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).

PNG

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.

And

“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.

12 thoughts on “Aid and economic failure: PNG

  1. The key to changing the behaviour of our politicians is to stop the money flow from offshore; or at least limit it and make it transparent.

    It appalling that our politicians can accept funds from what is quite clearly a hostile foreign power. And once they’ve done their time, if they’re good boys and girls, then the Sugar-Daddy’s in Beijing might have someone buy their house for multiples of its valuation, or parachute them into cost jobs working for Chinese state enterprises (BoC, CCB etc)…

    We need electoral funding reform urgently. And while we are at it, we should have no one in Parliament who has dual citizenship. I’d go further and say no one born offshore too but maybe that’s stretching my luck…

    Liked by 1 person

  2. Lots of things are admirable in aspiration, including (from the DFAT statement I linked to) “Despite these development challenges, PNG is seeking to achieve upper middle-income country status by 2050 (PNG Vision 2050 [PDF 2.78mb]” but if PNG had what it took to achieve upper middle income country status by 2050, the country would be electrified under its own effort, and capital raised domestically or privately.

    My point is really a specific example of Bauer: aid, over many decades, hasn’t really helped (may even have been a net negative, even if one can point to specific clinics or the like)…and there is nothing in how O’Neill is governing suggesting PNG has finally found the right path (had it done so, there might then be an arguable case for throwing in money, even if only as a token of support).

    For anyone else reading, here is the World Bank list of upper middle income countries – PNG (having made no convergence progress in 37 years) aims to be where China, Russia, Turkey etc are today (in relative terms) in a mere 32 years from now. Sadly, there is almost zero chance of it happening.
    https://data.worldbank.org/income-level/upper-middle-income

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  3. From Taxpayers Union Web site:: ” as if there wasn’t enough wasteful spending at home in New Zealand, Deputy Prime Minister Winston Peters yesterday confirmed the Government will give more than $40 million in aid to Papua New Guinea – a country with a shocking and recent record of funnelling aid money to private benefits.

    This new $40 million is on top of the $15 million Kiwi taxpayers already gave for the country to host APEC – money that went to the slush fund that Papua New Guinea’s government used to spend $7 million on a fleet of Maseratis and Bentleys.

    On behalf of taxpayers we have publicly called on Winston Peters to take a tougher line on foreign governments accepting New Zealand aid. “

    Liked by 2 people

    • I think our Teachers feel the same about Ardern and Winston giving away $1 billion to the Pacific Islanders and $40 million to PNG. Underpaid and overworked and the Labour/NZFirst/Greens government giving away NZ taxpayer dollars shamefully.

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  4. The Belt and Road to nowhere: China’s incoherent aid in Papua New Guinea

    This article from well respected think-tank Lowy Institute details the instance of the 10 tuna canneries funded by china that became debt owed by PNG but no canneries have been built and the debt is owed to a state owned chinese operation – the reverse engineer the process – calculate how much the cost of development is, apply to the china development bank, get the money and walk away
    https://www.lowyinstitute.org/the-interpreter/belt-and-road-nowhere-china-s-incoherent-aid-papua-new-guinea

    NZ and Australia are being drawn into a contest they cannot win

    Liked by 1 person

  5. “”there is a sense in which I left some of my heart in PNG””; true for me too.

    You write “” If you can’t grow faster than New Zealand has managed since 1980, starting so far behind, there is something very wrong “”. You are referring to wealth per capita. I cannot find data for GDP but since 1980 PNG population grew by 154% and NZ by 50% so I estimate their total GDP has grown faster than NZ.

    Population growth is sabotaging both PNG and NZ until they both find the trick required to improve productivity. While looking for data I found this online: “” If you go back to the chart of GDP per capita in the England you see that early in the 14th century there was a substantial spike in the level of incomes. Incomes increased by around a third in a period of just a few years. This is the effect that the plague – the Black Death – had on the incomes of the English. The plague killed almost half of the English population. …. While farmers before the plague had to use agricultural land that was less suited for farming, after the population decline they could farm on the most productive areas of the island …… In the very long time in which humanity was trapped in the Malthusian economy it was births and deaths that determined incomes. More births, lower incomes. More deaths, higher incomes.”” Without productivity we return to the Malthusian trap.

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  6. Altho in the PNG case population growth is much less the issue than the corruption of the institutions. A lower birth rate might have made a modest difference there is per capita income, but it wouldn’t have changed the more deep-seated challenges that prevent PNG managing even the performance of Indonesia or the Philippines.

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    • A friend who worked for the World Bank said the bank measures the success rate of its projects and PNG was the worst. Which having lived there I can well understand and it ought to be a warning to NZ aid agencies.
      I agree with you corruption of institutions is the biggest problem. The bad drives out the good. The concept applies to all counties from the poorest to the wealthiest but hurts the poorest hardest and of course is most commonly found in poor countries as both cause and effect. It is one of the reasons I follow your blog with its consistent demand for transparency whether with political donations or at the RB (not an institution noted for corruption but like a fish it is too late if it begins to rot).
      A significant factor in fighting corruption is religious belief. In some countries the Muslim Brotherhood being a force for honesty in institutions as the CofE and other churches used to be in the British Empire. I mentioned in a previous comment how all my wife’s siblings were successful and you will remember back in the 80’s PNG had an almost non-existent middle class so seven children in one family all having successful careers pre-’85 was a remarkable achievement. One reason I gave for their success was the way their parent and especially their mother brought them up but the other reason would be the excellent Catholic school they all attended. NZ and Australia provide aid for Papua New Guineans to study abroad but that would be money better spent in PNG improving their schools and the University. I believe the best aid would involve exchanges of public servants – say a number of PNG police coming to NZ for a couple of years while an equal number of NZ police go to PNG; repeat for teachers, economists, lawyers, etc.

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