It appears that the peaceful rise of China is calculated by other countries as a potential threat in the international system. In essence, China is not a threat as perceived. China indeed is just another ordinary state making waves to restore her lost pride after being materially defeated, humiliated and shammed by the West and Imperial Japan in pre-modern East Asia. China accepted Western norms and aggressively integrated into a U.S-led liberal order. Her peaceful rise to global prominence is paradoxically a hybrid balance between socialism and capitalism, which many scholars are still struggling to explain. I attempt to explain China’s peaceful rise and its threat perception in Asia-Pacific region employing two levels of analysis –regional and national.
Regional Level:
China’s national interest is to attain a “Peaceful Great Power status” through economic development in the international system without upsetting the “rules of the great power game”. Her foreign policy is premised on the philosophy of national strength driven by economic power and strong leadership. The main objective is to project and build soft power diplomacy with more concentration in developing countries to share its wealth and promote peaceful and harmonious society. China does not intend to become neither a hegemon nor pursue an expansionist approach in the region or globally.
There are four reasons why China is not a threat in the Pacific region. First, China is a developing country with huge internal problems to solve. Poverty and corruption are the greatest challenges. In December 2010, President Hu Jintao when launching the new 5 year National Strategic Plan clearly announced more focus on sustaining domestic development and soft power diplomacy.
Second, geo-strategically, China is still no-match for U.S as the great power. Although China is rapidly building its strategic capability it does not necessarily predicate as a challenger. China is building a defensive military power to safeguard its sovereignty and economic interest in the neighboring maritime theater. It would take more than a decade for China to be a regional threat. History shows that rising powers and great powers collapse, Japan, Germany Britain are classical cases. The U.S, although declining in economic power still, poses unchallenged capacity and capability as a global leader. The future still remains gloomy for China; whether she will sustain her current economic growth is still unknown to us, let alone time, distance and space be foretold.
Third, China is only a rising regional power and not a global or great power. The U.S is still the great power and regional power in Asia-Pacific region. The U.S has maritime superior capability than China. China has continental capability but lacks maritime capability, which is why she depends highly on U.S blue-water shield to protect her oil shipping route in the Indian Ocean. China currently has no plan in her grand strategy to build superior maritime capability, perhaps in the future should the demand arise. More so, the multipolar system of balance of power in the region suggest otherwise. Japan, South Korea and Taiwan are U.S allies which makes it more difficult for China to challenge the status quo. India, another rising power in South Asia, South East Asians Vietnam as conventional enemy and Indonesia may rise to balance against China.
Fourth and final, interdependence facilitates cooperation and precludes war. This can be best explained in Robert Keohane and Joseph Nye scholarly work entitled "Complex Interdependence”. Both argued that today, with globalization, the complex web of interdependence makes war unthinkable and cooperation as a diplomatic means to maximize absolute gains and resolve conflicts. International institutions remove cheating and tie down rogue states through issue linkage. China needs U.S and other smaller neighboring states to drive her modernization agenda in order to co-exist in the international system. She cannot afford to lose which of them. The recent visit to U.S by Hu Jintao may reduce security dilemma or uncertainty between the two rivals in the region. The China Daily of 22nd January, 2011 reported that "The state visit is staged as a celebration of China's rise - a message from Obama to both the American people and the Chinese that the United States does not consider China a 'strategic competitor', that is, a military threat. Instead, China is now a major power that the US will treat as such."
In projecting future implications, the Chinese expansion and influence in Asia-Pacific region may perhaps be calculated as a potential threat to U.S conventional sphere of influence, and thus may most likely cause friction leading to conflict, however, war is unthinkable. In strategic terms, relative gains matters in U.S national security as China continues to strategically wield her soft power diplomacy in the region. The more China gains in the region; it will be a threat to U.S. Consequently, miscalculation of Taiwan issue may lead China to war at all cost. China firmly maintains that Taiwan-Tibet issues are internal affairs and strongly condemns Taiwan’s bid for independence. China may most likely use force should and when Taiwan and Tibet backed by allies declare independence.
National Level:
Is China a threat to PNG? There are a lot of biased opinions about China. In order to make a logical value judgment about China, one must first study Chinese history, culture and diplomacy rather than be argumentative through the lens of objective perception.
Today, China is attempting to build a good image in the international community through soft diplomacy. China aims to share her development experiences with developing countries like PNG, which is still struggling to develop with 'boomerang aid' and other issues for the last 30 donkey years.
The recent crises in PNG and Solomon Islands may have been used as a political agenda or tool to tarnish China’s good image. Beijing cannot be accused of others' actions. What had transpired may be an international organized syndicate which may not necessarily be linked to the Central Communist Party (CCP) in Beijing, which condemns such incidents and punishes perpetrators who tarnish her good image internationally.
More so, the territorial disputes between China and Japan and Vietnam are highly controversial in nature and may not necessarily be employed as a strategic calculation for China to use coercive force (military intervention) in PNG. To further cement that argument, it is almost impossible for China to use coercive force in PNG with the presence of U.S and her allies – Australia, New Zealand and Japan in the region. Strategically speaking, any country in Pacific is not a credible threat to China.
