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.
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