“It
is likely that the sustained downturn in economic activity will have an adverse
impact on poverty and will most likely lead to rising inequality, with Papua
New Guineans in the lower end of the income distribution bearing the brunt of
the economic downturn more severely,” it said.
Economist Paul Flanagan in fact suggests that the key non-resource
sector of the economy continues to be in recession.
This is the sector, including agriculture, fisheries and forestry,
construction, retail/wholesale, services, manufacturing, transport, that covers
the vast bulk of the population, especially in rural areas.
If the non-resource sector is declining, then the living standards
of the vast bulk of the population will be declining as well.
A traditional definition of a recession is two consecutive
quarters of economic contraction. Quarterly GDP growth numbers are not produced
by any of the domestic authorities – the National Statistics Office, the Bank
of Papua New Guinea and Treasury.
But it is fair to say that a year-on-year contraction in GDP of
the magnitude being experienced in PNG must imply a recession. The most
up-to-date GDP forecasts from the Government are for current growth at 4
percent and heading towards 2% next year. This is after growth of nine percent
in 2015.
PNG IN ECONOMIC
RECESSION
Flanagan reported earlier this year that PNG was in recession. Now
he cites three new pieces of evidence to suggest that the recession is
continuing, at least in the all-important non-resources sector.
·
A severe fall in tax collections shown in this year’s Mid-Year
Economic and Fiscal Outlook. Tax collections are closely linked to underlying
economic growth, and Flanagan estimates that they have fallen in real terms by
30 percent. And there is no likelihood of an improvement in tax revenues from
the PNG LNG project. The O’Neill Regime has finally admitted, after all the Prime
Minister’s lies and spin, that it will not start paying tax until 2020.
·
A report by the Australia-PNG Business Council that its members’
business had declined by about 35 percent in the first six months of 2016
·
Recent news in PNG Business Advantage that “Papua New Guinea’s coastal shipping sector
acts as a barometer for the country’s broader economy. While there has been a
25 per cent drop in volumes in the past year, Bismark Maritime Chief
Executive Jamie Sharp tells Business Advantage PNG the
market is now flattening out.”
The words
“flattening out implies that a 25% lower level of economic activity is here to
stay.
The central bank, in its Monetary Policy Statement for the
September quarter of 2016, has sent O’Neill a number of warnings about the
economic and financial catastrophe he is causing.
The most damning numbers are in the central bank’s predictions for
inflation (the cost of goods and services).
In 2012 inflation was declining and reached a low of less than two
percent per annum in 2012, just before O’Neill took over as Prime Minister.
But, like almost every other economic indicator, the inflation
rate began to worsen, until today it is predicted to hit 7 percent this year.
Next year will be even worse, with a rise of 7.5 percent.
O’NEILL’S PRICE
RISES CRIPPLING HOUSEHOLDS
In other words, Papua New Guineans are paying much more for goods
and services than they were before O’Neill came to power.
The rising cost of living also calls into question whether the
O’Neill Regime has enough money for much-needed public service pay increases.
While the Prime Minister and his cronies grow rich and fat, they are telling
public sector unions that their long-overdue pay rises will have to wait.
A major contributor to price rises is the falling value of the
kina against overseas currencies due to O’Neill’s foolish policies. Any
imported product, or product with an imported component, is now a luxury for
almost all Papua New Guineans.
Despite many attempts to stem the tide, the value of the kina
continues to fall – last week it was worth 31.5 US cents, its lowest value in
more than 10 years, and is now testing the 30.5 US cents barrier.
As a result, even middle-class families in the major urban centres
are struggling to pay for the basics such as food, medicine, housing, clothes,
power, water and fuel.
More and more people are going without as household incomes dry up
- the Government is increasing its fees and charges to the extent that locally-owned
businesses are unable to pay their bills and are sacking staff, leading to a big
rise in unemployment in the formal sector.
O’NEILL REGIME
NOT PAYING ITS BILLS
Adding to business sector woes is that in some instances the
Government is not paying its bills at all, leading to more lay-offs and
sackings.
Nivani Ltd, the local contractor building the
PNG Games Centre in Kimbe posted the following comment on Facebook on Friday:
“Not
much happening on the PNG Games Centre at the moment while we wait for
payments.
