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Executive Highlights

No. 103

PNG in need for much more than money
Helen Hughes

Published in The Australian Financial Review 14 August 2002

Papua New Guinea has become a dysfunctional state. Per capita income is falling, public services are non existent and robbery, rape and murder occur every day. A least thirty people were killed during the past month’s election. Twice as many people voted as were registered. Yet Parliamentarians are taking their seats as if all was well. Several corrupt politicians, who have already absconded with millions, are sitting as members of Parliament instead of in gaol. Some are even about to assume Parliamentary offices.

Australia is not an innocent bystander. We have contributed to the demise of Papua New Guinea.

Australia was an appalling coloniser, doing too little too late so that a tribal society was totally unprepared for self-government.

The institutions the Australian colonial administration left were inappropriate. The establishment of 19 provincial governments in addition to an overblown central government on the recommendation of the Marxist Faber Committee created an enormous fiscal problem. The bureaucracy and Parliament became the paths to personal wealth. Most provincial budgets were stolen. The $A1million annual development grant for each central Parliamentary Member mostly went on “6-packs” for voters.

But the main contribution to Papua New Guinea’s problems since Independence has been Australian aid. Some $A7 billion of Australian tax payers’ money has gone to subsidise an urban elite. A significant proportion has been stolen. When the Jackson Committee recommended in 1984, on strong economic grounds, that Australia should cease to write blank cheques for “untied” budget support because little, if any, went to the people, Michael Somare called his “mate’’ Bob Hawke to complain at this attempt to funnel aid into productive uses. The Jackson recommendations were ignored. Large scale “untied “ budget aid flowed on to be stolen.

The taxes on Papua New Guinea’s mineral output went the way of aid funds. A Mineral Fund that collected super-profits on mineral output has been emptied. So has the public service superannuation fund. Papua New Guinea governments not only spent like drunken sailors on projects that lined their own pockets for over 20 years, they also borrowed abroad. These loans are to be repaid out of mostly indirect taxes, by low income earners.

Mekere Morauta was the first Prime Minister to make an effort to run the economy for the benefit of the nation rather than enriching himself and his cronies. Trying to constrain expenditure to revenue (that included large aid inflows), trying to privatise banks, energy, the airline and other public enterprises run hitherto for the benefit of their managers and workers, proved to be incredibly difficult. His efforts were sabotaged at every turn. The public service trade union benefited from egregiously high wages that were totally inappropriate to Papua New Guinea’s level of development. These had famously been negotiated by Bob Hawke. This was a new approach to de-colonisation. Instead of working up the ladder of productivity to higher wages, Papua New Guinea was to start at the top for the privileged few with jobs in the formal sector. The outcome has been predictable. Business has not been able to take off and nor has employment.

In addition to $A350 million a year of aid during the last two years, Australia has led a donor’s group that provided an additional $A500 million for “structural assistance”. Not even this volume of aid – one of the highest per capita in the world - could halt the decline in per capita income in the face of the sabotage of Morauta’s efforts. If Morauta’s policies had been strongly backed by the aid donors in his first term, and if he had been returned for another two terms, the Papua New Guinea economy might have been turned around, political corruption could have been defeated and civil order could then have been restored. Morauta’s Parliamentary opponents, who made every effort to undermine him as Prime Minister, knew this and pushed him out of power.

When Mr Howard visits Port Moresby on his way to the Pacific Forum, he should make it clear that Australia will not contribute any more aid on the old basis and will not encourage others to do so. The World Bank and the Asian Development Bank will never halt old style aid. Their very existence depends on shovelling out loans which the low income people of Papua New Guinea have to repay. These Banks have shown little interest in the impact of their so called aid. It is, indeed, up to Australia to take the lead.

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About the Author:
Emeritus Professor Helen Hughes is a Senior Fellow at the Centre of Independent Studies. She was the Deputy Chair of the Jackson Committee to Review the Australian Overseas Aid Program