Papua New Guinea

COUNTRY REPORT

Papua New Guinea

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4th quarter 1999

The Economist Intelligence Unit 15 Regent St, 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 2000-2001

12 The political scene

16 Economic policy

20 The economy 20 Economic trends 22 Oil and gas 24 Mining 26 Agriculture

27 Foreign trade and payments

31 Quarterly indicators and trade data

List of tables

6 Forecast summary 10 Global assumptions summary 12 World commodity price forecasts 19 Central government budget 21 Inflation 22 Money supply 24 Mineral exports 26 Export prices 26 Agricultural exports by volume 27 Agricultural exports by value 28 Exports 28 Balance of payments 29 Exchange rates 30 Public debt outstanding 31 Quarterly indicators of economic activity 32 Direction of trade 32 Domestic exports

EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 2 Papua New Guinea

List of figures

11 Gross domestic product 11 Kina real exchange rates 18 Budget deficit 23 Kutubu oil price 1999 28 Minerals exports 29 International reserves

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October 1st 1999 Summary

4th quarter 1999

Outlook for 2000-01 The new government of Sir Mekere Morauta has made a good start in restoring PNG’s credibility with international donors. The swift introduction of a supplementary budget to correct some of the previous government’s excesses should help to secure funding from the IMF. The change in economic policy will improve PNG’s growth outlook, but little improvement in the exchange rate or domestic interest rates can be expected until external funding arrives.

The political scene The government’s new 24-member cabinet includes the return of Sir Michael Somare as minister for foreign affairs and Bougainville. Francis Ona, the founding father of the Bougainville Revolutionary Army, has finally backed the peace process on the island. Major-General Jerry Singirok, commander of the PNGDF, has been suspended. The government of the National Capital District is under suspension following allegations of corruption and malpractice. PNG has scored badly in the latest UNDP report on human development.

Economic policy The “mini-budget”, which covers the government's fiscal operations for the remainder of 1999, aims to raise revenue by Kina72m and cut expenditure by Kina140m. Although the budget has been broadly welcomed, concerns remain over the availability of external financing. The government has pledged to speed up the privatisation programme, with the proceeds going to help pay off the national debt.

The domestic economy • The economy grew by an estimated 2.1% in 1998, and probably grew in the first quarter of 1999. Inflation and interest rates remain in double digits. The kina hit a record low in June, but has recovered slightly since the new government took office.

• A decision on the future of the Ok Tedi copper and gold mine awaits the outcome of a World Bank study.

• The value of oil exports has risen due to higher world prices and increased production from the Gobe oil wells. The signing up of additional customers increases the chances of the PNG-Queensland gas pipeline going forward. The year-on-year value of agricultural exports increased in the first quarter by 36%.

Foreign trade and The current account recorded a deficit of Kina141m in the first quarter of 1999, payments up from a deficit of K85m in the same period in 1998. This year’s economic and political instability has had a detrimental impact on the exchange rate and the level of foreign reserves.

Editor: Leo Abruzzese All queries: Tel: (44.20) 7830 1007 Fax: (44.20) 7830 1023 Next report: Our next Country Report will be published in January

EIU Country Report 4th quarter 1999 © The Economist Intelligence Unit Limited 1999 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 (currently 104 are sitting, with five vacancies) 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 election due by June 2002

National government Sir Mekere Morauta, the leader of the People’s Democratic Movement (PDM), was elected prime minister by parliament on a vote of 99:5 on July 14th 1999. He leads a coalition government consisting principally of the PDM and the Advance PNG party

Main political organisations People’s Democratic Movement (PDM); Papua New Guinea First (PNGF); Advance PNG; People’s National Congress; People’s Progress Party (PPP); Pangu Pati; United Resource Party

Main members of the National Prime minister & minister for finance, Executive Council health & information Sir Mekere Morauta

Deputy prime minister & minister for home affairs John Pundari

Key ministers Agriculture & livestock Ted Diro Corporatisation & privatisation Vincent Auali Defence Alfred Pogo Education John Waiko Fisheries Ron Ganarafo Foreign affairs & Bougainville affairs Sir Michael Somare Forestry Michael Ogio Housing John Kamb Justice Kilroy Genia Labour, employment & tourism Herowa Agiwa Mining Sir John Kaputin Petroleum & energy Tommy Tomscoll Public service Philemon Embel Trade & industry Michael Nali Transport & civil aviation Bart Philemon Works Mao Zeming

Central bank governor Wilson Kamit

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Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998a GDP at market prices (Kina bn) 5.3 6.3 6.9 6.8 7.7 GDP ($ bn) 5.2 4.9 5.2 4.7 3.7 Real GDP growthb (%) 5.2 –3.6 3.5 –4.6 2.1 Consumer price inflation (av; %) 2.9 17.3 11.6 3.9 13.6c Population (m) 4.0 4.1 4.4 4.2 4.3 Merchandise exports fob ($ m) 2,632 2,657 2,512 2,160 1,788c Merchandise imports fob ($ m) 1,325 1,262 1,513 1,483 1,076c Current-account balance ($ m) 402 492 189 –192 62c Reserves excl gold ($ m) 96 261 584 363 193c Total external debt ($ bn) 2.8 2.5 2.4 2.3 2.4 Debt-service ratio, paid (%) 30.8 20.8 12.7 14.4 18.0 Exchange rate (av; Kina:$) 1.011 1.280 1.319 1.438 2.074c

October 1st 1999 Kina2.89:$1

Origins of gross domestic product 1998a % of total Components of gross domestic product 1998a % of total Agriculture 25.2 Private consumption 54.9 Mining & quarrying 26.0 Government consumption 22.5 Manufacturing 9.3 Investment 25.7 Construction 6.1 Exports of goods & services 59.5 Electricity, gas & water 1.4 Imports of goods & services –62.2 Services 32.0 GDP at market prices incl change in stocks 100.0 GDP at factor cost 100.0

Principal exports fob 1998 $ m Principal imports cif 1994 $ m Crude oil 392.0 Machinery & transport equipment 442.9 Gold 592.0 Manufactured goods 334.0 Logs 74.3 Food & live animals 204.2 Coffee 229.7 Chemicals 85.9 Copper 190.1 Mineral fuels & lubricants 40.8 Palm oil 131.1 Total incl others 1,526.5 Total incl others 2,127.5

Main destinations of exports 1998 % of total Main origins of imports 1998 % of total Australia 19.8 Australia 51.5 Japan 12.8 Singapore 10.4 Germany 6.9 Japan 8.0 South Korea 4.6 US 4.9 Philippines 4.4 New Zealand 5.3 UK 3.3 Malaysia 3.3 a EIU estimates. b Series 1994 from IMF, Papua New Guinea: Recent Economic Developments. c Actual.

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Outlook for 2000-01

Forecast summary ($ m unless otherwise indicated) 1998a 1999b 2000b 2001b Real GDP growth (%) 2.1 1.8 3.4 5.5 of which: mining & petroleum 29.8 6.0 3.0 3.0 agriculture –6.3 7.0 4.2 5.8 services –6.7 –3.9 1.0 3.2 Consumer price inflation (av;%) 13.6c 16.5 11.0 8.0 Merchandise exports fob 1,788c 1,902 2,187 2,334 Merchandise imports fob 1,076c 1,002 1,317 1,701 Current-account balance 62c 96 –67 –365 Exchange rate (av; Kina:$) 2.07c 2.52 2.24 2.12 a EIU estimates. b EIU forecasts. c Actual.

The new PM gets off to a Although he has been in office for less than three months, PNG’s new prime fast start— minister, Sir Mekere Morauta, has hit the ground running. Elected by a 99:5 margin in parliament on July 14th, Sir Mekere has made revitalisation of the economy and greater political stability his main priorities. To that end, he has introduced a supplementary budget to arrest the government’s declining fiscal balance; re-established good relations with the multilateral lending agencies and bilateral donors; taken steps to stabilise PNG’s political party structure; and distanced himself from the policies of his predecessor, Bill Skate.

Although none of these policy changes will pay immediate dividends—PNG’s economy has fallen too far to permit a quick turnaround—they have nonetheless created the foundation for a more stable economy in the medium term. The EIU believes that PNG’s economy will gradually improve over the next 18-24 months, helped by significant external funding, a more stable government and a slow return of investor confidence. Along with recovering commodity prices and the likely launch of a major energy construction project in 2000, the outlook for PNG is now more encouraging than at any time in the last two years.

—by rejecting old policies— Sir Mekere has drawn a sharp line between the policies of the Skate years— which ended with the former prime minister’s resignation on July 7th—and his own administration. He sent a strong signal of his intentions just one week after taking office when he rescinded Mr Skate’s sudden diplomatic recognition of Taiwan and re-established PNG’s “one China” policy. Despite the lure of large grants and low-cost loans from Taiwan—estimated to have totalled more than $2bn—as a quid pro quo for extending recognition, Sir Mekere took the more pragmatic approach of maintaining ties with mainland China, an important investor and trading partner. His decision has already paid dividends: the Chinese government has since provided $10m in aid—$5m as a cash grant to help ease the government’s current cash flow crisis and $5m in technical assistance to help the government’s reform programme. Just as important, the Taiwan policy reversal won praise from Australia, PNG’s leading

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aid donor and its chief interlocutor at the IMF and World Bank. Reversing Mr Skate’s desperate deal with Taiwan was, in effect, a test of the Morauta government’s credibility and its willingness to return to mainstream economic policies, which the last government had largely abandoned.