“So
far, Nivani has only been paid for work done up to the end of June and here we
are now nearing the end of October with K9.5 million owing at present. It is
impossible to perform for a project like this if you are not getting paid.”
Also on Friday
leading manufacturer KK Kingston announced that it was laying off 10 per cent
of its total work force in Lae. Chief executive officer Michael Kingston said
the company continued to lose business and could no longer afford to pay its
employees.
Mr Kingston blamed
Mr O’Neill’s failed economic policies, saying lower economic activity and a
lack of foreign exchange were the major causes of his decision.
The central bank has highlighted the rise in unemployment in
previous publications, and recent anecdotal evidence suggests that it is
getting worse, feeding the poverty cycle.
Even basic food items - rice, sugar, flour, salt, bully, tinfish, tea
and coffee – are being pushed out of the reach of ordinary families in cities
and towns as O’Neill’s inflation and unemployment bite household incomes.
Last week it was the turn of tinfish, whose prices are rising so
quickly that even a tin of Dolly is now a significant purchase in the settlements
and on the streets. A 175g tin costs K3.80. Ox and Palm is K12.50 for the 520g
tin, a kilo of rice is K5, sugar K5 and flour K5.20.
Remember that in rural areas prices for these goods are many times
higher than in the main centres.
The cost of medicine makes it unaffordable for all but the richest
Papua New Guineans – when it is available.
HEALTH SYSTEM
IN CRISIS
The health system is in crisis because of O’Neill’s cuts to its
budget – and the forthcoming 2017 Budget will only make matters worse, with
further funding cuts.
It is a daily event now for people unable to afford medicine and
doctors to make public or workplace appeals for assistance, while O’Neill and
his political cronies get treatment overseas and claim the costs from the
public purse.
Cancer, TB and malaria drug supplies regularly run out because of
O’Neill’s health budget cuts and because there is not enough foreign exchange
to pay for imports.
Cancer drugs have been unavailable since April, until they began
trickling in to Port Moresby General Hospital earlier this month. Even then
some drugs such as fluorocil, used to treat breast and throat cancer, still have
not arrived, according to the hospital.
Between April and October, therefore, patients have been buying
cancer drugs – at inflated prices - from pharmacies.
For other drugs the sad situation continues: Well-known media figure Titi Gabi posted on Facebook on Friday: “Patient to POM GEN yesterday due for a CT SCAN was told to purchase some aspect of the procedure at the pharmacy because there is no stock! Today grounds were broken for some fancy construction with a sea view only a handful will enjoy. Boy ... have we got it back to front and upside bloody down!
HOW MANY PEOPLE
ARE O’NEILL’S BUDGET CUTS KILLING?
Health authorities are unable to say how many people have died
from treatable diseases such as cancer, malaria and TB because of O’Neill’s
corruption and mismanagement.
The entire health system is in crisis. The major service provider,
Church Health Services, is not being paid on time or in full, if at all,
because of O’Neill’s health cuts.
Aid post staff are not being paid. They have no medicine or
equipment in many places.
O’Neill and his corrupt and useless Health Minister, Michael
Malabag, keep telling Church Health Services that their money is coming, but it
never does. Consequently the largest provider of health services in rural and
remote areas is unable to provide the health care that it aspires to.
People are dying – unnecessarily – because of Peter O’Neill’s
inability to manage Government finances, and his constant lies that “everything
is OK”.
Everything is not “OK” – in fact everything is about to get a
whole lot worse in the health sector.
O’Neill’s failed 2016 Budget revealed that Health spending would
fall from a high of K1.7 billion in 2015 to just K1.2 billion in 2017.
Health funding was further cut in O’Neill’s failed 2016
mini-Budget.
Now even worse cuts than predicted are about to be made. Chief
Secretary Isaac Lupari warned Health Secretary Pascoe Kase last week that his
department would be ripped apart in the 2017 Budget.
Lupari, one of O’Neill’s most crooked cronies, said the department
would be rationalised and restructured to save costs, with possibly hundreds of
jobs to go. The department was “a big monster, overweight and
over-administered,” he said.
SCHOOLS CLOSING
AS MONEY DRIES UP
Like O’Neill’s Health policy, the Tuition Fee Free education
policy is a failure. Schools do not receive their full entitlements or receive
them late. Some do not receive them at all.