Premised on this projection, PNG has to shift her foreign policy with the current shift in global power. PNG cannot isolate herself from China, now the second global economic power. Even big powers such as U.S and Japan are investing heavily in China. Although others calculate China as a threat, PNG stands a chance to maximize absolute gains if she strategically maneuvers the game. PNG has the potential to play smart diplomacy. In sum, China’s peaceful rise is an economic advantage for PNG as a Small Island Developing Economy to play the right card to ensure a win-win situation.
Sunday, January 23, 2011
Friday, January 21, 2011
Encouraging Competition in State Enterprise Market Economy
Francis Hualupmomi
It appears that the current trend in competition in the state enterprise market economy is unable to meet increasing demand in consumers’ and state’s expectations. With emerging economic activities bourgeoning in PNG, the government will be under pressure to perpetuate open competition in the state enterprise market economy. The question is, is the government ready to encourage competition?
Let me begin this exposition be employing Merriam-Webster definition of competition as the conceptual premise of competition in market economy as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms”. Competition in the economy is strategically significant to allow two or more firms in the market to compete to secure market shares. This disposition of economic game of invisible hands constructs the propensity for firms to provide quality and affordable goods and services to consumers.
Theoretically, however, competition does not necessarily predicate advantageous in nature rather may have negative implications should it not be managed effectively and efficiently under an economic framework governed by a political and economic actor. In essence, state intervention necessitates regulated norms to ensure level playing field in the interest of relevant economic actors to maximize expected optimum output and outcome.
The political economy of state enterprise in PNG is an interesting case in point, which saw a shift from regulated market to deregulation to privatization in the market economy. Faced with domestic and external forces the state under the then leadership of Mekere’s regime provided the economic reform package in 1997 as a take-off point in an attempt to restore continued economic decline underscored by Skate’s regime.
The reform package calls for privatization in telecommunication, financial, electricity and transportation sectors respectively. The Post and Telecommunication was separated into Postal Services and PNG Telikom, PNGBC was acquired by BSP, and Air Nuigini. This reform till date still provides some economic incentives to state’s national budget.
Historical trend in public enterprise market economy in PNG evidently suggests that competition in the political economy of state enterprise remains inherently weak to meet consumer expectations and state’s economic imperatives hence, is under question. The rationale behind public enterprise privatization was twofold: poor performance or governance issues and to create competition in order to sustain the national economy through innovation in business culture. Yet, these economic actors remain at best less innovative largely due to less or weak competition.
For instance, Air Nuigini, although charging exorbitant fees, still is struggling to provide sufficient profit for the state, whilst PNG power is faced with continuous power blackouts disturbing socio-economic consumers. On the hand, PNG Telikom is also struggling to support state’s revenue base. The entry of Digicel Mobile Company has truly awakened the notion of competition in the country. More frustratingly, BSP enjoyed continuous unnecessary increase charges to clients affecting low income earners. In sum, these enterprises have enjoyed a monopolized culture consequently resulting in inefficiency and revenue loss.
With poor performance in these markets and recent boom in the economy it is imperative that the state should reconsider encouraging competition to avoid inefficiency and meet consumers’ new and diverse expectations. Competition, although is quite risky in infant economies such as PNG, it is a strategic tactic to reduce monopoly, encourages innovation in business culture and ensuring efficiency and effectiveness.
Increasingly significant, is the modernization and industrialization agenda driven by LNG projects that will require widening the size of the national economy. PNG economy is quantitatively growing in size which relatively increases and diversifies consumer base. The demand will trigger upward pressure to increase competition to meet this emerging demand. For instance, more foreign investors will spur upsurge in borderless capital transfer, which would inevitably require provision of more wide range of services in the market.
Given this unstable scenario, what should the state do as the rational actor in the national economy? The government mandated through a social contract between consumers should consider realigning its strategy by introducing competition and allowing more foreign investors to compete in the market economy.
Whilst competition is strategically vital for economic growth it is also a risky economic exercise in developing countries like PNG where the economic base is still in its infant stage. The state whilst encouraging competition to meet changing market patterns in the economy it should rationally take a cautious pragmatic approach in opening these markets.
Competition should be the way forward for PNG to avoid market distortions and increase economic wealth to attain Vision 2050’s goal as a “Middle Income Economy” by 2050.
Francis Hualupmomi studies a Master of Arts in International Relations at the Institute of International Studies, Jilin University, China. His central area of research interest is in Political Economy of East Asia and International Security focusing on Geopolitics of Energy Security. He can be reached on f.hualupmomi@yahoo.com or visit his blog: http//: asia-pacific strategic spotlight
Francis Hualupmomi
It appears that the current trend in competition in the state enterprise market economy is unable to meet increasing demand in consumers’ and state’s expectations. With emerging economic activities bourgeoning in PNG, the government will be under pressure to perpetuate open competition in the state enterprise market economy. The question is, is the government ready to encourage competition?
