Understanding Reform in Papua New Guinea

PACIFIC ECONOMIC BULLETIN

Understanding reform in Papua New Guinea

David Kavanamur and Henry Okole with Michael Manning and Theodore Levantis

This study analyses reform exercises in Papua New David Kavanamur lectures in public Guinea. The measures adopted so far have been policy and strategic management at extensive. Politically, some of the reforms have the University of Papua New Guinea. Henry Okole is Chief of Cabinet to been significant in that they required constitutional the Secretariat of the African, amendments and bordered on politico- Caribbean and Pacific Group of constitutional re-engineering. A number of reforms States, Brussels. have led to structural changes since they have Michael Manning is Director of the altered the power base in the country and among Institute of National Affairs, Papua New Guinea. the different levels of government. Economically, Theodore Levantis is a modeller some of the reforms promised to be, and were, and Pacific expert at the Australian significant, such as the privatisation of state assets, Bureau of Agricultural and Resource currency floating and new financial regulations. Economics.

This article is part of a global study on reforms Background initiated by the Global Development Network and supported by the Australian Agency Reforms are implemented for a purpose, but for International Development and the the decisive point is when the stakeholders of Foundation for Development Cooperation.1 a reform exercise are identified. To know who The research posed three questions they are and what interests they represent is why do countries reform? to understand their motives (see Fidrmuc and Noury 2002). Other points can also be used what factors enable countries to adopt as precursors for proper analysis—if reforms reforms, and how do these factors shape were needed, whose interests have dictated reform design and implementation? the manner in which reforms were instituted how well did the reforms perform? What in the country? And, if reforms were pegged are the results? to the political will of decision-makers (or

118 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press UNDERSTANDING REFORM IN PAPUA NEW GUINEA

politicians), how can one describe the link reforms unimportant or counterproductive between the power and authority to do to Papua New Guinea’s development have something (that is, the will) and results that been implemented. The poor prioritisation have been attained or seen so far? of reform is likely to be a consequence of the In 1990, Papua New Guinea adopted its reform agenda being driven from outside first structural adjustment program (SAP) rather than from within Papua New Guinea. under the auspices of the World Bank and To test this hypothesis, the study International Monetary Fund (IMF), as many evaluated the economic and political reforms other developing countries had done in the implemented since 1990. The political early 1980s. This program was adopted due economy approach was used to evaluate and to economic difficulties ranging from balance understand the various reforms and enabled of payment shortfalls to excessive budget us to decipher the interplay between politics deficits. By the 2000s, the implementation of and economics. The main thrust of the these programs fell well short of expectations. argument is that the narrow implementation In fact, there has been very little fundamental of economic reforms without concomitant change to the PNG economy as a result of political and institutional reforms is likely the SAP. to produce sub-optimal results. The country continues to record negative The methodology adopted for this study growth in GDP per person and is among the is the case study approach propounded by worst performers in the world in the human Yin (1989, 1994; see also Stake 1995, 2000). development indicators assessment. With a This method entails in-depth interviews and population of 5.3 million people (36 per cent is the most appropriate strategy to capture higher than in the 1990 census) and an the strategic value and dynamic nature of annual growth rate of 3.1 per cent, compared human interactions over time and space that to 2.7 per cent in the 1990s, over one-third of takes place in the implementation of policy the population now lives in absolute poverty measures. according to the Asian Development Bank The researchers undertook in-depth (2001). The country’s per capita income fell interviews in Port Moresby with key decision- by almost 75 per cent from a high of US$1,300 makers who were directly involved in the in 1994 to US$744 in 2000 as the economy processes of economic and institutional entered a non-transitory recession (The reforms as well as the implementation stages. National, 24 September 2001). The country’s Interest groups affected by the reforms were rural infrastructure has collapsed and also interviewed. macroeconomic management has produced Government documents relating to the unsustainable results with inflation reforms and independent documentary oscillating rapidly between 9–21 per cent sources were collected and used to triangulate and a public debt ratio of 75 per cent of GDP. data collected from the field. The chapter was also presented to various public forums in the Hypothesis and research methodology country to fulfil the requirement of researcher For Papua New Guinea the study revolved and data triangulation described by Patton around the hypothesis that Papua New (1990) as a requirement for evaluative research. Guinea has failed to develop economically Phases of reform and socially because reform initiatives have been implemented poorly. This has resulted Reform measures in Papua New Guinea have in reforms critical for Papua New Guinea’s been evaluated in the context of three broad development being overlooked, while other reform phases, each of which was prompted