Most recently 21 primary schools in Lae sent pupils from grades
three to seven home because TFF funds have not been forthcoming, and the
Salvation Army’s Koki Secondary School in Port Moresby will close this year
because of inadequate funding.
Schools cannot pay their water and power bills. Teaching materials
are unavailable – it was reported last week that schools in O’Neill’s own
Southern Highlands Province are using newspapers to teach their pupils because
they do not have an textbooks or readers.
The O’Neill Regime cannot even keep its premier tertiary
institutions running properly. The Government promised Unitech K40 million to
get it going again after the student protests, but has failed to deliver.
Teachers, like many other public servants, are not being paid
their full entitlements. In some cases they are not being paid at all.
The frustrated wife of a fireman recently wrote a letter to the
editor stating that her husband and 41 of his colleagues have not been paid for
six months.
“As
woman and a mother, let me share my grief and hardship,” she wrote. “The
suffering that was inflicted on my children and me, especially the financial
suffering, was not our creation.
“We
were deprived of and lost many things that our family were supposed to have in
terms of food, clothing, rentals, children’s education etc.”
PUBLIC SERVANTS
NOT BEING PAID
Even prisoners are suffering because the O’Neill Regime’s cash
crisis means there is not enough money for the Department of Corrective Services
to feed them properly.
An elderly former policeman, a long-retired Sergeant, says he
hasn’t been paid his police pension since June. Neither he nor his many
colleagues have received any explanation or information when payments are
likely to resume.
The O’Neill Regime owes tens of millions of dollar in
contributions to Nambawan Super, and retirees are therefore not receiving full
payment for a lifetime of loyalty and hard work in the Public Service.
Many middle-class Papua New Guineans are so desperate they are now
turning to loan sharks, usually run by Asian gangsters in partnership with
politicians. One public servant, earning K500 a fortnight and supporting the
usual extended family, says she is living in a vicious circle of debt and
refinancing and now owes K17,000. She says she has no chance of ever paying off
the debt in full.
These are common stories now in Peter O’Neill’s Papua New Guinea.
He just doesn’t care about the suffering of the grassroots. He doesn’t care
about health. He doesn’t care about education. He doesn’t care about workers. All
he cares about is making himself and his cronies rich.
O’Neill’s failed policies combined with his regime’s blatant
corruption have brought national development to a standstill, and this in turn
is leading to increasing social dislocation.
The head of the Evangelical Lutheran Church in Papua New Guinea,
Bishop Jack Urame, says sorcery-related killings are a development issue.
His comments came after reports that a Lutheran pastor's assistant
accused of sorcery was buried alive in a remote area of Jiwaka Province. Bishop
Urame said the incidence of such killings is on the rise.
“In remote areas where these attacks tend to take place, there's
usually a lack of development, basic infrastructure and access to health and
education facilities and people are suffering,” he said.
CRIME RATE REFLECTS LACK
OF DEVELOPMENT
Prominent lawyer and head of Task Force Sweep, Sam Koim, also blamed
increasing crime on the O’Neill regime’s failed economic and financial
management.
“As a result of
the current economic hardships we're facing, many firms have laid off staff,”
he said. “The increase in unemployment brings frustration to the consumer due
to a loss of disposable income. The standard of living for most falls greatly,
which puts great pressure to maintain the lifestyle many of them are accustomed
to.
“With the
relatively high cost of living, people are forced to engage in criminal
activities to survive. Most of these are property crimes such as theft that
explains why the sudden surge in criminal activities. The unemployment rate is
one of the best indicators of the health of our economy.”
shop owners and
other business people in the city to be on high security alert. Similar warnings
have come from Lae police.
Turi’s warnings came after a series of armed holdups by gangs and
at least one death in the past two weeks. Some of these crimes, and others,
have in fact been committed by police.
The Royal PNG Constabulary has been corrupted by the O’Neill
regime, from the Chief Commissioner Gari Baki downwards, and is now a major
contributor to crime and corruption, including acting as a private army for the
Prime Minister and.
Commentators on Papua New Guinea, even the grassroots who are
suffering, are always asking the question, if we are so blessed with resources,
how come we are so poor?
The answer has been in front of the nation all the time – corrupt
and incompetent leaders, culminating in the most corrupt and incompetent of
them all, Peter O’Neill.
