Papua New Guinea

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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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 estimated 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

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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 18.8 Construction 3.6 Exports of goods & services 48.6 Services 32.7 Imports of goods & services –39.6 GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports fob 1996c US$ m Principal imports cif 1994 US$ m Crude oil 811.1 Machinery & transport equipment 442.9 Gold 584.3 Manufactured goods 334.0 Logs 341.4 Food & live animals 204.2 Copper 292.3 Chemicals 85.9 Coffee 143.6 Mineral fuels & lubricants 40.8 Palm oil 134.7 Total incl others 1,526.5 Total incl others 2,489.5

Main destinations of exports 1995 % of total Main origins of imports 1995 % of total Australia 33.4 Australia 51.2 Japan 23.3 Singapore 13.1 Germany 11.5 Japan 9.2 South Korea 7.8 USA 3.9 China 2.7 New Zealand 3.8 USA 1.9 Malaysia 2.8 a EIU estimate. b Central Bank figure. c Customs figures.

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Outlook for 1997-98

The new government The general election held in June comprehensively rejected the administration lacks an overwhelming of Sir Julius Chan, which was widely perceived as corrupt and whose claim to electoral mandate— political legitimacy was gravely compromised by the Sandline affair (the attempt earlier this year to use foreign mercenaries to bring a quick end to the Bougainville separatist problem and take back the copper mine at Panguna). Fifteen ministers failed to win re-election, including the prime minister himself.

But the result of the poll was the familiar plethora of parties and independents, with no one group having more than a small proportion of the seats in the National Parliament. The new prime minister who did emerge after days of backroom negotiations—Bill Skate, the mayor of Port Moresby and a former speaker of parliament—could hardly be said to have overwhelming popular endorsement or a national following. His party has only six seats in the legislature. He only succeeded in winning the support of parliament against the expected victor, Sir Michael Somare, through an agreement with two parties which had received a thumbs down at the general election—Sir Julius’s People’s Progress Party and the Pangu Pati of Chris Haiveta.

—but has a formal How long the coalition holds together remains to be seen. Signs of dissent are breathing space— already emerging. Andrew Baing, a minister in the outgoing administration, has made no secret of his anger at not being made deputy prime minister and at his party getting only four cabinet seats. However, under the terms of Papua New Guinea (PNG)’s constitution the new government has 18 months before a vote of confidence can be called. One advantage the new prime minister does have is the absence from parliament of two major potential rivals. Two political heavyweights, Sir Julius and Paias Wingti, both of whom have the experience and charisma to form a rival coalition, failed to win seats in June.

—and has launched some While neither the circumstances of its birth, nor the nature of its composition, important initiatives— would betoken a government of political reform, there are some hopeful signs. Almost immediately on his election the new prime minister announced that he would investigate his coalition partners who were linked to the US$36m contract with the mercenaries. Admittedly, this action seemed largely designed to placate feeling in the army (see The political scene). But such action brought him into conflict with Sir Julius—for whom some had thought he would serve as a front. In addition, an anti-corruption commission is to be set up as well as a long-awaited human rights watchdog.

—including a new The latter move could contribute to progress on a problem that has plagued the approach to the country for nine years—the secessionist rebellion in Bougainville. A window of Bougainville problem opportunity has appeared in the aftermath of the Sandline affair, which had attempted a violent resolution of the crisis, and after the removal of the prime minister who initiated it, and in the next few months the progress achieved in recent months could be built on.

One of the first moves of the new administration was to set up a Ministry for Bougainville affairs. Not long after, Mr Skate announced his full support for the Burnham peace accord, agreed at a meeting in July between representatives of

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the Bougainville Revolutionary Army (BRA) and the pro-Moresby Bougainville Transitional Government (BTG). He also visited the island, the first visit by a PNG prime minister in almost three years. In contrast to the July talks, the PNG government will participate in the next round of discussions at Burnham, scheduled for September. There is still a chasm between the two sides: the BRA’s leader, Francis Ona, insists that a referendum on independence be held, while Mr Skate has affirmed that independence is non-negotiable. But at least there is a timetable for negotiation.

Economic policy is So far, the new government has said very little about economic policy, and no unlikely to change— changes seem likely, at least in the near future. It has specifically ruled out presenting a supplementary budget to cover the extra expenditure generated by the Sandline affair. The government will not want to jeopardise the benefits of IMF and World Bank support, which is conditional on it keeping to the terms of the Structural Adjustment Programme that is in place.

The argument for keeping to commitments has been reinforced by the results of the recent Australian review of its aid programme. This recommended that the Australia-Papua New Guinea aid treaty should not be renewed when it expires in 2000. In future, aid to PNG should be based on the country’s com- mitment to good governance and sound economic management, as measured by a set of criteria. The likelihood of PNG securing anything like the A$300m (US$200m) a year it receives under the current programme would clearly be undermined if the new administration were to leave the policy tramlines agreed with the Fund.

—and GDP growth should The EIU has upgraded its GDP forecasts for 1997, after growth in 1996 came in strengthen slightly better than the preliminary official estimate of 1.9%; the latest figure for last year is of 2.4% expansion—ie broadly getting the economy back to its 1995 level. We are now projecting 4.1% growth in GDP this year (up from the earlier 3%) on the assumption of continuing expansion in construction and gold production (as the Lihir mine comes on stream), which will more than offset the impact of falling oil output. The situation in agriculture is more problematic, depending on the extent to which drought generated by the El Niño current depresses crops.

Forecast summary (% change year on year unless otherwise indicated) 1995a 1996a 1997b 1998b Real GDP –2.9 2.4 4.1 4.9 Consumer prices (annual average) 17.3 11.6 6.0 5.5 Merchandise exports fob (US$ m) 2,670 2,530 2,692 2,804 Merchandise imports fob (US$ m) 1,262 1,514 1,568 1,747 Current account (US$ m) 674 312 332 385 Exchange rate (av) Kina:US$ 1.276 1.319 1.316 1.299

a Actual. b EIU forecasts.