—and establishing new ties Sir Mekere has followed up by re-establishing good relations with the IMF and with multilateral the World Bank, opening the way for the resumption of lending as part of a agencies— structural adjustment programme. (The previous government had reached a stalemate with the lending agencies after failing to implement the reforms they had required.) Sir Mekere has already met with missions from both of these institutions to discuss the government’s 1999 budget as well as future financing requirements. We now believe that a funding programme is all but assured, although the timing remains uncertain. The government is seeking a total of around $400m from all donors—not just the IMF and World Bank—to repay some of its large domestic debt, cover what remains of the 1999 budget and finance the 2000 budget, which is expected to be handed down in November. While a full lending programme may not be in place that quickly, we believe that some funding will begin to flow before the end of the year. This should go some way towards stabilising the currency, rebuild international reserves and generally restore investor confidence.

—and with other potential The Australian government, which as PNG’s largest donor contributes about donors A$300m (US$197m) annually in aid to the country, has also been impressed with Sir Mekere’s performance. At the recent meeting of the Asia Pacific Economic Co-operation (APEC) forum in Auckland, New Zealand, the Australian prime minister, John Howard, made a special point of congratulating Sir Mekere and promised to do whatever is necessary to help. To date this has included bringing forward a lump-sum payment of A$30m from its existing aid budget. Sir Mekere also used the meeting to request support for external assistance from other APEC nations. Although no specific pledges were made, PNG’s efforts seem to have been well received. Any bilateral aid, however, is likely to come only in conjunction with an IMF/World Bank lending programme.

New budget and political Besides these steps, most of Sir Mekere’s good press has been in recognition of reforms are introduced— the swift introduction of a supplementary budget to cover the government’s finances from August to December of this year. In his speech to parliament on introducing the budget, Sir Mekere, who has also retained the finance portfolio, said the “mini-budget” would start to reverse PNG’s economic rot. He ridiculed the economic policies of the Skate administration as “stupid” and “illegal”, reserving his strongest criticism for Mr Skate’s chief economic adviser, Pirouz Hamidian-Rad, whom he blamed for the falling value of the kina and the decline in foreign reserves.

The mini-budget shows evidence of close consultation with the IMF. It aims to cut the widening fiscal deficit—exacerbated by Mr Skate’s failure to secure external funding—by generating an extra Kina72m in revenue and reducing expenditure by Kina140m. The planned net effect of these measures is to reduce the year-end deficit to Kina157m, equivalent to 1.7% of GDP. Given

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that the government recorded a Kina218m deficit for the first six months of 1999 alone (treble the original 1999 budget forecast and equivalent to nearly 5% of GDP), this goal is very ambitious, and unlikely to be met. Once again, the deficit is to be financed from external funds, presumably from the donors who have been so heavily courted in recent weeks. In any case, the option of returning to the Bank of Papua New Guinea (the central bank) for funding would appear to be closed: the previous government’s domestic debt in July exceeded Kina2.2bn, with Kina1.3bn of this owed to the central bank, breaching borrowing limits set by law. The IMF has been especially critical of the previous government’s manipulation of the central bank, so the new government is not likely to borrow further from this source. To that end, Sir Mekere has already appointed a new central bank governor, Wilson Kamit, a former deputy governor who had worked at the bank throughout its 25-year existence.

—but correcting fiscal Although the new government has made an excellent start, it will take many excesses will take time— months, if not years, to turn the economy around. Even if continuing talks with the IMF and World Bank go smoothly, a full lending programme may not be in place until next year. However, a stand-by arrangement may be available before the next full budget—due in November—to help plug the hole in PNG’s finances. When the external funding arrives, it will be on much better terms than would have been the case under the previous government. Mr Skate had sought funding both from commercial banks and through a Eurobond issue. Both have now been abandoned, as they would have come only with exorbitant rates of interest, which an already heavily indebted PNG could not have afforded.

—as will changing the Sir Mekere’s attempts to reform the political system will also be difficult. Fully tainted political culture aware that the uncertain political environment has heightened the lack of business confidence and capital flight, he has asked PNG’s Constitutional Development Commission to propose major legislative changes to increase the accountability and strength of the country’s party system. One particular area of concern is horse-trading by MPs, who routinely shift their support between government and opposition benches in the hope of securing a ministerial portfolio or some other patronage. In the recent build-up to the vote for a new prime minister, allegations of bribery were rife. Even Mr Skate had been critical of the time wasted in forming and reforming political alliances. Political reforms, however, are likely to prove halting. PNG politics is rooted in tribal and ethnic loyalties, and the culture of patronage and corruption is deeply ingrained. Despite Sir Mekere’s clean start, many members of his coalition government were prominent in the Skate regime, and more than a few of the new ministers served in past cabinets. Sir Mekere is likely to set a better example than Mr Skate, and this will help, but wholesale political reform in PNG is still a long way off.

Fortunately for Sir Mekere, the constitution is on his side. As the new prime minister, he cannot be challenged by a vote of no confidence during his first 18 months in office. He therefore should have time to devote to the country’s pressing economic problems.

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The peace process on While most attention has been focused on political developments in Port Bougainville will continue Moresby, the peace process remains on course on Bougainville. The appointment of Sir Michael Somare as minister for foreign affairs, including Bougainville, was an astute move: as PNG’s founding father, he is well respected on the island. Another fillip was the decision by one rebel leader, Francis Ona, to back the peace process. Mr Ona, founder of the Bougainville Revolutionary Army (BRA), had been the strongest critic of the peace process and had provided a focal point for all dissenters. Although he no longer enjoys the respect and influence he once did, his support in tackling the next major hurdle—disarmament—may prove invaluable.

The economy remains In the short run, PNG’s economic situation remains serious. Arguably, the weak— country is suffering its worst crisis in more than a decade. Of course, not all of the problems can be blamed on the previous government. Low commodity prices, weak demand from Asia and natural disasters such as the 1997-98 drought have all played a part. But the collapse of the kina, the lack of business confidence, the failure of exporters to repatriate earnings, and the high rates of interest and inflation all have their origin in soaring budget deficits and excessive reliance on domestic borrowing, both results of Mr Skate’s economic mismanagement.

—but growth is still The EIU now expects real GDP to grow by 1.8% in 1999, up slightly from our expected this year— forecast of 1.6% last quarter. This reflects the greater political stability and improving relations with the donor community, which should help to restore business confidence and more than offset the planned reductions in government expenditure. Increasing oil production and stronger agricultural output can be expected, as well as higher demand for logs as the Asian economies recover from recession. Agriculture is expected to grow by 7% this year, in part because output during the first quarter of 1998 was held back by the lingering effects of the drought. PNG also expects another good coffee crop this year. Increased mining and petroleum output will help too: oil production during the first half of the year was up by 25% year on year, although the rate of increase will fall back in the final two quarters.

—and into 2000 and 2001 as For 2000 we are forecasting GDP growth of 3.4%. This assumes that an the global economy IMF/World Bank loan package can be agreed and that work finally begins on strengthens the construction phase of the PNG-Queensland gas-pipeline and the Ramu mining project (although no work on either is expected before the second half of the year). GDP growth should then pick up substantially in 2001—to 5.5%— as work on the pipeline moves into full gear, providing substantial spin-off benefits throughout the economy. Our forecast assumes, however, that the Ok Tedi copper and gold mine, whose viability is being reassessed in the light of massive environmental problems, remains open for at least the next two years. The mine, managed and 52%-owned by Australia’s BHP, accounts for about 10% of PNG’s GDP and 20% of its export income. Its future will be determined, in part, by the outcome of a World Bank review expected later in 1999. Given the mine’s importance to the national economy, we believe the government will have little choice but to keep it open.

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Internationally, we are forecasting GDP growth of 3.5% in Australia—PNG’s most important trading partner—this year, decelerating to 2.8% next year as investment, especially in the mineral sector, falls back. We are also forecasting GDP growth in all of the crisis-hit Asian economies this year and next, which will give a further boost to PNG’s economic prospects. The EIU’s index of non- oil world commodity prices is also forecast to rise, by 3.9% next year and by a further 7.7% in 2001.

Global assumptions summary (% unless otherwise indicated) 1998 1999 2000 2001 US GDP growth 3.9 3.9 2.7 1.7 Australia GDP growth 4.9 3.5 2.8 3.0 Japan GDP growth –2.9 0.6 0.0 1.7 US$ effective exchange rate (1990=100) 109.5 106.9 104.6 102.0 ¥:US$ (av) 131 115 110 109 Source: EIU.

Fiscal reforms have begun— Under the guidance of the expected IMF/World Bank programme, we expect the government’s fiscal position to improve. We are forecasting a fiscal deficit for 1999 equivalent to 2.4% of GDP, an improvement over the first half of the year, due mainly to the government’s mini-budget. We are forecasting a slight fiscal surplus in 2000 and in 2001 reflecting the combination of higher taxes and reduced spending that will accompany the IMF reform package. Faster economic growth should also lead to increased tax receipts, especially after the gas pipeline project begins.