Action is needed, rather than asking this meaningless question
over and over again.
A measure of O’Neill’s corruption can be gauged from his private
drunken boasting that he is the richest leader in the Pacific, and PNG’s first
billionaire.
He has extensive property interests overseas, including Australia,
and is planning a new penthouse purchase in New York estimated to be worth $100
million (K300 million).
Stories abound of two $10 million (K30 million) penthouses in
Sydney, and other property in Queensland arranged through shady deals involving
the Cragnolini and Constantinou families.
Ni Cragnolini is one of O’Neill’s favourite little ladies, being
involved in the Peter O’Neill Foundation, which is a money-laundering and tax
evasion scam and a device to funnel tens of millions of kina in public money
and donations from big business to PNC.
O’NEILL
MONEY-LAUNDERING
O’Neill routes all sorts of public money through Cragnolini – for
example the K50 million 40th Independence celebrations account – in
return for special favors.
One such favour late last year was to attempt to launder K50
million in Australia, shortly after O’Neill himself illegally transferred K200
million there.
Meanwhile, O’Neill’s foreign exchange crisis means ordinary
businesses (unless you are a special friend of the Prime Minister) are limited to K25,000 per day.
Special
corporate friends of the Prime Minister include LR Group of Israel (which is
linked to his personal advisor Jakob Weiss) Digicel (with whom he has a
business relationship) and Trukai and Puma.
O’Neill’s
foreign exchange disaster is crippling the business sector despite all his spin
pushed out by the mainstream media and commercial profiteers such as the Oxford
Business Group, which offers glowing reports in exchange for lucrative
advertising contracts with State-Owned Enterprises and other institutions.
The only
people thriving in today’s Papua New Guinea are the Prime Minister and his
cronies.
Recent
commentary by the central bank and by Treasury (Mid-Year Economic and Fiscal
Outlook and Final Budget Outcome for 2015 in particular) reflect the climate of
fear that O’Neill has engendered in the Public Service and important
institutions.
CLIMATE OF FEAR IN PUBLIC SERVICE
It is known
that both Vele and Bakani have been faced with the threat of instant dismissal
if they did not do as O’Neill tells them. This is typical behaviour by O’Neill
and Chief Secretary Lupari, which also includes keeping departmental heads
under control with acting positions, drawn-out contract negotiations and other
corrupt mechanisms.
The delicacy
of the positions of central bank Governor and Treasury Secretary are such that
sensitive information is extremely hard to find in official publications. It is
there, but well hidden and couched in obscure terms.
None of this
information is reflects positively on the O’Neill Regime’s economic and
financial management, its transparency and accountability, and its probity.
But it is
not just the Prime Minister’s personal corruption that is of concern. Virtually
every institution of state has been compromised, with potentially profound
economic and financial consequences.
State-Owned
Enterprises have been turned into piggy banks for O’Neill personally, for PNC
and for Prime Ministerial cronies.
Millions of
kina are being siphoned off each year in “donations” to various causes and
organisations, and fake “dividends” are being paid to the State through the
simple expedient of borrowing the money from commercial banks.
More than
K30 million disappeared from MRDC during the recent vote of no confidence to be
used as bribes by PNC. Hundreds of millions of kina of landowners’ money has
been invested in shady hotel deals in PNG and overseas.
MRDC under
O’Neill, chairman Isaac Lupari and managing director Augustine Mano
does not publish its accounts and does not provide any form of financial
accountability and transparency for any of its so-called “investments” or
indeed any information about how it handles the money it holds in trust for landowners.
It is a PNC slush fund, pure and
simple. The MRDC example is repeated across the
state-owned sector and shows why service delivery has virtually ceased in many
parts of the country.
Now O’Neill
has turned his attention to the House of Kumul, which controls all State-Owned
Enterprises through Kumul Consolidated Holdings. The Prime Minister has made
himself sole trustee of each of the Kumul entities, with unlimited power to
control them personally, and no serious transparency or accountability requirement.
KUMUL HOLDINGS IS A PNC SLUSH FUND
The House of
Kumul is being set up as another, richer and more powerful PNC slush fund, with
O’Neill cronies and yes-men on the various boards and in management.
Its major
economic and financial role as a contributor to the proposed Sovereign Wealth
Fund is unlikely to be fulfilled. The absence of an SWF over the past decade is
one of the leading causes of the O’Neill economic disaster.