For 1998 the prospect is of a further strengthening in the rate of growth, as the Gobe and Moran oilfields come on stream in the first quarter of the year. Growth could be even stronger, depending on when work begins on the gas

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Gross domestic product Kina real exchange rate (b) % change, year on year 1990=100 10 Papua New Guinea 110 Asia excl Japan Kina:DM 8

100 6 Kina:US$

4 90 2

0 80

-2 70 -4 1994 95 96 97(a) 98(a)

(a) EIU forecasts. (b) Nominal exchange rates adjusted for changes Kina:¥ in relative consumer prices. Sources: EIU; IMF, International Financial Statistics. 1990 91 92 93 94 95 96 97(a) 98(a)

pipeline linking PNG with Queensland (in the timeframe of this forecast, the stimulus would come from construction work). Growth in the economy will thus continue to stem from developments in the mining sector, which will leave both merchandise trade and the current account in comfortable surplus.

Oil and copper prices are Two of PNG’s leading exports, oil and copper, will be hit by the further weak- weakening— ening in prices in the rest of 1997 and through 1998. While the resumption of Iraqi oil exports has been delayed, allowing some recovery in oil prices, we expect exports to restart during the current quarter. The global oil surplus will re-emerge, and prices will resume their downward trend, although the fall next year will be a modest 1.2%. Meanwhile, the price of copper, buoyed up for much of this year by a series of production problems, which have hit global supply, is expected to fall back again now that the problems have been rectified and supply once more exceeds demand.

World commodity price forecasts (US$/ton unless otherwise indicated) 1995 % change 1996 % change 1997 % change 1998 % change Copper (refined) 133.2 27.2 104.1 –21.8 108.4 4.1 100 –7.7 Cocoa (US cents/lb) 65 2.7 65.9 1.4 71.9 9.1 80.5 12.0 Coffee (US cents/lb) 138.4 3.0 101.9 –26.4 137.6 35.0 112.5 –18.2 Crude palm oil (US$/ton) 628 18.9 531 –15.4 541 1.9 451 –16.6 Copra 439 5.1 489 11.4 443 –9.4 442 –0.2 Coconut oil 670 10.2 752 12.2 684 –9.0 687 0.4 Crude oil (US$/barrel) 17.2 –6.1 20.5 19.2 18.5 –9.7 18.3 –1.1 Rubber 1,058 30.9 954 –9.8 792 –17.0 898 13.4 Source: EIU.

—and prospects for Most of the agricultural commodities which rank as second-order exports for agricultural commodities PNG will see weakening prices in 1998 after their improvement in 1997. The are mixed most significant—coffee—is forecast to register the steepest fall. Assuming no frost damage in Brazil, the main producer, coffee prices are expected to fall back sharply after this year’s surge. Second-rank palm oil will also record a sharp fall in 1998, while copra and coconut oil are not expected to make up this year’s

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decline. The exceptions to the trend are cocoa and rubber (which are of marginal significance among PNG’s exports).

Review

The political scene

Two political The general election held over the two weeks from June 14 (the first week for heavyweights lose seats in voting, the second for counting the results) produced the expected indecisive the June general election— result, with no one party dominating the 109-member National Parliament. The People’s Progress Party (PPP), the party of the outgoing prime minister, Sir Julius Chan, won most seats, but, at 16, they were half the number in the last parliament, and Sir Julius narrowly lost his seat, after 29 years in the legislature. The other big name to go was another former premier, Paias Wingti, of the People’s Democratic Movement. A lesser figure, John Giheno, who was the acting premier when Sir Julius briefly stood down this spring, also fell by the wayside.

—leaving the way open With the leaders of two of the parties eliminated, and a parliament with a large for a surprise choice as number of parties and many independents (37 out of a total of 109), the way premier— seemed clear for another former prime minister, Sir Michael Somare, to negoti- ate his way into the leadership of a coalition government. But, in a surprise result, Port Moresby’s mayor, Bill Skate, was elected prime minister on July 22 after teaming up with four other political parties. His coalition includes the PPP and the Pangu Pati, both of which he had previously described as corrupt. His own party, the People’s National Congress (PNC), was backing Sir Michael right up to the day before the vote. But, in an eleventh-hour defection, Mr Skate pulled out and managed to attract 71 votes to Sir Michael’s 35 in a free vote in the newly elected parliament. Inevitably, there were rumours of backroom deals. One political commentator from The Australian Financial Review argued that “the deal reeked of opportunism and cynical manipulation”.

—and a five-party The 28-member cabinet sworn in a week later drew members from all five coalition parties: the PNC, People’s Progress Party (PPP) and the People’s Democratic Movement (PDM) each have five members, the Pangu Pati seven, the People’s Resource Party two and there are four independents. Chris Haiveta (of the Pangu Pati) has held onto his deputy premiership although his portfolio has been changed from finance to national planning and implementation. Roy Yaki, the leader of the PDM, is now finance minister and Andrew Baing, who has replaced Sir Julius as leader of the PPP, is minister for agriculture and livestock. There have also been some major changes in the ministerial port- folios. Police and correctional institutional services have been amalgamated to form internal affairs. Both mining and petroleum, and culture, tourism and civil aviation have been separated, with tourism and trade forming a new ministry. There is also a new ministry for Bougainville affairs. (See Political structure for the list of key ministers.)

