PNG encouraged to end dependence on gas, oil and gold – Radio New Zealand

Transcript

PAUL FLANAGAN: Arguably for too long PNG has placed too much emphasis on getting the resource part of its economy going well. So focussing on large LNG projects, or copper and gold projects. But that really hasn't delivered improvements in well being for the vast majority of people in PNG. An alternative approach is to take a more people focussed development line which would try and build on its extraordinary cultural diversity, the strength of its ecosystems, and use that as a path to tap into the incredible potential of its people to have a different development to what PNG has faced previously.

DON WISEMAN: Why is it that there has been so little return from oil, gas and minerals?

PL: A long term feature of countries that go down a path of resource dependence is the somewhat well known Resource Curse. And the Resource Curse comes through in a few different ways. In some ways it is the focus in development towards those big projects rather than those that are more inclusive. It comes through because there is more opportunity for corruption and graft that can come through those big projects. But a more hidden and sinister one is that it tends to lead to overvalued exchange rates. It pushes up the exchange rate which means it's good for people importing in urban areas but it means a large part of the economy that could be otherwise exporting things that might be tapping into more local, cultural traditions. You know local PNG fashions and things like that - they're priced out of the international market just because that country is exporting some much LNG and gold and other produce. So dealing with the exchange rate is going to be a very credible and one of the simplest tools one can take to try and improve development outcomes.

DW: You've talked about how the effect of this focus on developing mineral resources and oil and gas, has been the creation of dual economies in a sense.

PL: Very much dual economies and it tends to be there is not much linkage between the traditional economy and the resource-based economy. Now PNG could have a really strong agricultural sector, one would think, in terms of exporting things such as coffee and cocoa to much greater levels. But they face price competition and the incentives for people who front up to sell coffee at the local factory, they don't actually get that much kina for each US dollar, once again because of this overvalued exchange rate that can sort of really hinder development. What can really build up the linkages between those parts of the economy is if the tax regime is taking enough tax out of the resource sector and distributing that back into the local economy through improved infrastructure or through improved health and education outcomes. We know PNG is actually taxing its resource sector quite lightly, relative to that faced by most other countries. So once again that is an area that can be looked at. But that will take probably 5-10 years to put into effect because of binding agreements already with existing projects.

DW: So in the current circumstances, the economy is a grim state, how do you get the exchange rate down?

PL: In some ways that can be a straight decision from the Bank of Papua New Guinea, just in the same way as when it appreciated the currency by nearly 20 percent back in June 2014, it could decide overnight to depreciate the currency once again by 20 percent. One has to be careful with that because there would be potentially imported inflationary impacts and one needs to ensure that staples such as rice and that don't jump through the roof immediately. And there can be some action taken to try and bring those price increases through time. Any of these sort of adjustments are difficult in terms of their impacts but in terms of putting them into place, fixing up the exchange rate is much, much easier than trying to do something such as Budget repair, which would involve other difficult things. Such as looking at tax increases on consumers or wage earners. Bringing more targets as to where you cut expenditure, more options there, but once again some pretty difficult choices because of some capacity and other limits that PNG faces. So it is always a world of hard choices given how far PNG has gone down this slippery economic slopes, but there are mechanisms to pick things up again and one of the best and easiest of those is improving the exchange rate, making it more competitive, allowing PNG to really enter into the Asia-Pacific century.

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PNG encouraged to end dependence on gas, oil and gold - Radio New Zealand