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The following articles sourced
from the World Socialist Web Site is an interesting read. I was working in PNG
when these schemes were rife. I expected "blood in the streets" when
these schemes came to their inevitable end however what really surprised me was
that they ended in a "whimper" not a "bang" bearing in mind the
large amounts of
money that were lost. No, I'm not a socialist not that
there is anything wrong with being a socialist (really, I'm not or maybe I am, I
don't know) however
this site is a good source for PNG current affairs commentary, if you wish to
read more articles then click on this link WSWS
- PNG - Peter Salmon.
Papua New Guinea fast money schemes: a financial house
of cards collapses
By Stan McKenzie
6 July 2000
Last month, the National Court of Papua New
Guinea ordered the liquidation of Windfall, one of six so-called “fast
money” schemes that operated across PNG for much of last year.
The fast money schemes were a classic form of
pyramid investment. Their names—Money Rain, Windfall and Bonanza—read like
those of gambling machines and they attracted deposits by offering phenomenal
interest rates. One of the largest, U-Vistract, offered a 100 percent return per
month and up to 1,000 percent in a year. Like all pyramid schemes, the founders
and early investors obtain large returns but, when the stream of new investors
dries up, the operation inevitably collapses and the smaller ones lose their
The scheme operators openly exploited the
desperation of workers, unemployed and villagers, targeting rural communities in
particular. Many small investors paid amounts ranging from 200 kina ($US80) to
2,000 kina ($US800). On Bougainville, which has been ravaged by a decade of war,
about 60,000 people—nearly every adult on the island—invested in U-Vistract
The schemes offered the promise of quick
wealth, an escape from the poverty and falling living standards that the
majority of the population face. The social divide between rich and poor has
deepened in recent years as successive government have implemented the dictates
of the International Monetary Fund and the country's economic position has
continued to slide.
The majority of the wealth is monopolised by
major international corporations and a small layer of local businessmen. More
than one million out of the population of 4.5 million live below the official
poverty line. In rural areas the figure is 75 percent. Over 70 percent of adults
are illiterate and 23 percent of people die before the age of 40. The majority
of the population still rely on subsistence farming. Tens of thousands have
gathered into shantytowns around major centres like Port Moresby, without
regular employment or basic services.
The fast money schemes were not only permitted
to operate by both the national government and provincial authorities, but were
actively promoted. Iairo Lasaro, Treasurer under the previous Skate government,
granted a three-year exemption from bank licensing requirements to four of the
schemes in July 1999. This endorsement proved to be a major factor in inducing
people to invest.
The current Mekere government, installed only
weeks later, upheld the exemption until September 10 when the Bank of PNG (BPNG)
finally issued a three-month deadline for the schemes to pay out their investors
and cease operations. The BPNG claimed to be unaware of the existence of the
schemes until that time, when the first media exposures were being made. But
Westpac Bank manager Simon Millet contradicted the claim, saying the commercial
banks had learned of the schemes operating in Vanuatu and warned the central
bank months before they entered PNG.
Political leaders on Bougainville openly
encouraged people to invest. Bougainville People's Congress president Joseph
Kabui hailed the schemes as providing “a window of hope and opportunity.”
Bougainville Revolutionary Army (BRA) faction leader Francis Ona also praised
the schemes, declaring they were “owned and operated by Bougainvilleans”.
Even after the issuing of the deadline, the
closure of the schemes was deferred several times. A BRA contingent visited the
Australian High Commission in Port Moresby, claiming the closure of U-Vistract
had ramifications for the Bougainville peace process, and should therefore be
halted. The scheme was only forced into liquidation in March, after repeatedly
failing to make any return of investors' funds.
When official approval is given to such
inherently flawed schemes it is a measure of just how advanced the rot in the
country's financial system has become. Clearly sections of big business were
desperate to raise capital and leapt on the opportunity to make some fast money
even though everyone in financial circles knew that the schemes were certain to
collapse with potentially disastrous consequences for the PNG economy.
The schemes emerged in the aftermath of the
Asian economic crisis of 1997-1998. Foreign investment in PNG fell by two thirds
and the currency slumped by 45 percent, giving rise to interest rates of over 20
percent and high inflation. The Australian financial press described PNG as
“the business environment from hell.” The two major international credit
agencies—Moody's and Standard & Poor's—placed PNG in the bottom quartile
of rated nations, making finance very expensive.
Under such conditions, layers of the PNG elite
had no qualms about shoring up their own personal wealth at the expense of the
population. The Chief Ombudsman Simon Pentanu admitted that he was paid out
222,000 kina ($US88,000) from an original investment of 122,300 kina. In
January, the National newspaper claimed that the speaker of the PNG
parliament had invested 300,000 kina. The Australian Financial Review
stated that parliamentarians had invested funds provided to them to provide
services for their constituents into the schemes.
Considerable amounts of money have been lost,
primarily by people who can least afford it. An investigative report published
in the Australian Financial Review on March 15 conservatively estimated
that about 500 million kina ($US200 million) had been lost in the pyramid
schemes. This represents a staggering 6 to 7 percent of the country's annual
Gross Domestic Product (GDP). It equals PNG's entire conventional annual
household savings and is greater than the amount spent on education. The true
amount is probably much higher. In April, the Melbourne Age claimed that
investors in U-Vistract alone had lost 581 million kina.
The failure of the schemes to pay back
investors has evoked considerable anger. Last December thousands of people
converged on Buka in the Bougainville group of islands to seek refunds and
payments from U-Vistract and Moneylink. People had travelled from as far as Buin,
Siwai and Nissan Island demanding payment. The week before police had to be
called in when people tried to attack employees of U-Vistract. Jeremy Sanau,
operator of the Money Rain scheme, has alleged that infuriated depositors
threatened his life. One of his agents was allegedly abducted and then bashed
and abused by investors.
There is little hope that investors will recoup
their losses. According to a report in the National on June 22, Chris
Burt, the court-appointed liquidator of U-Vistract, has “relinquished his
position... since the company did not have any assets or funds available”. He
has now been appointed liquidator of Windfall. Court actions are still underway
against two other schemes, Gold Money and Money Rain.
There is also no hope that the PNG government
will provide compensation. During its March negotiations with the International
Monetary Fund, it assured the agency that the government “will not accept any
financial responsibility for losses incurred under these schemes”.
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