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The new administration Within days of his election Mr Skate faced a political crisis, which could be said faces an early crisis— to stem largely from suspicion of the deal he might have reached with his predecessor. On July 28 a group of soldiers released from prison a major, Walter Enuma, who had been detained for his part in the army revolt last March, and put under house arrest the chief of the Papua New Guinea (PNG) Defence Force appointed by Sir Julius in one of his last acts as premier. The immediate trigger had been reports in the press that the former PNGDF commander, Brigadier- General Jerry Singirok, who had led the rebellion against the use of mercenaries from Sandline International to put down the Bougainville independence movement, was to be charged with sedition. His action, backed up by riots in the capital, had forced Sir Julius to step down from the premiership, if only temporarily (see 2nd quarter 1997, pages 10-11). During the election Brigadier Singirok—who had been relieved of his command—had toured the country to present his interpretation of the Sandline episode—a move that almost cer- tainly helped sway the result. He is considered a national hero by many Papua New Guineans and he drew large crowds wherever he spoke.

It now seemed that the new premier might be acting in the interest of Sir Julius—or even at his behest; yet, during his election campaign, he had excoriated the incumbent for corruption .

—and responds by Another bout of military involvement in the country’s politics was the last thing ordering a second inquiry the new prime minister wanted. He moved quickly to head it off, announcing a into the Sandline affair— second inquiry into the Sandline affair. The three-member commission of inquiry is to be chaired by Justice Kubulan Los and has been charged with probing further into the initiation, negotiation, engagement, part payout of US$36m and then cancellation of the Sandline International contract. It is due to present its report by the end of October. During its deliberations, charges against senior soldiers involved in the March mutiny will be held in abeyance.

—after the first inquiry The first Sandline commission of inquiry had been established by the former found no evidence of prime minister, as a means of countering the demand of the army mutineers, corruption— and the populace, that he stand down immediately from his post. It had reported on the facts, without making any recommendations.

The results of this inquiry were made public just before the general election in June. The report found no evidence of corruption concerning any of the major figures involved but strongly rebuked Mr Haiveta, the deputy prime minister and minister for finance at the time of the contract, calling him a liar in all but name. Sir Julius was found to have “played the least role of all the bona fide parties in this inquiry”. The evidence of Brigadier Singirok was found to be conflicting and inconsistent.

The report was controversial on a number of counts. Brigadier Singirok had no legal representation for much of the inquiry because the state did not agree to the commission’s recommendation for payment for a lawyer. In the absence of such representation for the brigadier, Sir Julius, Mr Haiveta and the third minister involved (the defence minister, Mathias Ijape) were not subjected to detailed cross-examination. Moreover, the press conference at which the report was presented was in effect hijacked by Sir Julius, who took the opportunity to claim that he was reassuming the post of prime minister, temporarily being held

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by John Giheno. Numerous politicians, lawyers and political commentators condemned the Sandline commission’s report and the then opposition leader, Mr Yaki, accused Sir Julius of “bulldozing” his way back into the office of prime minister in a desperate attempt to cover up the whole Sandline deal.

—although it came up However, the inquiry did find that, contrary to the assurances of the prime with a damaging minister, the Sandline contract was financed by an appropriation from the revelation current budget. In January the deputy prime minister, Mr Haiveta, had in- structed the central bank to transfer Kina33.6m from the proceeds of the float of Orogen Minerals last year to the North Fly Highway Development Company, the vehicle for financing the contract with Sandline. This ran counter to the government’s pledge to the World Bank that the proceeds from the flotation of the state-owned mineral company would be held in a special account and not used without its agreement.

Mr Skate takes the reform A second commission of inquiry could be regarded as a mere political expedient. initiative with a probe But Mr Skate has followed it up with some potentially significant steps towards into corruption— more open and upright government. He announced the setting up of an independent anti-corruption commission to conduct a fast-track investigation into a number of controversial deals by the previous government. These include the purchase of the Cairns Conservatory, the Orogen share float and the sale of a palm oil company in West New Britain. Significantly, two leading critics of the Chan government have been put in charge of the commission, namely a former parliamentary speaker, Sir Barry Holloway, and Peter Doningi, the lawyer representing Jerry Singirok.

—a code of conduct for With an electorate that has shown itself profoundly mistrustful of the probity ministers— of the country’s political leaders, and whose confidence is not about to be enhanced by the current round of investigations, Mr Skate is keen to show that his administration follows acceptable standards of conduct. He has announced a new code of conduct for his ministers which reminds them to remain within the law. They are required to acquaint themselves with their responsibilities, not disclose confidential material to any unauthorised person, act in accord with cabinet decisions and attend cabinet meetings (on pain of dismissal for three consecutive absences), and obtain the prime minister’s permission for overseas travel. Other clauses in the code cover a minister’s relationship with his department and other ministers, and the use of official vehicles.

—a constitutional review— Mr Skate has launched the Constitutional Development Commission (formerly the Constitutional Review Commission). The broad-ranging terms of reference for the review cover the organic law, the integrity of political parties and whether to retain the British monarch as head of state.

—and a human rights Also in August the prime minister announced that the government was plan- watchdog ning to establish an independent Human Rights Commission during the next parliamentary session. The announcement came after a meeting with the special adviser to the UN High Commissioner for Human Rights, Brian Burdekin. Depending on its composition and its powers, the watchdog could serve as a means of bringing nearer a resolution of the Bougainville dispute.

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A step forward on the In July, while politicians in Port Moresby were digesting the results of the resolution of the June ballot, various factions from Bougainville, including the Bougainville Bougainville dispute— Revolutionary Army (BRA), the pro-BRA Bougainville Interim Government (BIG) and the pro-Moresby Bougainville Transitional Government (BTG), met for two weeks of talks in New Zealand. The outcome, the Burnham accord, pledged the BRA to start negotiating with the Papua New Guinea government in September on neutral ground. The signatories agreed to work towards a ceasefire, the demilitarisation of Bougainville (including the withdrawal of the PNGDF), the deployment of an international peacekeeping force and the lift- ing of a blockade imposed on the island by the Port Moresby government.