The Prime
Minister and his economic and financial advisers who have got PNG into this
mess have failed to realise that the nation’s economy is subject to the
cyclical swings of commodity prices, and to act accordingly.
One of the
most important ways to cushion the effects of commodity price cycles is to have
a an effective sovereign wealth fund where money from the good times is saved
for the bad times, and applied to worthwhile infrastructure and social
investment.
O’Neill does
not want this –he wants a slush fund. This is evidenced by his decision to
throw out former Prime Minister Sir Mekere Morauta’s legislation setting up a
corruption-proof sovereign wealth fund and to substitute it with the current
legislation with all its inherent flaws and weaknesses.
Treasury and the central bank have begun
work to set up the SWF Secretariat, including seeking expressions of interest
for board and management positions. But their attempts to achieve some form of
transparency and accountability, as well as enforce fit and proper persons
tests, are certainly going to be thwarted by the Prime Minister.
In any case most eligible Papua New
Guinean directors are yes-men and time-servers who have used their positions on
boards at IPBC and SOEs to line their pockets while allowing O’Neill and his
cronies to raid the till at will. Many are in fact full paid-up members of the
O’Neill corruption machine.
Economist Flanagan recently cautioned
about the proposed sovereign wealth fund in his analysis of the central bank’s
September 2016 Monetary Policy Statement.
He wrote: “The
design of the fund remains seriously flawed with the Kumul entities being able
to hold back resource dividend payments.” This means that, on top of its gross transparency and accountability
failings, the new SWF will be allowed to defeat its own purpose!
The warning is one of a number issued by the central bank in in
its Monetary Policy Statement.
Another concerns the fact that commercial banks, led by BSP, have
reached their government lending limits and therefore the budget deficit can no
longer be financed domestically. The central bank warns that further overseas
borrowing is necessary, on top of the recent $US500 million (K3 billion) Credit
Suisse borrowing and the K1 billion ADB borrowing.
O’Neill is still trying to negotiate a sovereign bond issue,
probably between $US500 million and $US1 billion, but the terms and conditions
are likely to be punitive given that he has destroyed the nation’s credit
rating to below junk bond status.
A successful sovereign bond placement would push PNG’s debt to GDP
ratio even further beyond the 30% allowed under the Fiscal Responsibility Act.
Total national debt is now about K30 billion and rising, and annual repayments
are likely to be pushing K3 billion a year.
REPAYMENT OF
ILLEGAL DEBT DOMINATES BUDGET SPENDING
Debt repayment is almost double the current spending on individual
sectors such as health, education and transport. Repayment of debt is now likely
to be the largest single spending item in the national Budget unless
consolidation and rationalisation takes place in the 2017 Budget.
In the 2016 Budget, interest repayments of K1.5 billion were
bigger than sectoral spending on, Community and Culture, Economy, Education,
Health, Law and Justice, Transport and Utilities.
As well, there are some indications that Papua New Guinea may be
about to borrow even more – on punitive social terms – from the World Bank,
International Monetary fund and International Finance Corporation family.
Flanagan says some
of the debt figures announced by the central bank in the September quarter
Monetary Policy Statement are “deeply disturbing.”
“Relative to
slow credit growth for the private sector, the level of net government
borrowing has been growing at a very high rate in recent years (51.1% in 2014
and a further 28.4% in 2015), he says. “Extraordinarily, this has
increased a further 76.9% through to July 2016.
“Implausibly,
this growth rate is expected to plummet to only 1.8% for 2016 as a whole, and
then decline slightly in 2017. This would only be possible if the sovereign
bond was fully realised (some K2.5 billion) in 2016 and used to retire current
government debt rather than meet budget cash shortfalls. This is an
unlikely scenario.”
Papua New Guinea’s unsustainable debt position has been worsened
by the fact that GDP growth is now forecast to be two percent, compared to
O’Neill’s false and boastful comments earlier this year that it was one of the
world’s strongest at more than 9 percent.
PAPUA NEW
GUINEANS GETTING POORER BY THE DAY
The fact that GDP growth has fallen below population growth of 2.2
percent explains why living standards and the quality of life of ordinary
citizens are declining under the O’Neill Regime. This is on top of existing
impacts dragging more and more people into the O’Neill poverty trap such as rising
prices, unemployment, the failure of service delivery, the failure of the free
health care policy and the failure of the Tuition Fee Free education policy.