Let me begin this exposition be employing Merriam-Webster definition of competition as the conceptual premise of competition in market economy as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms”. Competition in the economy is strategically significant to allow two or more firms in the market to compete to secure market shares. This disposition of economic game of invisible hands constructs the propensity for firms to provide quality and affordable goods and services to consumers.
Theoretically, however, competition does not necessarily predicate advantageous in nature rather may have negative implications should it not be managed effectively and efficiently under an economic framework governed by a political and economic actor. In essence, state intervention necessitates regulated norms to ensure level playing field in the interest of relevant economic actors to maximize expected optimum output and outcome.
The political economy of state enterprise in PNG is an interesting case in point, which saw a shift from regulated market to deregulation to privatization in the market economy. Faced with domestic and external forces the state under the then leadership of Mekere’s regime provided the economic reform package in 1997 as a take-off point in an attempt to restore continued economic decline underscored by Skate’s regime.
The reform package calls for privatization in telecommunication, financial, electricity and transportation sectors respectively. The Post and Telecommunication was separated into Postal Services and PNG Telikom, PNGBC was acquired by BSP, and Air Nuigini. This reform till date still provides some economic incentives to state’s national budget.
Historical trend in public enterprise market economy in PNG evidently suggests that competition in the political economy of state enterprise remains inherently weak to meet consumer expectations and state’s economic imperatives hence, is under question. The rationale behind public enterprise privatization was twofold: poor performance or governance issues and to create competition in order to sustain the national economy through innovation in business culture. Yet, these economic actors remain at best less innovative largely due to less or weak competition.
For instance, Air Nuigini, although charging exorbitant fees, still is struggling to provide sufficient profit for the state, whilst PNG power is faced with continuous power blackouts disturbing socio-economic consumers. On the hand, PNG Telikom is also struggling to support state’s revenue base. The entry of Digicel Mobile Company has truly awakened the notion of competition in the country. More frustratingly, BSP enjoyed continuous unnecessary increase charges to clients affecting low income earners. In sum, these enterprises have enjoyed a monopolized culture consequently resulting in inefficiency and revenue loss.
With poor performance in these markets and recent boom in the economy it is imperative that the state should reconsider encouraging competition to avoid inefficiency and meet consumers’ new and diverse expectations. Competition, although is quite risky in infant economies such as PNG, it is a strategic tactic to reduce monopoly, encourages innovation in business culture and ensuring efficiency and effectiveness.
Increasingly significant, is the modernization and industrialization agenda driven by LNG projects that will require widening the size of the national economy. PNG economy is quantitatively growing in size which relatively increases and diversifies consumer base. The demand will trigger upward pressure to increase competition to meet this emerging demand. For instance, more foreign investors will spur upsurge in borderless capital transfer, which would inevitably require provision of more wide range of services in the market.
Given this unstable scenario, what should the state do as the rational actor in the national economy? The government mandated through a social contract between consumers should consider realigning its strategy by introducing competition and allowing more foreign investors to compete in the market economy.
Whilst competition is strategically vital for economic growth it is also a risky economic exercise in developing countries like PNG where the economic base is still in its infant stage. The state whilst encouraging competition to meet changing market patterns in the economy it should rationally take a cautious pragmatic approach in opening these markets.
Competition should be the way forward for PNG to avoid market distortions and increase economic wealth to attain Vision 2050’s goal as a “Middle Income Economy” by 2050.
Francis Hualupmomi studies a Master of Arts in International Relations at the Institute of International Studies, Jilin University, China. His central area of research interest is in Political Economy of East Asia and International Security focusing on Geopolitics of Energy Security. He can be reached on f.hualupmomi@yahoo.com or visit his blog: http//: asia-pacific strategic spotlight
Wednesday, January 12, 2011
PNG Political Economic Performance Under OLIPPAC
By Francis Hualupmomi
The purpose of this article is to provide a snapshot of the political economy of PNG before and after OLIPPAC. With confusion and illusion enslaving the public and investors about the recent National Supreme Court’s decision to nullify certain sections of OLIPPAC as unconstitutional and undemocratic, this article aims to provide some insights and foresights to make thoughtful judgement on this current political situation. By reading this analysis one must beg the question: Is change of government through a vote of no-confidence necessary at this stage?
OLIPPAC AND ITS RELATIONSHIP WITH POLITICS
In retrospect, the OLIPPAC was politically engineered by the Mekere’s regime in 2001 as part of his new reform package and subsequently, implemented by the Somare’s regime in 2002, which provided political and economic stability in PNG until its unconstitutionality.
The OLIPPAC as an Act of Parliament regulates, manages, administers and oversees political parties and candidates. It is aimed at mitigating continuous chronic political instability caused principally by weak party membership. Among many Acts in the Organic Law, OLIPPAC is strategically significant in providing political leadership in driving development agenda. Interestingly, political stability over the last 8 years has played an important role in shaping the landscape of PNG politics since independence. No government has achieved that milestone. Although, the OLIPPAC was found to be unconstitutional and undemocratic in nature by the highest jurisdiction in PNG, political stability has been maintained.