—one step back— With the new prime minister almost immediately announcing the estab- lishment of a special Ministry for Bougainville affairs and pledging his support for the Burnham accord, the signs were that momentum would be maintained. However, initially at least, the Burnham accord served to exacerbate rifts within the BRA that could sabotage any peace agreement. The leader of the BRA, Francis Ona, pulled out of attending the talks and said that he could not support the Burnham declaration. Only days after the talks ended a member of the BTG delegation, Thomas Batakai, was shot dead in Arawa, on Bougainville, by a rebel group loyal to Mr Ona. Meanwhile, the rebels who went to the talks released five PNGDF hostages on their return to Bougainville.

—and then two “firsts” By the beginning of September, however, the negotiating process seemed to be keep the show on the road back on track. After discussions with other senior figures in the BRA, Mr Ona came round to the Burnham accord and agreed to attend the round of talks, scheduled for October after another preliminary set of negotiations in New Zealand in September. This will be the first time that he has attended any peace talks since the conflict began nine years ago. Another—less spectacular—first came from Mr Skate, when he visited Bougainville in mid-August—the first visit by a PNG premier since 1994. But a settlement is by no means a certainty, or even a probability, at this stage. The prime minister has declared that independence for Bougainville is non-negotiable and the BRA leader is demanding a referendum on independence. In addition, there is no guarantee that Mr Ona will turn up—he has failed to turn up on a number of occasions. But at least a schedule for substantive discussions is in place.

The curfew is ended— On August 11 the nationwide curfew imposed by the former government two months earlier, just before the general election, was finally called off. However, in Port Moresby and other “trouble spots” the curfew had been in force since November last year. The government said that the curfew had served its pur- pose and was now putting an unnecessary strain on the police force and having an adverse effect on business and tourism.

Curfew or not, violent incidents were reported during the election. These included the death of a candidate, Patterson Kila, who was shot at close range at a friend’s house in Port Moresby by intruders; it is not known whether the attack was politically motivated. The former prime minister, Sir Julius, also got into difficulties while campaigning in the Highlands, when a helicopter he had chartered was attacked and severely damaged by a rock-throwing crowd.

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—as Papua New Guinea is A recent study by the National Centre for Development Studies at the ranked the most violent Australian National University has found that violent crime is more common country in the region in PNG than in any of its neighbours. The report found that PNG’s annual incidence of violent crime, at 2,000 per 100,000 of the population, is ten times higher than in Australia and six times higher than in Fiji. The number of crimes against property is 33,000 per 100,000 people, double the rate in Australia. Direct losses from crime in PNG were estimated to have been equivalent to almost 5% of GDP in 1995. Although the report conceded that some crime in Papua New Guinea had cultural origins, such as the custom of pay-back, crime in the major towns was driven by the lack of jobs and the need to make money. The report described urban crime as a significant “industry’’, accounting for 15% of urban employment.

Economic policy and the economy

The central bank revises The Bank of Papua New Guinea (the central bank) has revised upwards its its GDP estimate upwards estimate of GDP growth in 1996 from the preliminary figure of 1.9%. Accord- ing to press reports, the rate is now put at 2.4%, the result of higher than expected activity in the petroleum, agriculture, forestry and fishing, and construction sectors. The growth in construction was the result of the ongoing reconstruction programme in East New Britain (after the volcanic damage suf- fered in September 1995), building work associated with the development of the Lihir gold mine in New Ireland, the redevelopment of Port Moresby’s international airport, and road and building projects in the National Capital District. The higher than expected growth in the natural resources sector was mainly due to the influence on production of higher export prices for cocoa, copra and logs.

Government finances Preliminary estimates from the central bank indicate that the budget remained remain in the black— in surplus in the first three months of 1997, to the tune of Kina10.5m (US$7.7m), despite revenue collections being lower than forecast. The surplus was, however, much below the Kina48.5m registered in the same period of 1996, and is thus in accord with the forecast deterioration in the budget balance this year.

—because of The low rate of implementation of the development budget remains a cause for underspending on the concern. During the first quarter only Kina9.5m, just 2.3% of the full year’s development budget budget, was spent, apparently due to delays in departments and agencies sub- mitting their cashflow forecasts. So, whereas current spending was up by 24.6% year on year (well above the rate projected for the full year, reflecting the diversion of funds to the Sandline contract: see The political scene), development spending fell by over half. The Kina10.3m fall under this heading almost wholly accounted for the overall budget surplus recorded in the first quarter of this year.

The underspend on the development budget meant that PNG was not utilising the aid funds available to it. Drawings on these were only Kina1.7m in January- March—or just over 1% of the budgeted figure for the full year.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 14 Papua New Guinea

Central government budget (Kina m) 1996 1997 Jan-Mar Actual Budget 1996 1997 Revenue & grants 1,897.7 1,882.0 356.3 378.8 Tax revenue 1,526.3 1,555.7 295.2 329.9 of which: personal taxation 317.3 328.6 75.7 80.0 company taxation 523.4 455.5 47.3 73.7 other direct taxes 70.8 88.6 21.9 20.5 indirect taxes 614.7 683.1 78.4 68.6 Non-tax revenue 201.2 200.8 16.3 11.0 Foreign grants 170.1 125.5 44.8 37.9 Expenditure 1,860.7 2,001.1 307.8 368.3 Recurrent expenditure 1,607.8 1,754.9 287.9 358.8 National Departmental 720.6 742.8 155.0 199.9 Provincial governments 521.8 568.3 55.5 105.5 Interest payments: 257.1 328.6 34.1 26.7 foreign 82.6 82.0 18.8 19.4 domestic 174.5 246.6 15.3 7.3 Other grants & expenditure 112.2 120.3 43.3 27.4 Net lending & investments –4.0 –5.1 0.0 –0.7 Development expenditure 252.8 246.2 19.8 9.5 Overall balance 37.0 –119.1 48.5 10.5 Financing External 10.1 71.0 6.3 –0.8 Domestic 47.1 48.1 –54.8 –9.7 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