—but interest rates will Interest rates will remain high for the rest of this year and well into 2000 as the remain high— government pursues what it describes as a tight monetary policy to defend the weak currency. The interest rate on the government’s 182-day Treasury bills was above 28% in August (although it has since come down a little), having risen steadily from just under 20% in January as the currency has depreciated. The central bank has also once again raised the minimum liquid assets ratio— from 20% to 25%—to reduce liquidity in the banking sector and slow the rate of growth of commercial credit. The move may have been made with an eye on the IMF, which typically recommends higher interest rates to reduce the pressure on international reserves and provide a measure of stability to a weak currency. Higher domestic interest rates, however, will continue to dampen private consumption and business investment.

—as will inflation The increase in interest rates to help support the kina, as well as to attract investors to buy government debt, has combined with the cost-push effects of the depreciating kina to keep inflation in double digits. The rate of increase in the consumer price index (CPI) is likely to remain high for the rest of 1999, as the effects of the first-half currency depreciation have yet to fully flow through. (As PNG imports most of the manufactured goods that it consumes, a weaker currency shows up—with a short lag—in higher import prices and, hence, a

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higher CPI). The rate of increase in the CPI should abate somewhat next year, especially as the expected arrival of external funding should help to stabilise the kina. We are forecasting the CPI to increase by 16.5% this year, with the rate slowing to 11% in 2000 as the IMF reform programme begins to shore up the economy.

—although the exchange The combination of political turmoil and a weakening fiscal position rate should gradually contributed to a 63% depreciation in the kina between the start of the year strengthen and its low point on June 11th. It has since recovered some ground and spent most of September at around Kina2.94:$1, significantly up from its low of Kina3.35:$1. International reserves were below $90m in August, insufficient for even a week of import cover. We expect the currency to recover somewhat over the next few months as export receipts, especially from oil, increase. The arrival of external funding, perhaps in November, should also help to support the kina. We are forecasting an average exchange rate of Kina2:52:$1 for 1999, improving to Kina2.24:$1 in 2000 and Kina2.10:$1 in 2001.

The current account will be We are forecasting a current-account surplus of $96m this year, equivalent to in surplus this year— 2.7% of GDP, up from $62m in 1998. Much of the gain will come from a higher trade surplus, which is forecast to increase in dollar terms by around 25% this year. The trade surplus in the first quarter rose more than 80% in dollar terms as output of copper and oil increased substantially. Production of a number of agricultural commodities, including coffee, cocoa and palm oil, also jumped, in part because of the drought-affected first quarter of 1998. Export receipts will also be helped in 1999 by the much higher price of oil: Kutubu crude, PNG’s benchmark, was selling at around $24/barrel in September (after having fallen as low as $10/b in December 1998). Although the prices of some major agricultural commodities, including coffee and cocoa, will fall substantially this year, log volumes and prices will be considerably higher. The sharp rise in the price of gold in September should also boost export receipts.

Gross domestic product Kina real exchange rates (c) % change, year on year 1990=100 Papua New Guinea 110 Asia excl Japan 6.0

100 4.0 Kina:US$ Kina:DM

2.0 90

0.0

-2.0 80

-4.0 Kina:Kina:¥¥ 70 -6.0 1997 98 (a) 99 (b) 2000 (b) 01 (b)

(a) EIU estimate. (b) EIU forecasts. (c) Nominal exchange rates adjusted for changes in relative consumer prices. 60 Sources: EIU; IMF, International Financial Statistics. 1990 91 92 93 94 95 9697 97 98 99(b) 98 99(b) 2000(b)2000(b) 01(b)

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—before falling back into We expect the current account to fall into deficit in 2000 as imports of deficit in 2000-01 machinery and other manufactured goods rise substantially in the second half of the year as the gas pipeline project gets under way. The rate of increase in merchandise exports will also fall back as the volume of copper exports declines. We are forecasting a much higher current-account deficit—equivalent to nearly 7% of GDP—in 2001 as imports to support the pipeline pick up substantially. The balance on the transfers account is also likely to move into deficit as the Australian aid payment is phased out.

The outlook for commodity According to our latest commodity forecasts, oil prices are now expected to prices is mixed average $17.01/barrel in 1999, rising to $18.13/barrel in 2000. The average price of gold will fall by around 3% in 1999, although prices rebounded strongly in September—moving above $300/oz—when European central banks pledged no further gold sales for the next five years. This should help to push up prices sharply next year. Copper prices will fall in 1999 but gain ground in 2000. The markets for cocoa, coffee, tea, sugar and palm oil will all continue to suffer from oversupply in 1999. Coffee and cocoa prices are forecast to continue sliding into 2001.

World commodity price forecasts ($/tonne unless otherwise indicated) %%%%% 1997 change 1998 change 1999 change 2000 change 2001 change Cocoa (cents/lb) 73.4 11.2 76.0 12.7 53.2 –30.0 45.5 –14.5 40.0 –12.1 Arabica coffee (cents/lb) 189.1 31.4 135.2 –28.5 100.7 –25.5 76.4 –24.1 65.0 –14.9 Tea ($/kg) 2.03 20.1 2.0 –1.0 1.7 –16.9 1.6 –5.7 1.2 –21.3 Copra 434 –11.2 411.3 –5.2 484.0 17.7 515.0 6.4 543.3 5.5 Coconut oil 660 –12.2 656.5 –0.5 757.8 15.4 786.3 3.8 827.3 5.2 Crude palm oil 546 2.8 670.8 22.8 428.5 –36.1 330.5 –22.9 308.0 –6.8 Palm kernel oil 652 –10.4 686.8 5.3 708.3 3.1 747.5 5.5 801.7 7.2 Rubber 656 –30.4 475.0 –27.6 446.5 –6.0 538.5 20.6 801.0 48.7 Crude oil ($/barrel; Brent) 19.1 –7.4 12.8 –33.3 17.0 33.3 18.1 6.6 17.5 –3.4 Gold ($/oz) 331.3 –14.6 294.1 –11.2 284.75 –3.2 367.0 28.9 390.0 6.3 Copper 103.3 –0.8 75.2 –27.2 70.1 –6.9 74.5 6.4 80.0 7.4

The political scene

The new prime minister One week after his election as prime minister on July 14th, Sir Mekere Morauta reverses PNG’s Taiwan made his first major decision as head of government: he rescinded the Skate policy— administration’s hasty decision to extend diplomatic recognition to Taiwan. His predecessor, Bill Skate, desperate to secure external funding to rescue the economy, had extended diplomatic recognition to Taiwan in exchange for a package of loans and grants, reportedly worth as much as $2.35bn. Sir Mekere overruled the decision, saying that proper procedures had not been followed. His action will have been influenced by the outcry from mainland China, which hinted that it would sever diplomatic relations with PNG if the decision

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were allowed to stand. Australia also urged the government to reconsider PNG’s position to avoid a needless disruption of regional relations. Sir Mekere’s swift reversal won plaudits throughout much of Asia, allowing the government quickly to establish a measure of credibility and to distance itself from the controversial Mr Skate.

—then names a new In late July Sir Mekere named a 24-member cabinet to begin the process of cabinet— reversing PNG’s steep economic slide. But, given the sheer number of MPs on the government benches, it was no surprise that some of the coalition parties complained about their allocation of portfolios. The deputy prime minister, John Pundari, leader of the Advance PNG party, has been the most vocal. Although Mr Pundari has 22 MPs in government and was a key player in delivering the prime minister’s post to Sir Mekere, his party has, in addition to himself, been awarded only one other ministerial portfolio. He was expecting at least nine.

The decision to appoint Tommy Tomscoll, a 31-year-old who has been in parliament for less than two years, as minister for petroleum and energy— among PNG’s most important industries—has raised eyebrows. He replaces Sir Rabbie Namaliu, who quit his post in July after leaving the Skate government to join the opposition. Sir Rabbie, a former prime minister, had held the portfolio for less than a year but had been instrumental in pushing new oil and gas legislation through parliament, as well as in generating support for the $2.6bn PNG-Queensland gas pipeline project.

—with Sir Michael Somare Sir Michael Somare, PNG’s first prime minster, has returned to the government as foreign minister as the new foreign affairs minister. While insisting that he will maintain the country’s “one China” policy, Sir Michael has said that PNG would like to develop closer business ties with Taiwan. He has also taken over responsibility for the Bougainville portfolio from the prime minister. Sir Mekere had already announced that his government was committed to the peace process on Bougainville, a move welcomed by the various factions on the island. Sir Michael, who was PNG’s first prime minister after independence in 1975, successfully negotiated a settlement on Bougainville when calls for independence were first mooted in the 1970s.

Mr Skate will lead the Bill Skate, the former prime minister who resigned on July 7th, has emerged as opposition the leader of a small opposition in parliament. As the new government has a constitutionally guaranteed 18-month grace period—during which no- confidence votes are barred—Mr Skate and his forces must be content with remaining in opposition for some time. The 99:5 parliamentary vote that brought Sir Mekere to power—oddly, Mr Skate was among those voting for the new PM—has also placed the new government in a strong position.

The MP for Imbongu, Peter Peipul, has been named the new deputy opposition leader. Mr Peipul, a first-term MP, was public service minister in the previous government and had also served as deputy to Bernard Narokobi when he was opposition leader. Political parties in the opposition include the United Resource Party, People’s National Congress and remnants of Pangu Pati whose leader, Chris Haiveta, is in government.