POLITICAL ECONOMY OF PNG
Before OLIPPAC: Mekere’s Regime
Before the OLIPPAC, political and economic conditions in PNG were unstable and undesirable. The late 1990s under Bill Skate was a worst case scenario of deteriorating governance, economic decline, and rising tensions in relations between the PNG government and the World Bank and other donors.
As a result a vote of no-confidence was executed successfully by Mekere Morauta in 1999. Morauta attempted to arrest the declining situation through its new policies aimed at achieving reconstruction and development by setting six objectives: To stabilize the economy; to stabilize the budget; to rebuild the institutions of state; to remove impediments to investment and growth; to reach a peaceful political settlement on Bougainville; and to create political stability and integrity.
Fiscal and broader economic measures were introduced with respect to the first two objectives followed by development of Medium Term Plan of Action for Public Sector Reform (2000–2003). Attempts were made to safeguard the independence of, and to strengthen, the Bank of PNG, the Ombudsman Commission, the Auditor General, and Public Service Commission. The Organic Law OLIPPAC was made and passed in Parliament.
Despite deployment of these strategic reforms, economic and political stability proved hard to achieve as argued by some analysts (Public Sector Reform 2010).
After OLIPPAC: Somare’s Regime
After 2002 national elections Somare was able to master a coalition government and become Prime Minister bringing political and economic stability. Somare maintained Mekere’s incomplete reform in deteriorating fiscal situation through strategic reorganisation and deployment of economic instruments to restore and progress economic growth and development. His chief policies were premised on recovery and public reform with three objectives: three main objectives, ‘good governance; export-driven economic growth; and rural development, poverty reduction and empowerment through human resource development.
A revised Medium Term Development Strategy (MTDS) 2003–2007 preceded MTDS 1997–2002 and subsequently replaced by MTDS 2005–2010. A Strategic Plan for Supporting Public Sector Reform in PNG 2003–2007, which superseded the Morauta government’s Medium Term Plan of Action for Public Sector Reform and new systems, programs and initiatives addressing particular aspects of the reform process were established within this framework. Performance Management System for Department Heads, a Medium-term Budget Framework, an Integrated Financial Management System (IFMS), and the creation of a Budget Screening Committee (BSC) were introduced (Public Sector Reform 20010).
Domestic Vs Regional Economy under Somare’s Regime
Domestically, PNG’s macroeconomic performance was outstanding under Somare’s regime. Comparably, the national economy was below 28 percent under Mekere’s regime. It picked up and accelerated rapidly from 28 percent of GDP in 2002 to 36 percent in 2006 as a result of massive increase in mineral revenues. Tight Control on spending reduced public debt from 72 per cent of GDP in 2002 to 35 percent in 2007. Foreign exchange reserves passed US$2 billion in November 2007, while inflation has remained below 5 per cent. This strong performance has been reflected in its Standard and Poor’s (S&P) credit rating, which was upgraded in 2007 to B+ for long-term foreign borrowings (Pacific Economic Survey, 2008).
Official GDP data shows PNG’s economy gathering pace in 2007 with growth of 6.2 per cent, compared to 3 percent on average for the 3 previous years. With rapid growth in the mineral sector, PNG has seen strong non-mineral growth driven by construction, telecommunications and more recently agriculture. Other data suggests PNG’s economy is buoyant. After a decade of stagnation, formal-sector employment has grown by a quarter in the last 3 years. Non-mineral corporate tax has doubled since 2000 (AusAid, 2006).
From the year 2007-2009, available economic indicators by Bank of PNG and others show that PNG national economy was growing steadily at 6 percent despite recent world economic and financial crisis. This is largely due to government’s ability to deploy economic instruments to achieve key strategic national goals and objectives.
The current deficit was lowered as a result of inflows in capital and financial accounts yielding an overall surplus. Private sector picked up well in late 2009 with significant growth with building and construction, financial/business and other services, retail and transportation sector supported by increase in private sector lending from commercial banks and partly from LNG. Increase in government spending and drawdown of trust accounts contributed to this growth.
Employment in formal sector has increased by 0.7 percent in December 2009. Inflation was decreased to 1.2 percent in the same month. Kina exchange rate appreciated against all currencies except for US dollar and Japanese yen. Overall surplus stands at K4, 158 million (Quarterly Economic Bulletin: December 2009 Issue).
Regionally, PNG experienced higher average growth of 4.1 percent in the last 3 years (2005 to 2007). PNG is among 3 fastest 6 growing countries in the Pacific. This is largely due to current government sound macroeconomic policies which have built a robust foundation for growth.
Although mining and petroleum create little direct employment, benefits of the boom for the PNG are largely through government spending. PNG has experienced rapid increases in government revenue in recent years. Mineral revenue increased roughly seven-fold, from just over US$100 million in 2002 to about US$700 million in 2007; these revenues are now equivalent to about three times Australia’s aid to PNG (Pacific Economic Survey, 2008).