The government is An Australian economic consultancy, Economic Insights, has criticised the accused of poor financial government for continuing to deposit mineral and petroleum receipts in the management Mineral Resources Stabilisation Fund (MRSF), a non-interest-bearing account at the central bank, while still borrowing from commercial banks. It claims that some Kina330m has been accumulated in the MRSF at the same time as Kina480m has been borrowed from the domestic financial system, mainly through the sale of Treasury bills to the banks. Maintaining a positive balance on the MRSF account provides a false impression that the government is making savings from mineral revenue, when in fact it owes far more to the commercial banks than it holds in the MRSF. Furthermore, most of the debt accumulated has not been invested but used to finance current consumption.

Australian aid for airport The Australian government has announced a three-year aid allocation of upgrade A$30m (US$20m) for the upgrading of eight regional airports, including Gurney in Milne Bay province, Tokua in East New Britain and Buka in North Solomons.

Inflation remains low Consumer prices continued steady through the first quarter of this year, with the index rising by only 1%, after the marginal decline of 0.2% in the final quarter of 1996. Year on year, prices were up by only 2.8% in the first three months of 1997. The very modest upturn in this period reflects the deprecia- tion of the kina in the third and fourth quarters of 1996, which has increased the domestic price of imports, but the still low rate is the consequence of fiscal

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 Papua New Guinea 15

stability, the improvement in agricultural supply and the very subdued inflation registered in Australia, PNG’s major source of imports.

Consumer prices (period averages) Jan-Mar 1995 1996 1996 1997 Index (1977=100) 311.9 348.1 344.4 354.2 % change, year on year 17.3 11.6 17.4 2.8 Source: Bank of PNG, Quarterly Economic Bulletin.

Formal employment The latest employment survey from the central bank records a 5.9% year-on- continues to rise year increase in formal employment (excluding mining) in the final quarter of 1996. The increase in employment was broadly based, with nearly all sectors and regions recording a rise: the only exceptions were the wholesale sector and Consumer prices % change, year on year the Highlands and Lae regions. The surge in employment in the building and

25 construction sector was the result of the large number of projects in the capital, such as the Poreporena freeway, and ongoing construction at the Lihir gold

20 mine. Although welcome, the increase in formal employment needs to be put into context. Around 85% of the population is dependent on non-monetarised

15 agriculture, and, while the formal sector was offering more jobs last year after the contraction registered in 1995, the rise is estimated to absorb only around

10 one-sixth of the addition to the workforce each year.

Employment by sector, 1996 5 (% change, year on year) 1 Qtr 2 Qtr 3 Qtr 4 Qtr Year 0 1994 . . . 95 . . . 96 . . . 97 Retail –1.6 0.3 9.7 1.3 3.6 Source: Bank of Papua New Guinea. Wholesale –3.9 3.0 4.6 –4.3 0.2 Manufacturing 1.4 1.3 11.1 2.6 4.9 Building & construction 14.5 35.3 38.8 24.3 27.5 Transport 5.1 9.9 10.2 5.9 8.3 Agriculture, forestry & fisheries 2.7 4.8 3.2 7.1 5.5 Mining 1.9 5.6 5.7 1.1 3.6 Financial & business 0.0 2.9 8.6 7.0 4.6 Total excl mining 8.6 9.4 8.3 5.9 8.3 Index (1989=100) 97.4 102.5 99.3 102.8 100.5 Source: Bank of PNG, Quarterly Economic Bulletin.

Monetary policy is The government continues to maintain an accommodating monetary policy loosened again— stance. On March 17 the central bank reduced the minimum liquid assets ratio by 7% to 20%; the previous reduction had been of 5 percentage points, in June 1996. Given that commercial banks voluntarily keep about 51% of their assets in liquid form, including short-term government securities, the move pro- voked little comment within the financial sector. It would seem to have been inspired by the wish to halt the contraction in M3 in the first two months of this year; by end-February this aggregate was 3% down on the end-1996 figure. The decline was mainly the result of a decrease in net credit to the government from the domestic banking system and net sales of foreign exchange by the central bank to the commercial banks.

EIU Country Report 3rd quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Papua New Guinea

Money supply (Kina m; end-period) 1995 1996 Mar 1997 % changea Currency 180.5 208.1 178.0 –0.3 Demand deposits 465.3 656.8 709.5 54.4 Money supply M1 645.9 864.9 887.5 39.1 Savings deposits 272.7 312.1 294.2 7.1 Term deposits 923.7 1,254.7 1,284.5 28.2 Money supply M3 (incl others) 2,068.0 2,736.8 2,734.7 30.9

a March 1997 on March 1996.

Source: Bank of PNG, Quarterly Economic Bulletin.

By the end of March the total liquid assets of the commercial banking system were down slightly on the end-1996 figure, and the year-on-year increase was down to 37.2%, from 55.9% overall in 1996 and 70.3% in 1995. But the high level of liquid assets held by commercial banks remains a cause for concern.

Commercial banks’ liquid asset holdings (Kina m unless otherwise indicated; end-period) 1995 1996 Mar 1997 % changea Notes & coins 42.5 45.6 51.6 117.7 Deposits with central bank 27.4 79.1 77.8 62.1 Treasury bills 659.5 1,025.6 997.4 34.7 Short-term stocks 55.7 74.0 65.4 15.8 Total liquid assets incl others 785.1 1,224.3 1,192.3 37.2 Liquid assets ratio (%) 43.9 54.8 51.4 8.0

a March 1997 on March 1996.