The central bank also warned against a continuation of O’Neill’s
reckless and irresponsible spending on self-glorifying and wasteful
infrastructure projects in Port Moresby.
It
said: “the Government should manage its cash-flow prudently and effectively. In
the past, the Central Bank has advised the Government to save windfall revenue
for spending during times of economic slowdown. There have been experiences of
lost opportunities in the past where surpluses were not saved for the future.”
The O’Neill Regime to manage its cash flow prudently and
effectively in an election year? The central bank must be making some kind of
joke. The recent announcement that O’Neill would spend at least K600 million on
the proposed APEC meeting, and K120 million on APEC Haus, all in Port Moresby,
puts the bank’s statements in context.
Recent bank and Treasury publications have highlighted how low
Government revenue is affecting expenditure on the delivery of goods and
services as well as payments for service providers. The dramatic revenue
decline underlies warnings about the 2017 Budget, including predictions of
“drastic cuts” by Chief Secretary Lupari.
According to a bank business survey, some service providers in the
private sector raised concerns about the Government not paying them on time,
affecting their operations.
CORRUPTION
PROOF SOVEREIGN WEALTH FUND NEEDED
The bank’s comments simply confirm two things – that the
government does not have enough money to pay its bills and that the need for an
effective, corruption-proof SWF is now critical.
The bank also warned the Government that there was an urgent need
to diversify the economy away from its reliance on the resources sector. “PNG
will continue to face issues of low international commodity prices and other
supply shocks to the economy,” it said.
“Therefore, diversifying into import substitution and export-based
industries and increasing the productive capacity of the economy is a crucial
policy particularly for the agriculture and other non-mineral industries. This
includes encouraging and supporting Small to Medium Enterprises (SMEs) by
providing training on financial literacy and entrepreneurial skills, and
financial inclusion initiatives.
“It
is therefore vital that the Government continues to implement structural
reforms and appropriate trade and investment policies that would boost
investments and growth in the non-mineral sectors, especially agriculture.
“Given the constraints with the Government’s implementation,
monitoring and enforcement capacity, engaging in programs such as
Public-Private Partnerships would assist in achieving its development plans.
Any initiatives by State Owned Enterprise (SOEs) to work in partnership with
the private sector should be encouraged and necessary legislation be put in
place for a more cost-effective service delivery framework.”
But given that the resources and state-owned sectors are O’Neill’s
most richest source of slush funds and a powerful lever for political
influence, this is unlikely.
Flanagan takes up this theme in his analysis of the bank’s
Monetary Policy Statement, and adds his own warning. He says existing policies
in regard to land, agriculture and Small to Medium Enterprises are likely to undermine
sustainable growth.
COUNTRY’S
INVESTMENT REPUTATION DESTROYED
Matters are far worse than Flanagan lets on. Many new policies
will further undermine investor confidence following the expropriation without
compensation of the Ok Tedi copper mine from the international NGO PNG
Sustainable Development Program.
In its 2015 decision on the expropriation case, the International
Court for the Settlement of Investment Disputes accepted the O’Neill Regime’s
argument that the court did not have jurisdiction to hear cases involving PNG.
The decision in the Government’s favor leaves billions of kina worth of foreign
investment unprotected.
Foreign companies always thought they had protection from unlawful
expropriation without compensation, but the Government took that protection
away from them through ICSID.
Papua New Guinea has historically relied on two pieces of
legislation – the Investment Promotion Authority Act and the Investment
Disputes Convention Act – to promote the security of foreign investment by
allowing disputes to be referred to ICSID.
For example the IPA web site states: “International Centre for Settlement of Investment Disputes. Section 39 of the Act seeks to encourage greater flows of international investment by providing facilities for the conciliation and arbitration of disputes between government and foreign investors.”
But as a result of its successful arguments in the PNGSDP case in
ICSID, that security has been stripped away. The Government’s position, as
reflected in that decision, is that the only way to protect investment by going
to ICSID is to have a signed agreement with the State underpinned by a
Bilateral Investment Treaty.