In recent times, more remarkably under current regime through OLIPPAC, despite recent global economic financial crisis the national economy is growing steadily at 6 percent annual growth rate boosting investor confidence in mining and petroleum sector and construction industry. Cocoa and coffee prices have picked up respectively, which are predicted to trigger economic growth. Inflation is less than 2 percent compared to the past government. With current economic forecast, PNG is predicted to see an economic growth rate of 8.5 percent similar to that of Chinese economic growth by 2014 with full economisation of LNG projects. The Vision 2050 will strategically be the stirring core to boost this strategic thinking by the government.
Future Economic Forecast
The Economist Intelligence Unit forecasts that the rate of economic growth will accelerate in 2010-11, as several mining projects will be on stream. The current account will return to surplus in 2010-11, as export revenue will be boosted by higher global prices for gold, copper and crude oil.
The government is planning to establish an onshore sovereign wealth fund to house revenue from a large-scale liquefied natural gas (LNG) project. Revenue from LNG is estimated at US$35bn over the 30-year life of the project. The partners in a US$15bn LNG project, led by ExxonMobil, have already signed the agreement boosting confidence in the future development of PNG's economy.
More so, it is expected that a Canadian petroleum firm, InterOil, will sign an agreement for another LNG project in the near future. This will stimulate and trigger production of economies of scale to progress modernisation and industrialisation agenda.
In summative, while PNG (with five prime ministers between 1992 and 2002) went through periods of political instability, in recent years it has enjoyed more stable, longer-tenured governments. Strategic fiscal policies have reduced deficits and together with sound monetary policies kept inflation low.
STRATEGIC FORESIGHT
It is argued strongly that with the current conducive environment provided by the government, there is no turning back with the issue of OLIPPAC. Few key questions need to be enquired. Is it necessary to see an eminent change in government? Is the move by the Opposition in the national interest? Will the remaining two years be sufficient to achieve Opposition’s manifesto (strategic policies) if there is a change in government?
PNG needs to progress with changes in the global economy to remain competitive. The economy has had been underperforming for the last 20 years until the current government provided the robust leadership and foresight with Vision 2050. There is a strategic road map navigating our future. The government under the leadership of Somare knows exactly ‘where we are now, where want to go and how to get there’. The Grand Chief is strategically visionary to position PNG as one of the ‘Middle Income Economy’ where our future generations will be a ‘smart, wise, happy, healthy, and peaceful’ by 2050. Unless there is instability in political directions this desire will be achieved.
In the political frontier, after the Supreme Court’s legal interpretation and decision a lot of questions were raised. This political situation has already reconfigured a gloomy scenario. The future remains uncertain in our strategic directions. People are wondering what would happen next in the ‘Kitchen Cabinet’ where pork barrelling, political divorcing or horse trading will occur. PNG political culture is unique and unpredictable as articulated by some international political commentators.
In order to avoid catastrophic situation and maintain political and economic stability in PNG, Parliamentarians (both the government and Opposition) should comprehensively mediate and consider maintaining the current regime with some political reorganisation. At the Coalition level, the National Alliance should also re-engineer its political strategy to maintain a balance of power in the Cabinet and Parliament. This may involve:
• Removing or replacing some of its bad advisors;
• Ensure equal distribution of political representation in ministerial portfolios representing all regions. This will not upset loyal parties and public;
• Re-amend the loopholes in the certain sections of OLIPPAC that was revoked and maintain the OLIPPAC. The parliament has the power to re-amend constitutional matters; and
• ‘Collective or cooperative diplomacy’ through ‘consensus democracy’ between government and opposition is absolutely necessary.
CONCLUSION
Although the OLIPPAC is unconstitutional and undemocratic in nature it provides concrete stability over the last 8 years. PNG is performing exceptionally well under the global economic and financial crisis and is expected to be a leading market economy in the Pacific region. Investor’s confidence is high, inflation is low and employment is increasing in mining and petroleum industry and construction industry. With Vision 2050 providing the foresight and Development Strategic Plan 2030 as insight to drive PNG’s aspirations to be modernised and industrialised by 2050, political stability is absolutely necessary. Vote of no-confidence will only be a recipe of disaster.
By Francis Hualupmomi
The purpose of this article is to provide a snapshot of the political economy of PNG before and after OLIPPAC. With confusion and illusion enslaving the public and investors about the recent National Supreme Court’s decision to nullify certain sections of OLIPPAC as unconstitutional and undemocratic, this article aims to provide some insights and foresights to make thoughtful judgement on this current political situation. By reading this analysis one must beg the question: Is change of government through a vote of no-confidence necessary at this stage?
OLIPPAC AND ITS RELATIONSHIP WITH POLITICS
In retrospect, the OLIPPAC was politically engineered by the Mekere’s regime in 2001 as part of his new reform package and subsequently, implemented by the Somare’s regime in 2002, which provided political and economic stability in PNG until its unconstitutionality.