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The prime minister moves Sir Mekere has asked the Constitutional Development Commission to consider ahead with political changes in the way the political system operates. PNG is infamous for its un- reforms— stable political party system, which was in evidence during the jockeying and party switching that occurred ahead of Sir Mekere’s election as prime minister. The commission will consider ways to make the parties more stable, as well changes in party registration and how they are funded.

—and with changes in the Major-General Jerry Singirok, the controversial commander-in-chief of the military— PNG Defence Force (PNGDF), has been replaced by Colonel Carl Marpo. Although no explanation was given, General Singirok was closely allied with Mr Skate, who reappointed him commander of the PNGDF as a reward for exposing the Sandline affair in 1997. It was General Singirok who blew the lid on the Sandline Affair when he announced on March 17th 1997 that the PNGDF had confined the Sandline mercenaries to their barracks in Wewak. The announcement led to days of rioting in the capital, with soldiers loyal to General Singirok laying siege to parliament. The tumult eventually led to the resignation of the then prime minister, Sir Julius Chan. Nonetheless, the extent of General Singirok’s involvement in the hiring of the mercenary company is still disputed, and he continues to face sedition charges over his role in the affair.

—while pressing ahead The government has been active on Bougainville since it took office, keen to with the peace process on consolidate gains in the peace process made by Mr Skate (Bougainville was one Bougainville of the former government’s few successes). In late September the government extended until March the January suspension of a proposed provincial government to give all sides more time to decide the type of government under which Bougainville would function. On January 1st a new system of provincial government—replacing the old Organic Law—went into effect for all provinces, but the process was suspended for Bougainville because of on-going negotiations between rebels and the government over the its future status within PNG. Bougainville conducted its own elections earlier this year to establish a representative body to negotiate with the government. All sides will continue to meet over the next six months to decide whether Bougainville eventually should come under the now-standard provincial form of government, or some other form. Sir Mekere said the ad hoc, temporary governing arrangements prevailing on Bougainville for most of the last decade had denied its residents basic services. He stressed the need for early agreement on an agenda and timetable for a progressive political settlement on the island.

The BRA leader endorses Francis Ona, founding father of the Bougainville Revolutionary Army (BRA) the peace deal— and a long-time critic of the peace process, has reversed course. In a surprise move, Mr Ona told the president of the Bougainville Reconciliation Government, Joseph Kabui, that he and his followers were prepared to try to make the peace process work. Although Mr Ona does not carry the influence he once did, his decision to come on board should help the peace process move forward. Mr Ona himself declared Bougainville independent in 1990, but his declaration was not recognised by any other country.

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—as a rebel leader moves on As a welcome sign of the times, the self-styled leader of the BRA, Sam Kauona, has resigned to study aviation at Massey University in New Zealand. The New Zealand government awarded Mr Kauona a scholarship from a fund established to assist Bougainvilleans with reconstruction and education. He has been replaced by Commander Ishmael Toroama, who has pledged to support the peace process. Since the peace agreement was signed last year, the size of the BRA has been decreasing, with former supporters returning to their villages to rebuild their homes and tend their cocoa and coconut plantations.

The former chief economic Since the demise of the Skate government, its controversial chief economic advisor is detained— adviser, a former World Bank employee, Pirouz Hamidian-Rad, has been charged with various counts of wrong-doing by the government, and has been stopped on several occasions from leaving the country, ostensibly seeking medical treatment in the US. Mr Hamidian-Rad was originally stopped from leaving PNG by a court order granted to the Internal Revenue Commission (IRC), which accused him of owing Kina1m ($345,000) in unpaid income tax. He has since been charged with misappropriation of funds and receiving money under false pretences.

The legal wrangling came to a head on August 13th when Mr Hamidian-Rad was first granted permission to leave by Chief Justice Sir Arnold Amet of the National Court, who described the government’s actions in preventing Dr Hamidian-Rad’s departure as “excessive and unreasonable”. However, later in the day this judgment was overruled by the Supreme Court. A week later this ruling was also overturned, although Dr Hamidian-Rad said he expected to be stopped again when he next tried to leave the country. As of late September Dr Hamidiam-Rad was still in PNG, and the legal wrangling was still continuing.

—as the government probes The minister for local government, Andrew Kumbakor, has announced an corruption in the capital inquiry into the management of the National Capital District (NCD), which includes Port Moresby and its environs, following allegations of corruption involving millions of kina. The present governor of NCD, Joseph Taku, who is also under investigation, was appointed after the NCD regional MP, Mr Skate, was elected prime minister following the 1997 election. The NCD is the only area besides the North Solomons (Bougainville) which still operates under the old Organic Law of provincial governments.

PNG has become a dumping During a health conference in Rabaul, the health department’s director of ground for old drugs— medical supplies said that PNG had become a dumping ground for expired or outdated drugs and medicine by overseas donors. Consequently a large pro- portion of the drugs circulating in the country should be destroyed immediately. Most drugs were past or were very close to their “use by” dates when they were first imported into PNG.

The conference was also presented with the latest statistics on infant mortality. According to the government’s draft National Health Plan, 82 out of every 1,000 babies born in PNG die before they are one year old. About 40 out of every 1,000 children are not receiving adequate nutrition, leading to reduced mental and physical development.

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—and remains near the According to the 1999 report of the UN Development Programme (UNDP), bottom in a poverty survey PNG came 129th out of the 174 countries that were evaluated, and last among the 14 Pacific island countries. “Papua New Guineans on average have shorter lives, worse access to health and education services, lower literacy rates, and worse unemployment” than other Pacific island nations, the report said. According to the UNDP, life expectancy at birth is only 57.9 years, while just 37% of children are enrolled in school. Also, 68% of the population do not have access to safe water and 30% of children under five years old are underweight.

Y2K is causing widespread According to a survey from the Port Moresby-based research company, concern MarketSearch, most Papua New Guineans plan to withdraw their savings from local banks before the end of the year for fear of losing them because of computer error. The survey revealed a general lack of public awareness over Y2K (the year 2000, a date which will be incompatible with older computing systems--popularly known as the "millennium bug"). Most people assume that all computers, including the banking system’s, are bound to crash at the end of the year. In response, the government has promised to step up its public awareness campaign.

Economic policy

The government introduces In an attempt to reverse what Sir Mekere Morauta called PNG’s “economic rot”, a supplementary budget— in early August the new government introduced a supplementary or “mini” budget for the rest of 1999. The new plan aims to increase revenue by about Kina72m ($30m) and cut expenditure by a further Kina140m. (Most cuts have fallen on the development budget, and recurrent expenditure on health, education and police has been protected.) In a speech to parliament on August 10th Sir Mekere described the new fiscal measures as a “last chance” to correct serious flaws in the 1999 Skate budget and to restore stability to the economy.

The new revenue measures raise taxes and fees on timber exports, fuel, gambling and luxury items, all frequent targets of past budget-balancing efforts. According to the budget estimates released by the government, taxes will be increased on log exports (by Kina15m) and gaming activities (Kina13m), with higher excise levies on fuel (Kina14.2m), wine (Kina6.4m), beer (Kina8.5m), alcoholic spirits (Kina6.8m), cigarettes (Kina3.5m) and luxury motor vehicles (Kina5m). In addition, changes to the mining tax will generate a further Kina10.3m, and another Kina15m will be raised from customs compliance audits. The government has also recruited the former head of the Internal Revenue Commission (IRC), Nagora Bogan, to undertake a review of the country’s taxation system, including the recently introduced 10% value- added tax (VAT) and the 4% mining levy, which the mining industry has been lobbying hard to remove.

Surprisingly, there has been no mention of abolishing MPs’ Electoral Development Funds—or slush funds as they are more commonly known—which have been another source of government corruption. All of PNG’s 89 MPs in

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“open” electorates receive Kina1.5m each—with the 20 provincial-seat MPs receiving Kina500,000 each—to spend on development projects.

—and exposes past abuses— Sir Mekere’s budget speech also shed light on the serious state of the government’s finances. The Skate government’s 1999 budget had originally proposed to use external borrowing to cover its deficit, as well as to repay Kina136m of foreign loans. However, the government was unable to secure any external financing because of strained relations with multilateral agencies and the country’s poor reputation in commercial markets. This resulted in the costly and time-consuming failure of other fund-raising endeavours, including an aborted commercial bank loan and a now-scrapped Eurobond issue (which allegedly cost over Kina2m in travel expenses). Consequently, the government was forced to resort to domestic borrowing from the central bank, and exceeded the legal borrowing restrictions. Sir Mekere revealed that the government’s budget deficit during the first half of the year exceeded 5% of GDP; the new measures under the mini-budget were intended to bring this down to around 1.7% of GDP for the full year.

The government’s precarious fiscal position partly explains why Sir Mekere has been so quick to open a dialogue with the World Bank and the IMF. He has also insisted that the previous government’s illegal borrowing from the Bank of Papua New Guinea (BPNG, the central bank) to cover budget shortfalls must never be repeated. Sir Mekere said domestic public debt had exceeded Kina2.2bn, with more than Kina1.3bn of that owed to the central bank.