Many foreign companies are unaware of the consequences of the
ICSID decision, which has dealt a serious blow to PNG’s country risk
perceptions. Soon after the decision, and following the realisation of PNG’s
financial and economic crisis, international ratings agencies Moody’s and
S&P downgraded PNG from stable to negative late last year – and to below
junk bond status.
Flanagan’s reference to SME, land and agriculture policies may
have much to do with the mad Soviet-style interventionist policies that O’Neill
favors. The SME policy is especially astonishing, and its implications have
struck fear into the hearts of the foreign business sector, hinting as it does
of further expropriations, more regulation and control of the private sector
and significant interference in markets.
Some features of the SME policy, which is gradually being
implemented:
· Enable
citizens to take over majority ownership of the economy by 2030
· Implementation
over next three years
· SMEs
to own over 70% of formal economic sector (currently 10%)
· Increase
current SME GDP contribution from 6% to 50%
· Lots
of financial incentives and trade barriers
· Seed capital of K3 billion (where is that money
going? What could possibly go wrong?)
· Includes K1 billion to help citizens acquire
Reserved Activity List businesses from foreigners. (They’ll get those
businesses by threat anyway. Where is the money going to go? What could
possibly go wrong?)
· Many foreign firms – not just Australian - will be
affected by compulsory acquisitions
· Both the Port Moresby Chamber of Commerce and Industry
and the Manufacturers Council members are known to be extremely worried, and
are preparing position papers. They have a snowflake’s chance in hell on
current indications.
· Projected increases in political interference in and
regulation of financial markets, especially the banking sector. Market
interference is proposed in other sectors
· Growth in the role and importance of State-owned
Enterprises, them being being political slush funds with virtually no
transparency and accountability.
Associated
with the SME policy is a new Reserved Activities List of occupations and
businesses reserved for citizens or majority citizen enterprises. POMCCI stated
that many of its members “will have some concerns on conformance with a new reserved
activity list”.
At
this stage the
RAL lists the following activities as reserved:
· Coastal (water)
transportation of people or goods
· All forms of fabrication
· All agencies and franchises
· Saw milling or sale of
timber
· Growing of tree crops
(including oil palm , tea , coffee)
· All forms of IT and ICT
services
· Media and communications
While
the stated principles of the SME policy are laudable – much increased business
ownership and management by citizens and a far greater contribution to the
economy – much of the detail is precisely the sort of deluded, nationalistic mumbo
jumbo that has caused the problem in the first place.
FOREIGN BUSINESS UNDER THREAT
Big names that would be
affected include Consort/Swire Shipping, Steamships, the Post-Courier and the
National, the largely Malaysian conglomerates that own the oil palm companies
but others as well, Carpenters, Monier, Curtain Bros and other construction
companies, and food companies such as SunRice (Trukai), Coca Cola Amatil, and
Goodman Fielder.
Recent politically-motivated
decisions to investigate certain land titles show that foreign-owned or leased real
estate is not safe, There is also a sense that resources companies could be in
the line of fire as well, given O’Neill’s recent comments about ownership of
resources and landowner rights.
Recent decisions by the central
bank have also undermined PNG’s reputation as an investment-friendly nation. In
an attempt to stabilise the exchange rate and protect foreign reserves, the
bank has announced new forex control measures.
Flanagan writes: “These new quantitative restrictions are based on
giving priority to spot purchases. This is indicative of a policy crisis.
Essentially, non-spot transactions (so most capital movements rather than just
direct payments for imports) are being locked out of any freely convertible
currency arrangements.
“This means
that firms in PNG may find it easier to pay for imports, but still cannot pay
shareholders’ dividends. People who are retiring from business or who have been
scared off by current government policy settings find it hard to sell their
business. These are type of incentives that cripple foreign investment that is
vital for PNG’s future growth prospects.”
Flanagan doubts that, overall, there will be any short-term
improvement in the exchange rate. Indeed, he regards the kina as still
over-priced, to the detriment of most Papua New Guineans. The
beneficiaries of a more competitive exchange rate would be “all of PNG’s cash
crop exporters and those that may gain from increased investment and future
growth in agriculture, tourism, import-competing industries and other exports”,
he said.
All the evidence suggests that
times are going to get tougher rather than better. And the evidence from
previous failed Budgets and Mini-Budgets is that the 2017 Budget will do
nothing to improve the condition of the nation and its people.