The OLIPPAC as an Act of Parliament regulates, manages, administers and oversees political parties and candidates. It is aimed at mitigating continuous chronic political instability caused principally by weak party membership. Among many Acts in the Organic Law, OLIPPAC is strategically significant in providing political leadership in driving development agenda. Interestingly, political stability over the last 8 years has played an important role in shaping the landscape of PNG politics since independence. No government has achieved that milestone. Although, the OLIPPAC was found to be unconstitutional and undemocratic in nature by the highest jurisdiction in PNG, political stability has been maintained.
POLITICAL ECONOMY OF PNG
Before OLIPPAC: Mekere’s Regime
Before the OLIPPAC, political and economic conditions in PNG were unstable and undesirable. The late 1990s under Bill Skate was a worst case scenario of deteriorating governance, economic decline, and rising tensions in relations between the PNG government and the World Bank and other donors.
As a result a vote of no-confidence was executed successfully by Mekere Morauta in 1999. Morauta attempted to arrest the declining situation through its new policies aimed at achieving reconstruction and development by setting six objectives: To stabilize the economy; to stabilize the budget; to rebuild the institutions of state; to remove impediments to investment and growth; to reach a peaceful political settlement on Bougainville; and to create political stability and integrity.
Fiscal and broader economic measures were introduced with respect to the first two objectives followed by development of Medium Term Plan of Action for Public Sector Reform (2000–2003). Attempts were made to safeguard the independence of, and to strengthen, the Bank of PNG, the Ombudsman Commission, the Auditor General, and Public Service Commission. The Organic Law OLIPPAC was made and passed in Parliament.
Despite deployment of these strategic reforms, economic and political stability proved hard to achieve as argued by some analysts (Public Sector Reform 2010).
After OLIPPAC: Somare’s Regime
After 2002 national elections Somare was able to master a coalition government and become Prime Minister bringing political and economic stability. Somare maintained Mekere’s incomplete reform in deteriorating fiscal situation through strategic reorganisation and deployment of economic instruments to restore and progress economic growth and development. His chief policies were premised on recovery and public reform with three objectives: three main objectives, ‘good governance; export-driven economic growth; and rural development, poverty reduction and empowerment through human resource development.
A revised Medium Term Development Strategy (MTDS) 2003–2007 preceded MTDS 1997–2002 and subsequently replaced by MTDS 2005–2010. A Strategic Plan for Supporting Public Sector Reform in PNG 2003–2007, which superseded the Morauta government’s Medium Term Plan of Action for Public Sector Reform and new systems, programs and initiatives addressing particular aspects of the reform process were established within this framework. Performance Management System for Department Heads, a Medium-term Budget Framework, an Integrated Financial Management System (IFMS), and the creation of a Budget Screening Committee (BSC) were introduced (Public Sector Reform 20010).
Domestic Vs Regional Economy under Somare’s Regime
Domestically, PNG’s macroeconomic performance was outstanding under Somare’s regime. Comparably, the national economy was below 28 percent under Mekere’s regime. It picked up and accelerated rapidly from 28 percent of GDP in 2002 to 36 percent in 2006 as a result of massive increase in mineral revenues. Tight Control on spending reduced public debt from 72 per cent of GDP in 2002 to 35 percent in 2007. Foreign exchange reserves passed US$2 billion in November 2007, while inflation has remained below 5 per cent. This strong performance has been reflected in its Standard and Poor’s (S&P) credit rating, which was upgraded in 2007 to B+ for long-term foreign borrowings (Pacific Economic Survey, 2008).
Official GDP data shows PNG’s economy gathering pace in 2007 with growth of 6.2 per cent, compared to 3 percent on average for the 3 previous years. With rapid growth in the mineral sector, PNG has seen strong non-mineral growth driven by construction, telecommunications and more recently agriculture. Other data suggests PNG’s economy is buoyant. After a decade of stagnation, formal-sector employment has grown by a quarter in the last 3 years. Non-mineral corporate tax has doubled since 2000 (AusAid, 2006).
From the year 2007-2009, available economic indicators by Bank of PNG and others show that PNG national economy was growing steadily at 6 percent despite recent world economic and financial crisis. This is largely due to government’s ability to deploy economic instruments to achieve key strategic national goals and objectives.
The current deficit was lowered as a result of inflows in capital and financial accounts yielding an overall surplus. Private sector picked up well in late 2009 with significant growth with building and construction, financial/business and other services, retail and transportation sector supported by increase in private sector lending from commercial banks and partly from LNG. Increase in government spending and drawdown of trust accounts contributed to this growth.
Employment in formal sector has increased by 0.7 percent in December 2009. Inflation was decreased to 1.2 percent in the same month. Kina exchange rate appreciated against all currencies except for US dollar and Japanese yen. Overall surplus stands at K4, 158 million (Quarterly Economic Bulletin: December 2009 Issue).
Regionally, PNG experienced higher average growth of 4.1 percent in the last 3 years (2005 to 2007). PNG is among 3 fastest 6 growing countries in the Pacific. This is largely due to current government sound macroeconomic policies which have built a robust foundation for growth.
