Aid and economic failure: PNG

Apparently desperate not to upset anyone, the Prime Minister announced on Sunday at the APEC summit that, along with Australia, the United States, and Japan, New Zealand would contribute to a grand electrification scheme in Papua New Guinea.   Presumably she thought not even the bullies in Beijing might object to that –  so deals and donations might be safe (the only “values” evident in her foreign policy) – and she could throw a (pretty modest) bone to the countries we used to be allied with.

But it disconcerts me on two fronts.  The first is the way that, looking across the Pacific, New Zealand and Australia (and perhaps Japan and even the US) seem to be wanting to play the game Beijing’s way.    Beijing flings cash around in a somewhat cavalier way, in some mix of decent and poor quality projects, some mix of the transparently obvious and the less than adequately transparent, and our response is to do much the same thing.    At home we spray money around through, for example, the Provincial Growth Fund, and in the Pacific through beefing up our aid programmes, including last week’s Pacific Enabling Fund.  Our aid programmes don’t necessarily have a bad reputation, but the more they are used for avowedly political ends, the worse the quality will be, and the more we treat relationships as something for sale.  It is a bit like financial incentives for kids to improve reading or pass exams: it might appear to work in the short-run, but it commoditises what needs to be internalised.

Perhaps that is what happens when you have no values?  When the Prime Minister won’t name evil when she sees it, and when she presides over the corruption of New Zealand’s own political processes.    Countries didn’t take a stand against the Soviet Union because, say, the United States paid them to, but because they recognised the character of the regime in Moscow, and the oppression visited on its own people and thus in other Communist-controlled countries.  As various observers have noted, Beijing has no friends and allies, just clients bought and paid for, or intimidated quasi-vassals.   That shouldn’t be the sort of approach New Zealand (or Australia) fosters in response.  There was, for example, the quote I ran here last week from Scott Morrison’s recent speech

Our foreign policy defines what we believe about the world and our place in it.

It must speak of our character, our values.  What we stand for. What we believe in and, if need be, what we’ll defend. This is what guides our national interest.

I fear foreign policy these days is too often being assessed through a narrow transactional lens.   Taking an overly transactional approach to foreign policy and how we define our national interests sells us short.

If we allow such an approach to compromise our beliefs, we let ourselves down, and we stop speaking with an Australian voice.

We are more than the sum of our deals. We are better than that.

It isn’t clear that the New Zealand government could honestly say that.

I imagine the Prime Minister is one of those who believes in the efficacy of foreign aid –  and not just transactionally.   Most politicians and bureaucrats tend to.  I’m much more sceptical (drawing on both observation, and –  for examples –  the writings of scholars like Peter Bauer), and Papua New Guinea is a case in point.

I care quite a bit about Papua New Guinea.   When I was growing up our church supported missionaries there –  one of whom died flying the inhospitable terrain –  and (apart from an overnight in Brisbane to get there) it was the very first overseas place I ever went to.   At the ripe old age of 23, on secondment from the Reserve Bank, I became by default –  a series of “accidents” –  a sort of de facto chief economist and adviser on monetary policy, financial markets, banks, and so on (learning as I went) to their central bank, the Bank of Papua New Guinea. It wasn’t even foreign aid, at least directly –  the Reserve Bank did the recruitment, but I was paid (rather well) by the Papua New Guinea taxpayer.   It was a great experience, personally and professionally, and although I haven’t been back now in almost 30 years, there is a sense in which I left some of my heart in PNG.  One of the memorable moments in my life was the dawn service on ANZAC Day –  a working day in PNG –  at the Bomana war cemetery, not far from where the Japanese advance had been halted in World War Two.

When I went to PNG, it was just coming up to the 10th anniversary of independence from Australia –  I recall then then Minister of Finance telling us we couldn’t tighten monetary policy because it would put a damper on the celebratory mood.    When people worried (there) about foreign influence, it was still about people like us (a former Governor-General had a newspaper column which he not infrequently used to lambast young Australians and New Zealanders who he regarded as still having too much influence in the public sector generally).  But at that point, if PNG wasn’t prospering, it had had a reasonably impressive run of macroeconomic stability: under the tagline of the “hard kina” policy, PNG had had lower average inflation rates than New Zealand or (I think) Australia.

I might not have been paid by foreign aid, and yet the whole of the Papua New Guinea state (established bureaucracies and institutions, very nice new Parliament House etc) wouldn’t have functioned without such aid.  Most of the aid in those days was direct budgetary aid from Australia.  I can’t remember the numbers now, but it was a large share of total government spending.  Direct budgetary aid had, in principle, quite a lot going for it.  Locals got to make the choices about how the money was spent, in line with (their judgement of) national priorities –  as distinct from vanity projects which might have looked good on the glossy brochures of aid agencies.  On the other hand, direct budgetary aid was only ever likely to be acceptable in the longer-term with strong accountability and good governance locally.  And both were fading in PNG.   And all foreign aid, whatever its other pros and cons, tends to contribute to an appreciated real exchange rate –  higher domestic cost structures than otherwise – that make it harder for industries based locally to be internationally competitive and for the economy to prosper longer-term based on its own strengths.   Australia still gives over A$500 million a year in aid to Papua New Guinea.   Here is how Australia talks of the opportunities, challenges, and aspirations.

Despite huge resource potential and close proximity to Asian markets, PNG faces economic challenges and fiscal pressures. Poor law and order, lack of infrastructure, complex governance arrangements, weak public service, inequality between men and women, and rapidly growing population are challenges to its future prosperity. PNG also remains vulnerable to climate change and natural disasters, including earthquakes, volcanoes and tsunamis.