Source: Bank of PNG, Quarterly Economic Bulletin.

—after interest rates The slight reduction in liquidity for much of the first quarter was accompanied rise slightly by a marginal increase in interest rates. The weighted average interest rate on total deposits increased to 4.1% by the end of March and the weighted average interest rate on total lending increased by 0.2% to 10.4%. PNG’s interest rates remain comparatively high because of the high risks perceived by the banking system, which complains of a high level of loan defaults, a lack of quality loan applications and the problems of providing credit to a rural sector where there is little collateral.

Commercial bank interest rates (%; end-period) 1995 1996 Mar 1997 Weighted average deposit rate 9.4 4.0 4.1 Weighted average loan advance rate 15.4 10.2 10.4 Source: Bank of PNG, Quarterly Economic Bulletin.

Agriculture and forestry

Average export prices After the general strengthening registered in 1996, the weighted average price were down marginally in of agricultural, forestry and marine exports was down by 0.7% year on year in the first quarter— the first quarter of 1997. As the table below indicates, trends varied widely among the leading commodities. Coffee prices were up very strongly, recover- ing most of the ground lost in 1996, while the prices of both copra and copra oil continued to rise, if much less markedly than last year, because of still reduced supply on the world market. The most significant adverse movement was in palm oil, with a continuing year-on-year decline, although prices were still well above the full-year average in 1996.

Export prices (Kina/ton unless otherwise indicated) Jan-Mar 1995 1996 1997 % changea Cocoa 1,559 1,604 1,676 3.9 Coffee (all grades) 3,893 3,040 3,632 21.8 Tea 1,286 1,361 1,463 –5.3 Copra 427 495 519 1.5 Copra oil 897 1,041 1,095 4.5 Palm oil 762 699 736 –6.3 Rubber 1,481 1,478 1,298 –13.5 Logs (Kina/cu metre) 174 183 173 –8.2

a January-March 1997 on January-March 1996.

Source: Bank of PNG, Quarterly Economic Bulletin.

—so volume changes are at In this situation the marked rise in earnings from agricultural exports during the root of growth in the first quarter of the year—28.4% in kina terms—is to be attributed to the earnings higher volumes shipped. Particularly strong rises in shipments were recorded by copra and copra oil (103% and 18% respectively), which combined with higher prices to yield an overall 64% rise in value. In the case of a more significant foreign earner—palm oil—the rise in volume, which reflected the maturing of new plantings, more than offset the weakness in prices. The main exceptions to the trend were coffee, where volumes were down by one-third, and cocoa, with shipments depressed by a tropical storm which hit East New Britain early in the year. Earnings from logs, meanwhile, were hit by falls in both volumes and—to a lesser extent—prices.

Fruit fly enters PNG— A similar species of fruit fly to that which recently caused losses to Australia’s horticultural industry is reported to have entered Papua New Guinea. Experts from the Department of Agriculture and Livestock have voiced concern that, if not contained, it could affect many crops including the lucrative export crops of coffee and cocoa.

—and drought hits the The agricultural sector is likely to be hard hit by the reappearance of the highlands El Niño current in the southern Pacific. Already, most of the highlands of Papua New Guinea have been hit by a drought which started early this year. The dry weather is expected to continue at least until October when the

north-west monsoon is due to start, but there must be some uncertainty about the timing and extent of precipitation.

Volume and value of agricultural and forestry exports, Jan-Mar

Kina m ’000 tons 1996 1997 % change 1996 1997 % change Cocoa 16.4 16.4 0.0 10.2 9.9 –2.9 Coffee 20.4 16.3 –20.1 6.9 4.6 –33.3 Tea 1.7 4.8 182.4 1.1 3.3 200.0 Copra 7.5 16.6 121.3 15.6 31.7 103.2 Copra oil 12.5 16.2 29.6 12.5 14.7 17.6 Palm oil 36.8 47.7 29.6 49.2 65.7 33.5 Rubber 1.5 1.0 –33.3 1.0 0.8 –20.0 Total incl others 98.4 126.3 28.4 n/a n/a n/a Logs 131.9 99.6 –24.5 718.8a 577.3a –19.7

a ’000 cu metres.

Source: Bank of PNG, Quarterly Economic Bulletin.

Coconut oil factory for The landowner company, Unevulg Development, has teamed up with a Canadian West New Britain company to build and run a US$1.1m coconut oil factory in West New Britain. The Canadian company will initially pay for the factory with Unevulg buying it back over a number of years.

Mining

Oil output continues to The export of crude oil from Kutubu continued to tail off in the first quarter of decline this year, with falls of 17.1% on the year-earlier rate and 22.8% on last year’s peak, in the third quarter. Decline is likely to continue until production from the new Gobe and Moran reserves starts next year. Exports of both copper and gold were up in the first three months on year-earlier levels (by 57.7% and 9.6% respectively), reversing the overall decline registered in 1996. While gold output will be boosted by the beginning of operations at the Lihir mine at mid-year, copper results for the full year will be less good, because of interrup- tions in production at Ok Tedi (see below).

Mineral exports 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Crude oil (’000 barrels) 9,705 9,593 10,424 9,585 8,047 Copper (’000 tons) 20.8 41.2 28.0 37.7 32.8 Gold (tons) 11.4 12.3 11.1 12.1 12.5 Source: Bank of PNG, Quarterly Economic Bulletin.

Low water levels hit The dry weather in Western Province and most of the highlands region has Ok Tedi lowered the water level in the Fly river, forcing the Ok Tedi copper mine to cut back on operations. The mine and other related industries rely on the river to transport all inward supplies such as fuel and food as well as the export of copper concentrate shipments. Activities were first scaled back in the second quarter, and, with the drought continuing, and reducing hydroelectric

capacity, ore processing was halted at the end of July and, as of mid-August, shipments of concentrates were halted. The management was examining other transport options, including the use of freight aircraft.