Although mining and petroleum create little direct employment, benefits of the boom for the PNG are largely through government spending. PNG has experienced rapid increases in government revenue in recent years. Mineral revenue increased roughly seven-fold, from just over US$100 million in 2002 to about US$700 million in 2007; these revenues are now equivalent to about three times Australia’s aid to PNG (Pacific Economic Survey, 2008).
In recent times, more remarkably under current regime through OLIPPAC, despite recent global economic financial crisis the national economy is growing steadily at 6 percent annual growth rate boosting investor confidence in mining and petroleum sector and construction industry. Cocoa and coffee prices have picked up respectively, which are predicted to trigger economic growth. Inflation is less than 2 percent compared to the past government. With current economic forecast, PNG is predicted to see an economic growth rate of 8.5 percent similar to that of Chinese economic growth by 2014 with full economisation of LNG projects. The Vision 2050 will strategically be the stirring core to boost this strategic thinking by the government.
Future Economic Forecast
The Economist Intelligence Unit forecasts that the rate of economic growth will accelerate in 2010-11, as several mining projects will be on stream. The current account will return to surplus in 2010-11, as export revenue will be boosted by higher global prices for gold, copper and crude oil.
The government is planning to establish an onshore sovereign wealth fund to house revenue from a large-scale liquefied natural gas (LNG) project. Revenue from LNG is estimated at US$35bn over the 30-year life of the project. The partners in a US$15bn LNG project, led by ExxonMobil, have already signed the agreement boosting confidence in the future development of PNG's economy.
More so, it is expected that a Canadian petroleum firm, InterOil, will sign an agreement for another LNG project in the near future. This will stimulate and trigger production of economies of scale to progress modernisation and industrialisation agenda.
In summative, while PNG (with five prime ministers between 1992 and 2002) went through periods of political instability, in recent years it has enjoyed more stable, longer-tenured governments. Strategic fiscal policies have reduced deficits and together with sound monetary policies kept inflation low.
STRATEGIC FORESIGHT
It is argued strongly that with the current conducive environment provided by the government, there is no turning back with the issue of OLIPPAC. Few key questions need to be enquired. Is it necessary to see an eminent change in government? Is the move by the Opposition in the national interest? Will the remaining two years be sufficient to achieve Opposition’s manifesto (strategic policies) if there is a change in government?
PNG needs to progress with changes in the global economy to remain competitive. The economy has had been underperforming for the last 20 years until the current government provided the robust leadership and foresight with Vision 2050. There is a strategic road map navigating our future. The government under the leadership of Somare knows exactly ‘where we are now, where want to go and how to get there’. The Grand Chief is strategically visionary to position PNG as one of the ‘Middle Income Economy’ where our future generations will be a ‘smart, wise, happy, healthy, and peaceful’ by 2050. Unless there is instability in political directions this desire will be achieved.
In the political frontier, after the Supreme Court’s legal interpretation and decision a lot of questions were raised. This political situation has already reconfigured a gloomy scenario. The future remains uncertain in our strategic directions. People are wondering what would happen next in the ‘Kitchen Cabinet’ where pork barrelling, political divorcing or horse trading will occur. PNG political culture is unique and unpredictable as articulated by some international political commentators.
In order to avoid catastrophic situation and maintain political and economic stability in PNG, Parliamentarians (both the government and Opposition) should comprehensively mediate and consider maintaining the current regime with some political reorganisation. At the Coalition level, the National Alliance should also re-engineer its political strategy to maintain a balance of power in the Cabinet and Parliament. This may involve:
• Removing or replacing some of its bad advisors;
• Ensure equal distribution of political representation in ministerial portfolios representing all regions. This will not upset loyal parties and public;
• Re-amend the loopholes in the certain sections of OLIPPAC that was revoked and maintain the OLIPPAC. The parliament has the power to re-amend constitutional matters; and
• ‘Collective or cooperative diplomacy’ through ‘consensus democracy’ between government and opposition is absolutely necessary.
CONCLUSION
Although the OLIPPAC is unconstitutional and undemocratic in nature it provides concrete stability over the last 8 years. PNG is performing exceptionally well under the global economic and financial crisis and is expected to be a leading market economy in the Pacific region. Investor’s confidence is high, inflation is low and employment is increasing in mining and petroleum industry and construction industry. With Vision 2050 providing the foresight and Development Strategic Plan 2030 as insight to drive PNG’s aspirations to be modernised and industrialised by 2050, political stability is absolutely necessary. Vote of no-confidence will only be a recipe of disaster.
Wednesday, January 5, 2011
Shifting Foreign Policy with Shift in Power: A Focus on Energy
Shifting Foreign Policy with Shift in Global Power: A Focus on Energy
Francis Hualupmomi
Already there is a shift in global power from the West towards Asian region, especially China. Almost all scholars have generally described China as the centre of gravity in the new Asian hemisphere attracting foreign investments. PNG must shift its foreign policy with the shift in global power focusing more on international economic cooperation in order to attain Vision 2050.