—while halting the public- Despite trying to reduce expenditure, the government has decided to suspend sector retrenchment plan— the public-sector retrenchment exercise launched by Mr Skate until it has had time to fully assess the needs of the public service. Sir Mekere was scathing about the previous government’s project to cut 7,000 public jobs—about 10% of the work force—claiming it was arbitrary in design and chaotic in implementation. Mr Skate’s government had assumed these cuts would have been made by December 1998 and so had not budgeted for their wages and salaries from the beginning of this year. In fact by August 1999 only 1,181 public servants had been retired or retrenched.

Even more disturbing, the Skate government had also failed to budget for meeting the retrenchment and retirement entitlements of these 7,000 public servants, which it had estimated would cost around Kina65m. In fact, Sir Mekere said the true cost of the retrenchment exercise would be closer to about Kina170m. He also revealed that of the 1,181 officers who had been paid their retirement or retrenchment benefits, only 353 had actually been taken off the payroll. Even more surprising, the overall public-sector payroll had actually increased by 3,262 in the first eight months of 1999, resulting in a total public- sector wage bill of Kina780m over this period, Kina190m more than what was appropriated in the 1999 budget.

—and speeding up the To reduce the fiscal shortfall, the new government has also committed itself to privatisation programme— hastening the privatisation of state assets. To this end the prime minister announced on August 1st plans to establish a privatisation commission to guide and implement the programme. The law to establish the commission has

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already been tabled in parliament. The state-owned assets to be considered for privatisation include Air Niugini, Telikom PNG, Post PNG, the Electricity Commission, government stores and supplies, and the PNG Banking Corporation. Proceeds from privatisation sales are planned to help reduce the government’s domestic debt, especially that portion owed to the BPNG. Re- payments totalling Kina300m are due by the year-end. The government aims to complete the privatisation programme by 2002, an ambitious goal given the often slow pace of past privatisation exercises.

—earning praise from The Australian foreign minister, Alexander Downer, who had a strained Australia relationship with the previous prime minister of PNG, has given Sir Mekere’s economic policies, especially his plans to improve relations with the Bretton Woods institutions, high marks. He has also promised to do what is necessary to help PNG. Since the start of Sir Mekere’s term, the Australian government has already brought forward a planned aid payment, thereby providing PNG with a lump sum of A$30m (US$20m) from the existing Australian aid programme. Mr Downer said he had confidence in the PNG government under Sir Mekere and hinted that Australia was seriously considering further financial assistance to PNG in conjunction with an IMF/World Bank programme.

The government borrows Preliminary estimates of the fiscal operations of the national government to finance the deficit showed an overall deficit of Kina37.9m in the first quarter of 1999, which when combined with net loan repayments to overseas sources resulted in a Budget deficit domestic financing requirement of Kina81.3m, which was to be met mainly % GDP; left scale from the central bank. Total spending over the first three months of 1999 was Expenditure, Kina m; right scale 4.0 2000 Kina408.6m. Of this Kina382.1m was spent on recurrent items such as salaries and wages and only Kina26.6m on development expenditure—just 3% of the 2.0 1600 then annual budgeted amount.

0.0 1200 The under-spending of the recurrent expenditure budget has been a persistent theme in recent years and raises questions about the government’s ability to -2.0 800 implement any of its programmes. Another sign of poor management was the revelation that over this period the government has drawn down only -4.0 400 Kina9,000,000 from concessionary sources, just 0.1% of the original figure in

-6.0 0 the 1999 budget. The inability to access these inexpensive sources of funding 1993 94 95 96 97 1998 Source: Bank of Papua New Guinea, Quarterly Economic also puts unnecessary pressure on the domestic banking system if additional Bulletin. domestic financing is sought.

The IMF evaluates the At the request of Sir Mekere, an IMF fact-finding mission arrived in the capital economy— at the start of August to assess the country’s economic situation. Top of the agenda was the failure of the government’s 1999 budget, the immediate need for a mini-budget and the cost of servicing the government’s debt. A week later a similar World Bank mission arrived. Following these missions, the IMF in late September issued a report of its findings to the government, suggesting that a loan package, as part of a structural adjustment programme, could be available soon. The IMF said it “was ready to do its part, commensurate with the [government’s] ability to implement key policy measures and establish a track record of improved economic and financial performance”. It added that the

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government faced “an acute shortness of time as it attempts to bring the economy back from the brink of crisis”.

Central government budget (Kina m) 1996 1997 1998 1999 1 Qtr 1998 1 Qtr 1999 % change Total receipts 1,897.7 2,024 1,991.2 2,484.9 398.1 370.1 –7.0 Tax revenue 1,526.3 1,679.5 1,598.2 1,728.3 318.4 322.5 1.3 Personal tax 317.3 370.4 448.8 431.4 98.3 118.7 20.8 Company tax 523.4 540.9 426.1 561.4 56.4 33.4 –40.8 Other direct tax 70.8 97.7 132.9 120 24.2 33.8 39.7 Indirect tax 614.7 670.5 590.4 615.6 139.5 136.6 –2.1 Non-tax revenue 201.3 211.5 279.5 295.2 48 24.7 –48.5 Foreign grants 170.1 133 113.5 461.4 31.7 23.7 634.1 Expenditure 1,860.8 2,008.6 2,128.6 2,565.3 373.1 408.6 9.5 Recurrent expenditure 1,607.8 1,816.8 1,950.7 1,693.4 358.3 382.1 6.6 National departmental 720.6 820.4 861.5 712.6 157.8 196.5 24.5 Provincial governments 521.8 581.4 621.7 500 147 120.7 –17.9 Interest payments 257.1 297.6 337.2 390.8 39.1 38.4 –1.8 Foreign 82.6 91.3 107.4 156.7 17.8 27.2 52.8 Domestic 174.5 206.3 229.7 234.1 11.3 11.3 0.0 Other grants & expenditure 112.2 120.1 135.3 95 25.9 27.6 6.6 Net lending & investments –4 –2.7 –4.9 –5 –1.5 –1.2 – Development expenditure 252.8 191.9 177.9 871.6 14.8 26.6 79.7 Overall balance 37 15.4 –137.4 –80.1 25 –37.9 – External financing 10.1 –73.4 –116.3 85.3 –42.7 –43.4 – Domestic financing –47.1 58 253.7 –5.2 17.7 81.3 – Total financing transactions –37 –15.4 137.4 80.1 –25 37.9 – Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

—criticising the previous While acknowledging the effect of external shocks on the economy, including government— drought, low commodity prices and the Asian financial crisis, the IMF was sharply critical of the policies of the Skate government, which it blamed for a lack of discipline over budget expenditures. It also faulted the Skate government for lack of proper planning in the implementation of privatisation and civil service reform programmes. The IMF singled out for special criticism the previous government’s manipulation of the central bank, whose ability to conduct sound monetary policy “was seriously eroded by strong political pressures to finance the growing budget deficit”. (The new government says the Skate administration borrowed more from the central bank than was allowed by law.) The IMF urged changes in the Central Bank Act to allow a “more arm’s length, market-based relationship between the central bank and the government”. The fund also recommended ending the special MP “slush funds” because of poor accountability in how the money is spent.

—but opening the way for Discussions between PNG officials and the IMF continued at the IMF meetings an aid programme in Washington in mid-September. Provided agreement can be reached between the government and the IMF on details of PNG’s 2000 budget, fund officials said they expected to return to Port Moresby in October or November to complete discussions on a “possible programme that could be supported by the use of the fund’s resources”.

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Standard and Poor’s leaves The recent turmoil has not gone unnoticed by the credit rating agency, its rating unchanged Standard and Poor’s (S&P). In late July S&P placed the country’s BB long-term and B short-term sovereign and unsecured local currency credit ratings on its CreditWatch, which usually signals a downward revision. But on September 2nd the agency affirmed the current rating, although it did downgrade the outlook from stable to negative. S&P said it was encouraged that the new government’s austerity measures would stabilise the fiscal situation and improve its poor international liquidity position. The agency noted that international reserves had risen to around $111m on August 20th from $88m at the end of July. But the agency warned that it may yet reduce the country’s ratings if steps taken in the forthcoming budget fail to place the country’s fiscal deficit on a steadily declining trend.

A new central ban The prime minister has named Wilson Kamit to replace Morea Vele as governor governor is named— of the BPNG. Mr Vele was appointed about 12 months ago by Mr Skate. Mr Kamit, who had been one of the deputy governors, has worked at the bank for all of its 25 years. Sir Mekere cited Mr Kamit’s “vast policy and administration experience”, adding that the IMF and World Bank had made it clear that a funding package would not be provided until the independence of the central bank had been restored.

—as more companies list on A New Zealand company, Cue Energy Resources NL, which has significant the stock exchange— interests in PNG, has become the latest company to express an interest in listing on the Port Moresby Stock Exchange (POMSoX). If listed, Cue Energy will become the sixth company to list on the exchange, which began operations in July. The others are Orogen Minerals, Steamships Trading, Lihir Gold, Mosaic Oil and Oil Search.

