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 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.