The collapse of Cold War saw triumph of capitalism constructing a new US-led liberal order. Others also perceive it as the emergence of a new wave of globalization as described rightly by Thomas L. Friedman; the winner of Financial Times/Goldman Sachs Business Book of the Year entitled The World is Flat: The Globalised World in the 21st Century (2007).
China, after years of isolation and several humiliations from the West and Imperial Japan, reopened its door to international community and aggressively integrated into the new order in 1970s under a socialist manifesto. The Chinese model as a rising power is manifested in her hybrid framework of development, a model that underpins a balance between socialism and capitalism. Yet seen as paradox, the liberal order provided the stimulus for her sudden rise to attain global prominence.
Today, China is the second global economic power superseding Japan in 2009. The economy is currently growing rapidly relative to US at a growth rate of 9.1 per cent. China is now the largest consumer and exporter of US.
There is a shift in economic power to Asia, in particular China. Foreign investors see China as the new economic power in the region and begin diverting the course of direction. Most scholars and policy makers described this shift in global power as an ‘economic hollowing’ affecting big market powers such as US and EU in relative sense however, economic powers rise and fall in historical nomenclature, which should be seen as an advantage in maximizing the economy.
One of the main reasons in China’s peaceful rise is the role of her foreign policy in facilitating economic advancement and prosperity. The current China’s foreign policy is fundamentally aimed at attaining a “Peaceful Great Power” status in the future through economic development focusing on balancing soft and hard diplomacy in international relations. An important objective in the foreign policy is to build a robust soft diplomacy with developing countries to share her development aspirations. Today, Africa is China’s largest developing country partner followed by Pacific, Latin America and others.
The question now is how should PNG benefit from this new Chinese diplomacy? First in consistent with Vision 2050 it should refocus her foreign policy towards the new shift in power in global politics. It should consider emphasizing a closer economic and trade partnership with China.
China has the economic capacity and capability to assist developing countries as part of her soft diplomacy to achieve economic prosperity. PNG has vast untapped resources which can be developed by Chinese expertise. One of the important economic potential resources is energy which can by converted into energy sources and economic gains. Our foreign policy should embrace international cooperation in foreign investment in the areas f energy innovation and development.
Marketing energy potentials to China is a rational choice in the long run. Energy is the single biggest market in the global market economy and has the potential to transform the economy. If PNG can maximize energy potential through win-win diplomacy with China, I posit she may become the next economic power in the Pacific theater.
Francis Hualupmomi
Already there is a shift in global power from the West towards Asian region, especially China. Almost all scholars have generally described China as the centre of gravity in the new Asian hemisphere attracting foreign investments. PNG must shift its foreign policy with the shift in global power focusing more on international economic cooperation in order to attain Vision 2050.
The collapse of Cold War saw triumph of capitalism constructing a new US-led liberal order. Others also perceive it as the emergence of a new wave of globalization as described rightly by Thomas L. Friedman; the winner of Financial Times/Goldman Sachs Business Book of the Year entitled The World is Flat: The Globalised World in the 21st Century (2007).
China, after years of isolation and several humiliations from the West and Imperial Japan, reopened its door to international community and aggressively integrated into the new order in 1970s under a socialist manifesto. The Chinese model as a rising power is manifested in her hybrid framework of development, a model that underpins a balance between socialism and capitalism. Yet seen as paradox, the liberal order provided the stimulus for her sudden rise to attain global prominence.
Today, China is the second global economic power superseding Japan in 2009. The economy is currently growing rapidly relative to US at a growth rate of 9.1 per cent. China is now the largest consumer and exporter of US.
There is a shift in economic power to Asia, in particular China. Foreign investors see China as the new economic power in the region and begin diverting the course of direction. Most scholars and policy makers described this shift in global power as an ‘economic hollowing’ affecting big market powers such as US and EU in relative sense however, economic powers rise and fall in historical nomenclature, which should be seen as an advantage in maximizing the economy.
One of the main reasons in China’s peaceful rise is the role of her foreign policy in facilitating economic advancement and prosperity. The current China’s foreign policy is fundamentally aimed at attaining a “Peaceful Great Power” status in the future through economic development focusing on balancing soft and hard diplomacy in international relations. An important objective in the foreign policy is to build a robust soft diplomacy with developing countries to share her development aspirations. Today, Africa is China’s largest developing country partner followed by Pacific, Latin America and others.
The question now is how should PNG benefit from this new Chinese diplomacy? First in consistent with Vision 2050 it should refocus her foreign policy towards the new shift in power in global politics. It should consider emphasizing a closer economic and trade partnership with China.
China has the economic capacity and capability to assist developing countries as part of her soft diplomacy to achieve economic prosperity. PNG has vast untapped resources which can be developed by Chinese expertise. One of the important economic potential resources is energy which can by converted into energy sources and economic gains. Our foreign policy should embrace international cooperation in foreign investment in the areas f energy innovation and development.
Marketing energy potentials to China is a rational choice in the long run. Energy is the single biggest market in the global market economy and has the potential to transform the economy. If PNG can maximize energy potential through win-win diplomacy with China, I posit she may become the next economic power in the Pacific theater.
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