A more positive development for Ok Tedi is that local landowners, who had earlier sued BHP (the mine operator and majority participant) for damages for the effect of pollution from the mine, have signed an agreement with the company to store mine waste on their land in return for lease payments.

Record gold output from The Porgera gold mine produced a record 121,000 ounces in the first quarter of Porgera this year, 53% higher than in the same period last year. According to Placer Pacific, the mine’s operator, the rise reflected higher grade ore.

Oil Search buys into Oil Search (of Australia) has confirmed its acquisition of a 20% interest in the Chevron consortium gas proposed natural gas pipeline from the Kutubu field to Queensland, Australia project (2nd quarter 1997, page 17). Other partners in the Chevron-led consortium are Orogen Minerals (the former state company), BHP and Mitsubishi.

Foreign trade and payments

Exports recover in the Improved earnings from mineral and agricultural exports easily offset the de- first quarter— cline in the value of forestry and marine product exports in January-March this year and pushed up export earnings by 6.5% year on year. Despite lower volumes of oil (see Mining) and declining prices of gold and copper, all mineral exports registered an improvement. Even if the growth in mineral exports slackens during the rest of the year (mainly because of lower oil production and prices), total export earnings should make up the decline registered in 1996.

Exports Exports Kina bn (Kina m)

Crude oil Gold Jan-Mar a Copper Others 1995 1996 1996 1997 % change 3.5 Minerals 2,435.4 2,244.6 526.9 578.7 9.8 3.0 of which:

2.5 crude oil 827.7 1,073.9 255.1 269.0 5.4 gold 840.1 773.6 198.0 202.1 2.1 2.0 copper 754.5 387.0 71.2 105.4 48.0 1.5 Agricultural 502.4 578.6 98.4 126.3 28.4

1.0 Forest products 449.7 480.3 133.9 104.1 –22.3 of which: 0.5 logs 436.7 464.8 131.9 99.6 –24.5 0.0 1990 91 92 93 94 95 96 Marine products 12.3 1 0.4 2.7 2.3 –14.8 Source: Bank of Papua New Guinea. Total 3,399.8 3,313.9 761.9 811.4 6.5

a 1997 on 1996.

Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

—pushing up the surplus The Kina49m increase in merchandise exports, year on year, in the first quarter on trade— of 1997 easily exceeded the modest increase in merchandise imports (Kina13m), to produce a surplus of Kina338m on the trade account, compared with Kina302m in the corresponding period of 1996. This again represents a

reversal of the trend last year, when the surplus on merchandise trade fell by around a quarter.

—adding to other positive On the invisibles account, higher business receipts by construction companies trends on the current contributed to a Kina65m fall in the deficit to Kina202m. While transfers were account— down by a modest Kina6m, reflecting lower official flows, the overall current- account surplus rose by almost Kina100m to Kina151m, equivalent to 3-4% of GDP in this period.

—but the overall balance The capital account recorded a deficit of Kina106m in the first three months of of payments is in deficit the year—little changed on the same period of 1996. The rise in the deficit was primarily due to higher offshore account balances held by the mineral companies and lower net inflows of official capital. After taking into account errors and omissions, the deficit on the balance of payments was down to only Kina20m, compared with Kina74m in the first quarter of 1996. After rising by a very marked Kina432m in the course of 1996, foreign reserves fell slightly in the first three months of 1997, but at Kina769m—almost three times the level recorded 12 months earlier (Kina283m)—they were sufficient to cover almost five months of imports.

Balance of payments (Kina m) Jan-Mar 1995 1996 1996 1997 Merchandise exports 3,420 3,334 767 816 Merchandise imports –1,620 –1,996 –465 –478 Trade balance 1,800 1,338 302 338 Invisibles credits 443 611 88 151 Invisibles debits –1,477 –1,633 –355 –353 Net transfers 93 95 21 15 Current-account balance 859 411 56 151 Official capital flows –25 14 22 13 Private capital flows –193 –147 –138 –72 Non-official monetary sector transactions –5 –46 –18 –8 Change in offshore account balances –373 237 38 –39 Capital-account balance –617 58 –96 –106 Net errors & omissions 2 –37 –34 –65 Overall balance 244 432 –74 –20 Source: Bank of PNG, Quarterly Economic Bulletin.

The currency holds steady The kina’s rate against the Australian dollar—the currency of its main export against the Australian market and supplier of imports—has changed very little this year. In the four dollar months to end-April it had depreciated by 0.5% against the Australian dollar. Given the disparity in inflation rates, this still represented a slight apprec- iation. Against the US dollar, in which PNG’s major exports are priced, the kina weakened by 3% in the four-month period, which will have imparted a mild boost to the export sector.

Exchange rate of the kina (foreign currency units per kina; end-period) 1997 1996 Jan Feb Mar Apr A$ 1.0725 1.0467 1.0775 1.0908 1.0857 US$ 1.3468 1.3736 1.3889 1.3870 1.3899 Source: IMF, International Financial Statistics.

The government’s share of Official statistics from the central bank reveal that, at the end of 1996, PNG’s external debt continues total external debt outstanding was Kina3,091m (US$2,295m), a fall of 4.8% in to rise— kina terms from the peak of 1992 when borrowing for the Kutubu oil project was at its highest. (In dollar terms, the debt has fallen by 39.8% between the two dates: the disparity reflects the impact of the kina’s devaluation in 1994.) As a share of GDP it has narrowed from 77% in 1992 to 46% last year. While private-sector debt has fallen substantially, there has been a significant increase in government-sector indebtedness, in part due to borrowing from multilateral institutions. However, much of this is on concessional terms, so that the debt- service ratio has tended to fall, from 29.2% in 1992 to 14.1% in 1996 (central bank estimates).

