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by Rowan Callick, Australian Financial Review 23rd November 2002

Step by stumbling step, quietly - no Islamism, no CNN coverage - Australia's closest neighbour is sliding into a deep pit of economic and social failure, from which it is scrabbling to climb.

Last weekend half a dozen Federal Government ministers flew to Port Moresby for annual talks. The weight of expectation was heavy on them - to help pull the Papua New Guinea Government out of this mire.

The ministers didn't offer much relief despite the new PNG government backtracking on closing the Manus Pacific Solution camp.

But Canberra did offer a more timely disbursement of the $350million annual aid, in three instalments, as long as PNG co-operates with the World Bank and the International Monetary Fund, which Australia uses as its shock troops in dealing with difficult PNG issues.

This amounts to a switch in the project aid program back towards a form of budget aid - earmarked for medicines and school supplies, and Highlands highway maintenance.

It is the 60th anniversary this year of the battles on the Kokoda Trail.

Threats to Australia still emerge from our north. But they come now, from quarantine problems, including diseased fruit trees and stock, from diseases such as malaria, TB and AIDS (having "a devastating impact" on PNG, says Foreign Minister Alexander Downer), from growing and shipping illegal drugs and from dangerous people. Maverick bureaucrats have sold large numbers of passports to anyone who would pay, most of whom have Australia as their ultimate intended destination.

(Uncle Peter's comment: refer recent Post-Courier news item of 27/11/02 reporting 4793 WHP aids cases, the situation is much worse than this as many people with AIDS are returning to die in their villages, undiagnosed.)

Such concerns are serious, but are containable right now. However, if other trends persist the impact will grow to another order entirely.

PNG's economy has been declining, in real terms, for four of the past five years, and is doing so still.

At the mid-year election, 62 of the 109 new MPs received less than 20 per cent of the vote, and invested so much in their campaigns they have to seek a return urgently.

Craig Sugden, principal of Brisbane consultants Economic Insights, writes in the new Pacific Economic Bulletin: "The main driver of economic activity over the first half of 2002 appears to have been electioneering and an associated expansion in government expenditure."

The kina has crashed since then - by 11 per cent since October 1 to 40. Interest rates were recently pushed up by 1.5 per cent by the central bank, to a corporate borrowing rate of 17 per cent, killing business confidence. 

Socially, the scene is also highly stressed. The Southern Highlands, the Texas of PNG, is run by war-lords.

The price of rice has just risen by 21per cent, and flour by 12 per cent.

Klaus Rohland, the outgoing regional World Bank chief, said: "Almost 30 years after independence, PNG's development record is dismal."

Income per head is significantly lower, in real terms, than 25 years ago. On the UN human development ranking, PNG comes 164th, close to Djibouti and Chad.

Corruption remains rife. Rohland said: "Fiscal assets of the state are used to build the political strength of the incumbent minister, who can exercise discretionary control over large resources with little transparency or accountability." The booty, and some of the most corrupt players, end up in Queensland.

This political culture pushes governments to live beyond their means. Despite three international structural adjustment programs since the late 1980s, the cycles of debt have become closer and deeper.

As part of its bid to emerge from the latest debt-driven slide, the new government asked Canberra to reschedule $81 million due this year, without success. This adds to a nightmare scenario for Finance Minister Bart Philemon, who is struggling to form a viable budget.

Even though there are signs that Prime Minister Michael Somare is already floundering just three months into his new term, Canberra - despite its disappointment with the defeat of his predecessor Mekere Morauta - must keep good relations.

The collapse of Melanesia is an issue that should be addressed on a bipartisan basis. If Iraq can be tackled like that, surely our neighbours can.

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