—and the government The central bank has ordered four companies operating what are commonly cracks down on pyramid known as “fast-money schemes” to refund their clients investments and wind investment schemes up their operations. The four companies—Coral Pacific International, U- Vistract Finance Corporation, Millennium Corporation and Nekong International Investment—had been granted exemptions from the provisions of the Banks and Financial Institutions Act by a former treasury minister, Iairo Lasaro, but this has since been revoked on instructions from the prime minister’s office. The central bank also urged the public not to invest in these companies or other similar schemes, some of which had been offering 100% interest on savings.

The domestic economy

Economic trends

The economy grew in In early September the central bank released more complete data on PNG’s 1998— economic performance in 1998, estimating that GDP had increased “by more than 2%”. (The central bank does not provide detailed data on national accounts, although the annual budget, which is released in November,

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generally has rough estimates of GDP on production and expenditure bases.) The recovery in 1998 (from the drought year of 1997) was attributed to higher production in the mining and petroleum sectors, combined with a recovery in output in major branches of the agricultural sector. The mineral sector was helped by increased production at the Lihir gold mine and the start of production at the Gobe and South-east Gobe oil wells, and the resumption of shipments from the Ok Tedi gold and copper mine. Growth in the agricultural sector was mainly the result of a return to more normal levels of production after the 1997 drought. These increases more than offset a substantial decline in log exports—a result of the recession in Asia—and lower building and construction sector activity, due to the completion of several major minerals and infrastructure projects.

—and in the first quarter of Although PNG does not release quarterly estimates of GDP, economic output 1999— almost certainly was higher in the first quarter of 1999 than in the same period the year before. Agricultural and mining output in the first few months of 1998 were held back by the after-effects of the 1997 drought; as a result, the more normal levels of production achieved in the first quarter of 1999 should have boosted overall GDP.

—although foreign According to the central bank, foreign investment in PNG increased by 43% investment has been from Kina1.8bn in 1994 to Kina2.6bn (US$1.3bn) in 1998. Most of the increase falling— was attributed to equity inflows into the mining and petroleum sector, principally Lihir mine last year, financing for the construction of the Gobe oil project in 1997 and the float of Orogen Minerals Ltd, and the privatisation of the government's interest in the New Britain Palm Oil Development in 1996. In the non-mineral sector, foreign investment increased by 36%, from Kina382m in 1994 to Kina521m in 1998. However, the central bank warned that foreign investment had declined sharply in 1998 because there were no new major projects under way. Forthcoming projects yet to be given the final go-ahead include the Queensland-PNG gas pipeline and the Ramu nickel project.

Inflation

1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Consumer price index (1997=100; end-period) 382.7 392.6 418.7 450.1 437.2 % change year on year 8.0 9.4 14.7 21.8 14.2 Source: National Statistics Office.

—and inflation continues According to the National Statistics Office, the rate of inflation as measured by to rise the urban-based consumer price index, actually fell by 2.9% quarter on quarter during January-March 1999. The fall was attributed to lower food and betelnut prices. Recent severe fluctuations in the price of betelnut, a popular stimulant when chewed, have masked price rises in many other areas. Taking betelnut out of the equation results in the CPI increasing by 1.5% quarter on quarter. The year-on-year rate of inflation in the first quarter was 14.2%, compared with 21.8% in the last quarter of 1998 (which was also blamed on the price of betelnut).

Betelnut prices aside, the lowering of the inflation rate in January-March can be attributed to the strengthening of the kina in the last quarter of 1998. However, with the kina having resumed its slide in 1999 the rate of inflation is likely to exceed 14.2% in the last half of this year.

Interest rates will Given the deterioration in the kina, the current high level of interest rates is remain high unlikely to come down before the end of the year. In mid-September commercial banks’ indicator lending rates were in the region of 17.25-19%, and seemed set to go higher. On September 17th the central bank raised the minimum liquid assets ratio from 20% to 25% to reduce liquidity in the banking sector and reduce the growth of commercial credit. Private bankers immediately said the policy change would put upward pressure on rates.

The commercial banks’ extension of domestic credit to the private sector, official entities and non-monetary financial institutions decreased in the first quarter by Kina114.6m, compared with the fourth quarter. This compares with an increase of Kina137m during the corresponding quarter of 1998. Lending to all sectors, official and private, decreased during the first quarter, reflecting the impact of a tight stance in monetary policy that pushed up interest rates. The substantial decline in lending to official entities, however, was also affected by several special factors, including the conversion of a loan to a grant by the government and repayments by the Commodity Boards under the price support schemes.

The average level of the broad money supply (M3) fell by 2% in the first quarter compared with the previous three months. The decline in broad money was a result of a decrease in the net foreign assets of the banking system, which more than offset an increase in domestic assets.

Money supply (Kina m; end period) 1996 1997 1998 1 Qtr 1998 1 Qtr 1999 % change Domestic credit 1,891.3 2,320.4 2,716.4 2,500.4 2,768.1 10.7 Non-government 1,206.5 1,480.2 1,747.1 1,617.2 1,632.5 0.9 Private sector 780.4 1,063.9 1,372.2 1,204.9 1,341.0 11.3 Official entities 316.9 299 208 258.2 129.5 –49.8 Non-monetary financial institutions 109.1 117.2 166.8 154.1 162 5.1 Central government 684.9 840.1 969.3 883.2 1,135.6 28.6 Mineral Resources Stabilisation Fund –531.4 –696.4 –677.3 –661.6 –570.4 –13.8 Other 1,216.3 1,536.5 1,646.6 1,544.8 1706 10.4 Net foreign assets 845.5 780.8 501.1 490.7 384.7 –21.6 Total money supply (M3) 2,736.8 3,101.1 3,217.5 2,991.1 3,152.7 5.4 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin

Oil and gas

Oil production is sharply Exports of crude oil in the first quarter of 1999 totalled 7.3m barrels compared higher— with 5.8m in the same period in 1998, mainly the result of production from the Gobe and South-east Gobe oil wells, which first came on stream in mid- 1998. This more than offset the decline in output from wells at the Kutubu oil

project, which have now passed their peak production levels. The average export price of crude oil decreased by 13.8% in the first quarter, owing to lower international prices as a result of increased supply in the world market.

—as are prices The outlook for oil changed dramatically after the March OPEC meeting, during which ministers agreed to reduce production substantially in order to Kutubu oil price 1999 (a) bring prices back up. Since then, OPEC members have been remarkably $/barrel successful in honouring their lower production quotas; as a result, the price of 30 oil has moved well above $20/barrel. This has been especially good news for PNG, helping to increase both the government’s tax take while providing a much needed boost to export receipts. In August, PNG’s crude oil generated a 20 record Kina161m (US$60m) in revenue. This was 15% higher than in July, and was based on oil production of 2.7m barrels for the month. (Production was down slightly in August from the month before because of a two-day

10 shutdown at the Moran field, the result of a dispute with landowners.) During the first six months of the year PNG was producing an average of 90,000 barrels/day of oil, up from just 71,000 b/d in the same period a year

0 earlier. This was mainly the result of the start of production in mid-1998 from Jan . Mar . May . Jul . Sep . the Gobe fields. The year-on-year rate of increase will therefore be lower in the Source: Bloomberg. second half of 1999.

The PNG-Queensland gas Prospects for a final go-ahead on the PNG-Queensland gas pipeline project look pipeline project receives a increasingly bright. At the end of August two Australian customers signed boost— preliminary agreements to purchase gas. Ergon Energy, which is acting as the aggregator for a number of North Queensland customers, including Stanwell, QNI and AES, signed for 50 petajoules of gas a year. Energex, the Queensland state-owned power company, contracted to buy 130 petajoules a year for A$400m (US$265m) over the next 20 years. In the original plans the pipeline project partners estimated they would need orders for at least 100 petajoules before they could underwrite the costs involved. Other potential customers for the gas include Comalco, which is considering building an alumina refinery at Gladstone.

—but also a warning Australian Gas Light (AGL), which has secured the contract, together with Petronas of Malaysia, to build the 2,500-km pipeline once the final go- ahead has been given, has warned the Queensland government that the gas pipeline project would not proceed if a US power company is permitted to build a 700-mw megawatt coal-fired powered station in Kogan Creek, in south- west Queensland. The company said the coal-powered plant would contribute to Australia’s greenhouse gas emissions, and would not be “in the spirit” of the gas pipeline agreement signed by the Queensland government.

Mining

Mineral exports 1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Crude oil (’000 barrels) 5,789.9 6,939.3 7,982.2 7,322.2 7,347.5 Copper (’000 tonnes) 9.1 39.9 25.7 34.8 30.7 Gold (tonnes) 13.0 15.4 13.7 16.1 12.7 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin .

Copper output rises and Copper output in the first quarter was just under 31,000 tonnes, a reasonably gold prices surge— normal level for PNG, but a 237% increase over the same period in 1998. The large year-on-year rise was the result of a temporary suspension of production at the Ok Tedi mine during the first quarter of 1998 because of the drought. In contrast gold export volumes fell in the first quarter by 2.3% to 12.7 tonnes, owing to lower than expected production at the Lihir and Porgera mines. This more than offset increased gold output at the Ok Tedi and Misima projects. International prices for gold had been falling because of sales by the Bank of England and the likelihood of further sales by other central banks. In late September, however, 15 European central banks announced a five-year moratorium on the further sale of gold held in official reserves. The price of gold, which had been below $260/oz before the announcement, moved sharply higher, and within days was above $300/oz

—as the mining industry Mining companies have given a cautious welcome to the new government. cautiously welcomes the The managing director of Placer Niugini NL, Russell Barwick, qualified his new government comments by warning that PNG’s mining industries would continue to suffer unless there were changes to the current tax regime, especially the 4% mining levy, the 15% interest withholding tax and the 100% fly-in-fly-out tax on international travel by staff working for multinationals. He also warned of the decline in exploration expenditure, which he said had fallen by 13% in 1999 year on year. Over the past decade Mr Barwick said exploration spending had fallen dramatically, from US$76m in 1989 to about US$10m in 1999.