The population is overwhelmingly  poor and face hardship and 80  per cent of Papua New Guinean’s reside in traditional rural communities. The development challenges for children and youth in PNG are stark: an estimated 40 per cent of children are stunted, one in five children are not enrolled in school and nearly half the population is under the age of 20. Family and sexual violence is endemic, with some of the highest rates of violence against women and children in the world. It is also estimated around 15 per cent of the population have some form of disability.

Despite these development challenges, PNG is seeking to achieve upper middle-income country status by 2050 (PNG Vision 2050 [PDF 2.78mb]). Sector priorities, as set out in the PNG Government’s 2017 Alotau Accord II, include education, health, law and justice, infrastructure and sustainable economic growth. PNG’s economic growth agenda focuses upon investments in high impact infrastructure, job skills development and partnering with the private sector.

And yet what is striking is that despite those enormous natural resource opportunities, Papua New Guinea has done so appallingly badly.  It is almost as if Papua New Guinea was one of those countries where natural resources  –  without the institutions and attitudes to change the narratives –  have been a curse more than a blessing.  There was the Bougainville mine, there was Ok Tedi, there is Lihir, there is gas (and an LNG development) and so on.  And yet here, using IMF data, is how PNG’s real per capita GDP has done since 1980 (not long after independence, and when the PPP series starts).


I’m not showing comparisons with stellar performers like Taiwan, Singapore, or Korea, or even with China.  Instead the comparisons are with three modest developing/emerging market performers – Fiji, Indonesia, and the Philippines –  and with Australia and New Zealand.   Over almost 40 years –  and all that aid – Papua New Guinea’s real per capita GDP has dropped further behind that of each of these countries.   If you can’t grow faster than New Zealand has managed since 1980, starting so far behind, there is something very wrong.    GDP per capita was about 12 per cent of New Zealand’s in 1980, and it is about 9 per cent now.

And yet New Zealand, and Australia, just see fit to throw more money at it.    The feel-good aspect is no doubt strong –   photos of the Prime Minister opening new facilities at the Gordons Market –  and the crass geopolitical positioning too  (whether it was funding to host the APEC meetings themselves, or a few tens of millions for electricity –  which probably ticks both boxes).   But where is the wise domestic prioritisation –  the hard choices made by locals about their own resources –  or the good governance and accountability?

It isn’t as if these are just questions outsiders ask.  One could look, for example, to the website of Sir Mekere Morauta.  These days he is an Opposition MP, but over the years since Independence he has held all manner of top jobs –  first local Secretary of Finance, head of the largest bank, central bank Governor, and Prime Minister.  He can be a prickly character –  when I was there he was head of the largest bank, and consistently refused to come to meetings the Governor held with heads of the banks – but has been a major force for good in PNG over the decades.

From a statement he issued last week

Prime Minister Peter O’Neill must come clean on total APEC spending. It is unacceptable for the Prime Minister to keep hiding the vast amount spent on the meeting,” Sir Mekere Morauta, Member for Moresby North-West, said today.

“Public money is not his to do with as he pleases, wasting it on luxury cars and private parties for his cronies.

According to the Public Finances (Management) Act, Section 47K, the APEC Authority must be audited by the Auditor-General, Sir Mekere said. But there is no record of any audit.

The report of the Auditor-General on the APEC Authority must be tabled in Parliament. This has not happened. Mr O’Neill has been promising for ages to table the APEC budget and expenditure report in Parliament but has never done so.

“These latest irregularities are in addition to likely breaches of the Constitution, the PFMA and other laws I have previously outlined in relation to the APEC vehicle procurement,” Sir Mekere said. “The smell of corruption grows by the day, and only full inquiries by the Ombudsman Commission and the Fraud Squad can ascertain the truth.


“Mr O’Neill has been the most extravagant and self-indulgent Prime Minister in our history,” Sir Mekere said. “He and his cronies are living the high life at the expense of ordinary Papua New Guineans who are suffocating, gasping for clean air. Forty per cent of our people earn less than $1.90 a day. The extravaganza of APEC is a grotesque slap in their face.

“The Prime Minister admitted in a recent Post-Courier article that his Government’s corruption, waste and mismanagement mean there is not enough money to pay for essential services such as health, education, transport, infrastructure and law and order.

“Preventable diseases such as polio, leprosy, TB and malaria are surging, and people are dying – 21 children are now known to have contracted polio. Many schools are closing across the nation. Public servants are not being paid properly and other entitlements such as superannuation payments are being withheld. Essential infrastructure outside Port Moresby is crumbling into the dust, and government systems and processes are failing by the day.

“Transparency and accountability demand that the Prime Minister’s secrets be brought out into the open. Over to you, Mr O’Neill.

Not a word, of course, from our Prime Minister.  Just throw some more money in the pot, playing Beijing’s game.

Or for an independent take on a range of such issues, you could try this.

There are no easy fixes to Papua New Guinea’s failure –  other than the wishful thinking of assuming into existence things (“institutions”) that can only be created and sustained by painstaking and persevering effort.  But whatever the path to a better PNG, it is hardly likely to be helped by yet more of a cavalier bidding war among potential official donors.  Is there even any analysis as to how the grand electrification scheme –  good for headlines for a day or two –  is going to avoid falling foul of the same problems, the same poor governance –  that has become endemic?   Or does that simply not matter in the particular game the various governments –  Chinese, or our own –  are pursuing?

Papua New Guineans deserve a lot better –  mostly from their own leaders, but also from our own.