External debt (Kina m unless otherwise indicated; end-period) 1992 1993 1994 1995 1996 Official 1,121 1,283 1,537 1,719 1,811 Private 2,126 1,589 1,494 1,350 1,280 Total 3,247 2,872 3,031 3,069 3,091 % of GDP 76.9 58.4 54.8 47.6 45.9 Source: Bank of PNG.

—and public-sector Total public debt outstanding at the end of March 1997 stood at Kina3,826m, indebtedness was rising an increase of Kina63m on the end-December 1996 figure. Around half was again in the first quarter raised domestically (entirely in the form of borrowing from the central bank) and another half came from loans from international agencies.

Public debt outstanding (Kina m; end-period) 1995 1996 Mar 1997 Domestic 1,605.7 1,969.5 1,999.6 Treasury bills 1,217.5 1,615.3 1,615.3 Inscribed stock 388.2 354.2 339.0 Special loans from central bank 0.0 0.0 45.3 External 1,718.4 1,793.9 1,826.4 International agencies 1,475.8 1,558.7 1,595.5 Commercial loans 227.9 222.6 219.9 Other loans 14.7 12.6 11.5 Total public debt 3,324.1 3,763.4 3,826.0 Source: Bank of PNG, Quarterly Economic Bulletin.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1994 1995 1996 1997 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Exports Qtrly totals Copra ’000 tons 16.3 17.2 11.8 15.8 19.4 15.6 20.2 22.7 40.7 31.7 Copra oil “ 2.1 5.9 7.7 10.9 8.6 12.5 8.3 13.9 14.9 14.7 Cocoa ” 0.5 7.7 3.3 11.1 8.5 10.2 9.9 9.7 11.2 9.9 Coffee “ 16.0 6.4 6.7 27.8 14.2 6.9 19.1 26.0 10.3 4.6 Logs ’000 cu metres 762 919 587 453 555 719 705 623 561 577 Gold tons 14.0 13.6 13.8 14.8 13.0 11.4 12.3 11.1 12.1 12.5 Fish ’000 tons 1.3 2.2 1.1 6.5 1.1 1.3 0.7 0.6 0.2 0.7 Copper “ 44.9 42.2 73.1 60.0 59.9 20.8 41.2 28.0 37.7 32.8 Petroleum, crude ’000 barrels 10,642 9,933 9,501 8,411 9,146 9,705 9,593 10,424 9,585 8,047 Prices Monthly av Consumer prices: 1990=100 127.2 132.9 135.2 146.0 151.0 156.0 156.7 159.2 158.9 160.5 change year on year % 6.5 12.2 14.9 23.1 18.7 17.4 15.9 9.0 5.2 2.9 Money End-Qtr M1, seasonally adj: Kina m 597.2 597.5 611.5 758.8 682.9 695.1 745.3 862.8 1,039.9 1,076.3a change year on year % 3.9 2.1 –1.0 25.1 14.4 16.3 21.9 13.7 52.3 n/a Foreign trade Qtrly totals Exports fobb Kina m 765.0 756.2 864.0 922.0 853.7 761.9 875.5 827.6 848.9 811.4 Imports fob “ 358.0 371.2 316.0 451.0 482.0 465.4 482.0 496.0 542.0 n/a Exchange holdings End-Qtr Foreign exchange US$ m 95.9 35.3 87.9 223.0 260.6 215.1 307.1 439.9 583.8 635.0c Exchange rate Official rate Kina:US$ 1.179 1.212 1.314 1.325 1.335 1.316 1.285 1.330 1.347 1.218d

Note. Annual figures of most of the series shown above will be found in the Country Profile. a End-January. b Includes re-exports. c End-April, 551.7. d End-April, 1.390.

Sources: Bank of Papua New Guinea, Quarterly Economic Bulletin; IMF, International Financial Statistics.

Direction of trade (Kina m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Imports cif 1989 1990 Exports fob 1992 1993 Australia 525.2 534.4 Australia 796.6 911.4 Japan 200.4 152.4 Japan 374.3 546.2 USA 145.1 110.4 South Korea 166.2 255.9 Singapore 88.0 97.2 China 97.0 168.7 New Zealand 41.6 38.5 West Germany 158.5 163.2 UK 37.7 26.8 USA 60.4 100.8 China 26.8 23.9 UK 72.1 76.6 West Germany 19.3 15.3 Netherlands 27.3 21.6 Total incl others 1,152.2 1,057.0 New Zealand 5.1 18.9 Total incl others 1,882.0 2,547.0

Main commodities exported (Kina m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Mar Jan-Mar 1992 1993 1994 1995 1996 1996 1997 Fish 7.8 5.3 10.3 12.3 10.4 2.7 2.3 Coffee 68.1 88.9 204.8 214.5 190.3 20.4 16.3 Cocoa 33.9 31.6 29.0 47.7 66.2 16.4 16.4 Tea 2.6 3.7 4.2 5.4 12.7 1.7 4.8 Logs 140.0 400.2 483.1 436.7 464.8 131.9 99.6 Crude petroleum n/a 817.8 702.7 827.7 1,073.9 255.1 269.0 Copra & copra oil 31.4 30.2 34.8 57.1 100.4 20.0 32.8 Palm oil 53.3 76.7 77.5 142.2 182.4 36.8 47.7 Gold 745.9 681.6 702.3 840.1 773.6 198.0 202.1 Copper 313.5 256.3 367.4 754.5 387.0 71.2 105.4 Total incl others 1,882.0 2,547.0 2,662.0 3,399.8 3,313.9 761.9 811.4 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.