The future of Ok Tedi The environmental damage resulting from operations at the giant Ok Tedi remains uncertain— copper and gold mine has left its future very much in doubt. The mine employs more than 5,000 people and contributes 10% of PNG’s GDP and 20% of the country’s export income, and has at least another ten years of copper reserves left. Against this is the devastating environmental damage caused to the region, with millions of tonnes of tailings and waste being dumped into local rivers.

The latest environmental studies have revealed that the impact of the mine has been much more damaging than originally thought. Equally damning was the conclusion that the waste management options proposed by Ok Tedi Mining failed to offer a solution to the pollution of rivers and the forest die-back caused by tailings from the mine.

—as criticism mounts— International environmental organisations such as the World Wide Fund for Nature (WWF) have joined the fray and are calling upon the mine’s operator, Australia’s BHP, to close it immediately. The WWF has accused BHP of dumping tailings and waste into the local river system, leading to die-back of vegetation, with a long-term impact on human health and livelihoods; the group has also demanded that BHP clean-up the local river system in PNG. The 15-year-old Ok Tedi mine is 52% owned by BHP, with the rest owned by Ok Tedi Mining Limited (OTML), in which the PNG government holds a 30% stake, and Inmet Mining Corporation, which owns 18%. BHP has said it will consider withdrawing from Ok Tedi, but has added that a final decision on the fate of the mine must rest with the PNG government. Given BHP’s majority stake in the mine, it is unlikely that the PNG government will allow the Australian company to leave without putting up a fight. The managing director of BHP, Paul Anderson, has already admitted that the company's involvement in the Ok Tedi mine was “not compatible with our environmental values and the company should never have become involved”.

—and the World Bank BHP has said it may consider appealing to the World Bank and the Australian agrees to examine the issue government to help clean up the site. The mine is estimated to have a further 10 years of life left. PNG’s government in August asked the World Bank to examine the extent of the damage caused by the mine, and said it will make a decision once a report has been submitted.

The mine's waste has been dumped directly into the Ok Tedi and Fly river systems since a tailings dam collapsed during construction. Possible options for reducing the environmental damage include dredging the Ok Tedi river or piping tailings to storage areas in the lower Ok Tedi. However, both options are costly.

In September the Australian Financial Review predicted “the probable early closure” of the Ok Tedi mine, saying an announcement was imminent. This would take at least 100,000 tonnes of copper out of the market, and may have been partly responsible for the recent rise in its price. Ok Tedi has returned profits of less than A$20m a year for the past four years, putting it well below BHP's internal threshold of a 15% rate of return.

NPF will sell part of its The National Provident Fund has decided to sell over half its stake in stake in Highlands Pacific Highlands Pacific, the major participant in the proposed multi-million-kina Ramu nickel-cobalt joint-venture project. The NPF is the largest shareholder of Highlands Pacific, with a 35% stake.

Agriculture

Export prices (Kina per tonne unless otherwise indicated; fob) 1999 1995 1996 1997 1998 Jan Feb Mar Cocoa 1,559 1,615 1,899 3,130 3,511 3,593 3,475 Coffee (all grades) 3,893 3,055 5,505 5,705 4,394 4,582 4,367 Tea 1,286 1,366 1,600 2,864 2,777 2,781 2,733 Copra 427 494 523 668 737 773 782 Copra oil 897 1,036 1,051 1,310 1,438 1,740 1,710 Palm oil 762 683 753 1,277 1,303 1,408 1,635 Rubber 1,481 1,464 1,477 1,490 1,358 1,258 1,198 Logs (kina/cu metre) 174 183 172 145 146 173 165 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

The value of agriculture The year-on-year value of agricultural exports including logs increased in the exports increases— first quarter of 1999 by 36%, to Kina285.9m (US$99m), with the weighted average price of agricultural, forestry and marine products rising by 15.6%. With the exception of coffee, tea and rubber, prices for agricultural commodities rose. The higher kina prices were the result of a combination of higher world prices for some commodities together with the depreciation of the kina against the US dollar and other major trading currencies. The export prices of cocoa, coffee, copra and palm oil all exceeded the government’s minimum guaranteed prices and so the Coffee Industry Corporation was obliged to repay the government Kina59.6m. Likewise the Cocoa Board and the Copra Marketing Board repaid the government Kina2m and Kina1m respectively.

—as do volumes Despite the lower world coffee price, export volumes increased by over one- third, to 10,700 tonnes, in the first quarter of 1999 compared with the same period in 1998. This reflected a return to normal harvest levels after the severe 1997 drought. The cocoa and palm oil harvests have also recovered to pre- drought levels, but coconut trees are still recovering.

Agricultural exports by volume (’000 tonnes) 1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Cocoa 6.4 3.9 11.0 4.8 7.3 Coffee 7.9 17.6 39.0 19 10.7 Tea 0.8 2.3 2.2 1.3 1.8 Copra 18.6 12.9 11.7 14.9 12.4 Copra oil 16.8 12.7 11.5 12.2 18.1 Palm oil 61.4 51.8 59.0 40.8 68.9 Rubber 1.8 0.9 1.5 0.7 1.3 Logs (’000 cu metres) 294.6 265.5 111.7 395.1 323.7 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

Agricultural exports by value (Kina m) 1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Cocoa 17.5 11.8 35.8 16.6 25.4 Coffee 47.8 108.6 224 96 47.6 Tea 2 7.1 6.2 3.6 4.9 Copra 11.5 7.4 9.3 10.6 9.4 Copra oil 19.7 14.9 17 18.1 28.3 Palm oil 58.8 63.3 88.8 61 97.9 Rubber 2.9 1.4 2 1 1.6 Total incl others 168.1 227.5 395.7 228.9 235.2 Logs 42.1 35.1 18.3 58.7 50.7 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

A South Korean logging Through its PNG subsidiary, a South Korean timber company, Heacho, has company announces a announced a major expansion of its logging activity in PNG. In total the major expansion— company is to log over 2.5m ha of forest within PNG, including 800,000 ha in the Southern Highlands and 760,000 in Saudaun province. The logging concessions were originally granted to Heacho by the PNG government in 1995, but to date the company had undertaken only small-scale operations. The company is reported to be investing over US$8m in the project and will produce in excess of 200,000 cu metres of timber. Log exports to South Korea, China and Japan are expected to begin early in 2000. A Malaysian company, the Meda Group, has also recently acquired an 180,000-ha logging concession in PNG, which will eventually be converted into an oil palm plantation.

—as an oil palm project As a reminder of the consequences of the government’s cash crisis on the real languishes economy, it was disclosed in August that the Kina160m Kuludagi and Kove oil palm project in West New Britain, a joint venture between the national and provincial government, was being held up by the delayed release of Kina30m from the national government. The project is intended to create almost 5,000 new jobs.

Foreign trade and payments

Exports increase in the first The kina value of PNG’s exports fell by 14.4% in the first quarter of 1999 quarter— compared with the final quarter of 1998, but it was more than 30% higher year on year. The quarter-on-quarter decline was mainly the result of lower mineral exports, especially gold, which more than offset increases in the agricultural sector. Log exports also fell, to Kina50.7m (US$35m) compared with Kina57.9m in the final quarter of 1998. On a year-on-year basis, however, all major export sectors, with the exception of marine products, recorded increases in export value in kina terms. This was the result of two factors: a return to more normal export levels for most products after the drought-affected first quarter of 1998, and the year-on-year depreciation in the value of the kina against other major currencies.

Exports Minerals exports (Kina m) Kina m Crude oil 1998 1999 Gold 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Copper 400 Agricultural 168.1 227.5 395.7 228.9 235.2 Forest products 44.6 37.9 21.3 69.4 52.9 300 of which: logs 42.1 35.1 18.3 58.7 50.7

200 Marine products 5.4 10.1 18.2 8.5 3.9 Minerals 436.6 668.9 654.3 692.3 562.9 100 of which: gold 235.1 327.2 311.7 353.8 278.9

0 copper 28.2 143.3 102.5 121.7 98.2 Q1 Q2 Q3 Q4 Q1 crude oil 170.7 193.9 235.9 212.6 182.5 1998 99 Source: Bank of Papua New Guinea, Quarterly Economic Total 654.7 944.4 1089.5 999.1 854.9 Bulletin. Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

—which boosts the trade Higher exports resulted in a trade surplus of Kina309m (fob-fob) in the first balance— quarter of 1999 compared with a surplus of Kina 141m in the same period in 1998. The higher value of exports more than offset an increase in the value of imports, mainly the result of the depreciating kina raising the landed costs of imported goods which lowering the volume of imports.

