Papua New Guinea
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COUNTRY REPORT Papua New Guinea 3rd quarter 1997 The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 1366-4085 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Papua New Guinea 1 Contents 3 Summary 4 Political structure 5 Economic structure 6 Outlook for 1997-98 9 Review 9 The political scene 13 Economic policy and the economy 17 Agriculture and forestry 18 Mining 19 Foreign trade and payments 22 Quarterly indicators and trade data List of tables 7 Forecast summary 8 World commodity price forecasts 14 Central government budget 15 Consumer prices 15 Employment by sector, 1996 16 Money supply 16 Commercial banks’ liquid asset holdings 16 Commercial bank interest rates 17 Export prices 18 Volume and value of agricultural and forestry exports, Jan-Mar 18 Mineral exports 19 Exports 20 Balance of payments 21 Exchange rate of the kina 21 External debt 21 Public debt outstanding 22 Quarterly indicators of economic activity 22 Direction of trade 23 Main commodities exported List of figures 8 Gross domestic product 8 Kina real exchange rate 15 Consumer prices 19 Exports EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Papua New Guinea 3 September 1, 1997 Summary 3rd quarter 1997 Outlook for 1997-98: The new government headed by Bill Skate lacks an overwhelming electoral mandate, but the five-party coalition cannot be removed by parliament for the next 18 months. It has launched some reform initiatives and shown readiness to cooperate in the new round of peace talks with the Bougainville separatist movement. No change in the overall direction of economic policy is likely, and GDP growth should strengthen this year and next as gold output continues to rise and newly developed oilfields come on stream. The rise in PNG’s export earnings from oil and copper will be restrained by weakening international prices. The political scene: The last two prime ministers, Sir Julius Chan and Paias Wingti, lost their seats in the July general election, and in a surprise result Mr Skate, the head of a minor party, won the premiership. He leads a five-party coalition, with Chris Haiveta retaining the post of deputy prime minister. The new administration faced an early crisis when officers put the chief of the PNG Defence Force under house arrest. Mr Skate responded by ordering another inquiry into the Sandline affair after the first inquiry cleared all the main suspects of corruption. An anti-corruption commission has been set up and a human rights watchdog is planned. Talks between the different parties in the Bougainville separatist dispute reached an accord in July to pave the way for full negotiations between the government and the BRA. Economic policy and the economy: GDP growth last year is now esti- mated slightly higher, at 2.4%. Despite lower revenue collections, the budget stayed in surplus in the first quarter of 1997, because of underspending on the development account. An Australian economic consultancy has accused the government of poor financial management. Inflation has remained at modest levels. Formal-sector employment recovered last year. Monetary policy eased in the first quarter, as interest rates edged up slightly. Sectoral trends: Export prices for PNG’s agricultural commodities were down slightly in the first quarter, and it was volume improvements which brought a 28% rise in earnings. Drought has hit the highlands region. Oil production at Kutubu has continued to tail off, while low water levels on the Fly river have hit operations at the Ok Tedi copper mine. Foreign trade and payments: Export earnings recovered in the first quarter of 1997, pushing up the trade and current-account surplus. The increase in the capital-account deficit caused the overall balance to go into the red. The kina has held steady against the Australian dollar. The government’s share of external debt has continued to rise. Editor: Graham Richardson All queries: Tel: (44.171) 308 1007 Fax: (44.171) 830 1023 EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 4 Papua New Guinea Political structure Official name Independent State of Papua New Guinea Form of state Constitutional monarchy Head of state Queen Elizabeth II, represented by the governor-general, who is nominated by the National Parliament The executive The National Executive Council, presided over by the prime minister, has executive powers; the prime minister is appointed by the head of state on the proposal of parliament National legislature Unicameral National Parliament; its 109 members are elected for a period of five years, 89 representing “open” constituencies and the rest representing 19 provincial constituencies and the capital district Provincial government Each of the 19 provinces has its own government which may levy taxes to supplement grants received from the national government Legal system Series of regional and magistrates’ courts leading to a Supreme Court at the apex National elections June 1997; next elections due by June 2002 National government Following the June 1997 election, no party held a majority in parliament. After some surprising coalition negotiations, Bill Skate of the People’s National Congress was elected prime minister on July 22. Mr Skate’s initial cabinet included MPs from the five main parties, but its composition is likely to change Main political organisations People’s National Congress; People’s Progress Party; Pangu Pati; People’s Democratic Movement; People’s Resource Party Main members of the Prime minister Bill Skate National Executive Council Deputy prime minister & planning minister Chris Haiveta Key ministers Agriculture & livestock Andrew Baing Bougainville affairs Sam Akoitai Education Gabriel Dusava Environment Robert Sakias Finance Roy Yaki Fisheries & marine resources Kala Swokin Foreign affairs Kilroy Genia Health Peter Waieng Home affairs Muku Taranupi Housing Robert Nagle Industrial relations Samson Napo Provincial & local governments Simon Kaumi Public services Iairo Lasaro Transport & works Philemon Embel Central bank governor Koiara Tarata EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Papua New Guinea 5 Economic structure Latest available figures Economic indicators 1992 1993 1994 1995 1996 GDP at current prices Kina m 4,140 4,979 5,297 6,060a 6,925a Real GDP growth % 11.8 16.6 3.5 –2.9 2.4 Consumer price inflation (annual average) % 4.3 4.9 2.9 17.3 11.6 Population m 3.85 3.92 4.00 4.07 4.10 Exports fob US$ m 1,948 2,604 2,651 2,670 2,530 Imports fob US$ m 1,323 1,135 1,325 1,262 1,514 Current account US$ m 95 646 569 674 312 Reserves excl gold US$ m 239 141 96 261 592 Total external debt US$ m 3,748 3,232 2,696 2,431 2,295b Debt-service ratio %, paid 28.2 28.7 30.4 20.8 14.1b Exchange rate (av) Kina:US$ 0.965 0.978 1.005 1.276 1.319 August 29, 1997 Kina1.423:US$1 Origins of gross domestic product 1993 % of total Components of gross domestic product 1993 % of total Agriculture 26.0 Private consumption 51.7 Mining & quarrying 28.9 Government consumption 20.5 Manufacturing 8.8 Investment