Balance of payments (Kina m) 1993 1994 1995 1996 1997 1998 1 Qtr 1998 1 Qtr 1999 Merchandise exports 2,547 2,682 3,420 3,334 3,079 3,707 659 860 Merchandise imports –1,110 –1,336 –1,620 –1,996 –2,129 –2,231 –518 –551 Trade balance 1,340 1,346 1,800 1,338 950 1,476 141 309 Invisible credits 330 262 443 611 619 699 172 128 Invisible debits –1,177 –1,043 –1,477 –1633 –1,823 –2,238 –426 –564 Net transfers 4211939587187–4–14 Current-account balance 632 576 859 411 –167 124 –85 –141 Official capital flows 65 –107 –25 14 –89 –92 –13 –31 Private capital flows –675 –557 –193 –147 134 –189 –153 –91 Non-official monetary sector transactions –108 –11 –5 –46 –61 31 7 33 Change in offshore account balances 17 70 –373 237 46 –114 –34 139 Capital-account balance –701 –605 –617 58 30 –364 –173 50 Net errors and omissions –27 –5 2 –37 14 –23 –26 16 Overall balance –96 –26 244 432 –123 –263 –284 –75 International reserve level 137.9 112.2 357.4 789.1 666.9 404.1 382.8 328.9 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

—although the invisibles The deficit in the invisibles account over the first three months of 1999 rose to deficit rises— Kina436m compared with Kina254m in March 1998. This was a result of higher business expenses, interest and other service payments. There was a deficit on the transfers account was because there were no grant payments from the

Australian government which had, at the request of the Skate government, paid the grant for the first half of 1999 in advance in September 1998.

—pushing the current The combined effects of these developments resulted in a current-account account into deficit deficit of Kina141m in the first quarter of 1999 compared with a deficit of Kina85m in the same period a year earlier. This growing imbalance has put

International reserves further pressure on the exchange rate. $ m Against this the capital account returned a surplus of Kina50m in the first 700 quarter of the year, compared with a deficit of Kina173m in the first three

600 months of 1998. This was the result of lower loan payments by mining and petroleum companies and a decline in net foreign assets of the non- 500 government monetary sector, which more than offset higher loan repayments

400 by the government. After taking into account central bank estimates for errors and omissions, the balance of payments recorded a deficit of Kina75m in the 300 first quarter of 1999 compared with a deficit of Kina284m in the same period in 1998. By the end of March the level of foreign-exchange reserves was 200 Kina329m, sufficient for only 1.8 months of import cover. By early August, however, the government acknowledged that reserves had fallen to around 1994 95 96 97 98 1999

Source: IMF, International Financial Statistics; EIU $90m, equivalent to less than one month of imports. forecast. Exchange rates (kina per foreign currency unit, end-period) 1998 1999 1995 1996 1997 Year Mar Mar Oct 1st A$ 0.982 1.036 1.067 1.287 1.305 1.497 1.900 US$ 1.325 1.324 1.434 2.059 1.968 2.380 2.898 ¥ 0.013 0.012 0.012 0.0157 0.0148 0.0198 0.0277 £ 2.041 2.064 2.350 3.410 3.117 3.837 4.807 Sources: Bank of Papua New Guinea, Quarterly Economic Bulletin; Bloomberg.

The kina hits a new low— The kina continued to trade at close to record lows against other major currencies throughout the third quarter. It dropped to its lowest level ever against the US dollar on June 11th, Kina3.35:US$1, before rallying back to above Kina3.00:US$1 by mid-September. This partial strengthening can be attributed to the improved export performance as well as the recent political developments, which have been broadly welcomed by the business community. The low value of the kina against the US dollar, the currency in which most of its foreign debt is valued, remains a serious cause of concern. Although the central bank has repeatedly intervened during 1999 to try to protect the currency, its latitude to do so is now constrained by the lack of foreign reserves. In August reserves were believed to be barely enough to cover one month of imports.

Public debt outstanding (Kina m) 1993 1994 1995 1996 1997 1998 1 Qtr 1998 2 Qtr 1999 % change Domestic 1,036.6 1,424.3 1,605.7 1,969.5 2,251.7 2,473.0 2,223.9 2,602.1 17.0 Treasury bills 591.8 1,008.1 1,217.5 1,615.3 1,931.6 2,186.9 1,931.6 2,186.9 13.2 Inscribed stock 444.8 416.2 388.2 354.2 320.1 286.1 292.3 285.3 –2.4 External 1,283.3 1,536.9 1,718.4 1,811.3 2,166.3 2,704.7 2,419.6 2,946.9 21.8 International agencies 1,011.0 1,278.6 1,475.8 1,579.2 1,997.4 2,567.5 2,272.0 2,788.4 22.7 Commercial loans 259.8 242.8 227.9 219.6 157.1 124.1 134.4 143.3 6.6 Other loans 12.5 15.5 14.7 12.5 11.8 13.1 13.2 15.2 15.2 Total public debt 2,319.9 2,961.2 3,324.1 3,780.8 4,418.0 5,177.0 4,643.5 5,549.0 19.5 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.

—as government debt rises By the end of the first quarter of 1999 the government’s total outstanding debt stood at over Kina5.5bn, almost one-fifth higher than at the same period in 1998. This Kina900m increase was broadly shared between domestic and foreign creditors. Although the fall in the value in the kina is partly to blame, there has also been an increase in borrowing from international agencies as well as the purchase of more Treasury bills from the central bank.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1997 1998 1999 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Exports Qtrly totals Copra ’000 tonnes 31.7 17.9 18.5 22.2 18.6 12.9 11.7 14.9 12.4 Copra oil “ 14.7 12.2 14.5 7.2 16.8 12.7 11.5 12.2 18.1 Cocoa ” 10.1 9.2 7.8 11.5 6.4 3.9 11.0 4.8 7.3 Coffee “ 5.5 25.8 17.3 10.6 7.9 17.6 39.0 19.0 10.7 Logs '000 cu metres 590 703 569 514 295 266 112 395 324 Gold tonnes 12.5 10.6 10.3 10.9 13.0 15.4 13.7 16.1 12.7 Fish '000 tonnes 0.7 0.8 0.3 0.4 1.7 2.2 5.7 0.4 0.3 Copper “ 32.8 30.2 14.8 0.0 9.1 39.9 25.7 34.8 30.7 Petroleum, crude '000 barrels 8,047 6,545 7,627 5,754 5,790 6,939 7,982 7,322 7,348 Prices Monthly av Consumer prices: 1995=100 113.6 115.1 117.0 118.5 122.7 125.9 134.3 144.3 140.2 change year on year % 2.9 3.8 3.8 5.3 8.0 9.4 14.8 21.8 14.3 Money End-Qtr M1, seasonally adj: Kina m 1,104.3 1,053.2 1,013.6 954.2 932.2 974.3 1,029.6 1,050.9 1,120.9 change year on year % 59.2 38.2 17.2 –5.6 –15.6 –7.5 1.6 10.1 20.2 Foreign trade Qtrly totals Exports fob Kina m 817 843 780 618 660 949 1,095 1,004 820 Imports fob “ 496 558 527 548 518 532 606 575 528 Exchange holdings End-Qtr Foreign exchange $ m 557.6 547.8 500.2 362.5 185.6 222.0 215.1 192.8 138.1 Exchange rate Official rate Kina:$ 1.387 1.402 1.437 1.751 1.969 2.139 2.278 2.096 2.381

Note. Annual figures of most of the series shown above will be found in the Country Profile. Sources: Bank of Papua New Guinea, Quarterly Economic Bulletin; IMF, International Financial Statistics.

Direction of tradea ($ m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec 1994 1995 1996 1997 1998 Exports fob Australia 822 867 930 706 479 Japan 661 664 551 456 308 Germany 194 298 208 195 166 South Korea 0 204 138 96 110 Philippines 64 80 84 92 105 UK 79 140 152 139 81 Total incl others 2,775 3,114 3,067 2,698 2,413 Imports fob Australia 694 673 945 885 685 Singapore 170 172 155 195 138 Japan 179 121 154 156 106 New Zealand 5850657570 US 65 51 69 117 65 Malaysia 33 37 43 39 44 Total incl others 1,393 1,306 1,696 1,714 1,329 a DOTS estimate. Source: IMF, Direction of Trade Statistics, yearbook, quarterly.

Domestic exports (Kina m) Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Mar Jan-Mar 1995 1996 1997 1998 1998 1999 Fish 12.3 10.4 9.6 42.2 5.4 3.9 Coffee 214.5 190.3 325.9 476.4 47.8 47.6 Cocoa 47.7 66.2 73.3 81.7 17.5 25.4 Tea 5.4 12.7 10.4 18.9 2.0 4.9 Logs 436.7 464.8 409.3 154.2 42.1 50.7 Crude petroleum 827.7 1,073.9 852.2 813.1 170.7 182.5 Copra & copra oil 57.1 100.4 98.3 108.5 31.2 37.7 Palm oil 142.2 182.4 207.1 271.9 58.8 97.9 Gold 840.1 773.6 718.7 1,227.8 235.1 278.9 Copper 754.5 387.0 259.8 395.7 28.2 98.2 Total incl others 3,399.8 3,313.9 3,059.3 3,687.7 654.7 854.9 Source: Bank of Papua New Guinea, Quarterly Economic Bulletin.