119 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN

by a liquidity crisis. Phase I spanned the public sector reforms (1999) period 1990–92. Reform measures under- a currency float (1995) taken during this period were prompted by the abrupt closure of the Bougainville mine corporatisation as a prelude to in May 1989. privatisation (1990) Phase II covered the period 1994–97. investment deregulation (1990) This was prompted by a major liquidity crisis trade policy reform (1990) caused mainly by massive expenditure tax and tariff reforms (1999) under the Paias Wingti government that came to power in the 1992 elections. Phase political party and electoral reforms III spanned the period from 1999 to the (2001) present. Following the 1997 election, Bill financial sector reform (2001) Skate’s government fell out of line with the and forestry reform (2000). World Bank and IMF, almost crippling the The key reforms are contained in Table 1. country’s management systems, when it attempted to implement measures outside the international creditors’ terms and Analytical framework for conditions. Skate’s reform period was understanding reform dubbed ‘adjustment without the loans’ (Filer et al. 2000), which resulted in heavy domestic The concepts ‘stabilisation’ and ‘structural borrowing that crowded out the private adjustment’ are vital parts of the Structural sector and foreign exchange rationing aimed Adjustment Programs. Stabilisation refers to at protecting meagre international reserves. the correction of a balance of payments It needs to be explained at the outset that disequilibrium. It is often associated with the our usage of the word ‘failure’ is in the policy IMF, and is meant to be a short-term measure context rather than state context, although to deal with the depletion of foreign reserves both phenomena could exist in the same due to excess demand for foreign currency. continuum. We also use this term in the context As a demand management tool, stabilisation of the study’s hypothesis. A hypothesis also entails the correction of unsustainable remains as such—a conjecture that requires deficits in the budget. Adjustment, on the refutation—as in the Popperian sense (Popper other hand, is normally executed by the 1963). World Bank. It is often a medium-to-long-term strategy that is purposely designed to stimulate supply or production by giving aid Reforms in Papua New Guinea to targeted projects. Structural adjustment programs have This study examines the extent, nature and been among the key tools used by the Bretton implications of economic and political Woods institutions to assist aid recipient reforms in Papua New Guinea, focusing on countries. Recipient countries had the option the period 1990–2003. Structural adjustment of carrying out internally induced reforms to programs were undertaken during the three effect their own changes and to complement phases identified above, and involved the structural adjustment programs. significant reform efforts, including administrative reforms to the provincial Political economy and rational choice government system (1997) The study of political economy concerns the private sector wage liberalisation (1992) interplay between actors in politics and

120 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press UNDERSTANDING REFORM IN PAPUA NEW GUINEA

Table 1 Key reform sectors

SAPs Phases Governments 1990–92 I Namaliu became Prime Minister in 1988 Wingti became Prime Minister in mid 1992 after national elections 1994–97 II Chan became Prime Minister in 1994 after court ousted Wingti Skate became Prime Minister in mid 1997 after national election Chan lost seat in election 1999–present III Skate resigned as Prime Minister in mid 1999 Morauta became Prime Minister in mid 1999 Somare became Prime Ministerin mid 2002 after national election

Reform area Phase Pushers of reform Reasons for change Public II and III Chan and Morauta governments, Perceived poor performance of the public service even though reforms have been service. Expensive bloated bureaucracy. undertaken since the 1980s. Skate unsuccessfully tried to implement the retrenchment exercise. The World Bank supported Morauta. Wages and I Local think-tanks and World Bank Reduce market distortions in wage levels. employment behind minimum wage deregulation. Currency II IMF and Chan government Protect the kina and create enabling flotation exchange rate Trade reform I and III World Bank, APEC, Namaliu and Create level playing field and remove Mekere governments export constraints Forestry I, II and III Papua New Guinea governments The need to balance forestry as a source since 1990 and the World Bank of hard currency for Papua New Guinea and conservation. Tropical forest is a global common good. Budget II and III World Bank, external experts, and Continuous budgetary deficits due to financial institutions such as the overspending tendencies. Australian Export–Import and Insurance Corporation. Also, the Bank of Papua New Guinea. Provincial II Chan government Old system allegedly cumbersome government in serving the people. Land reform II and III World Bank with the Chan and With 97 per cent of land under customary Morauta governments respectively. ownership, problems relating to investment incentives are apparent. Integrity Law III Morauta government Coalition instability preventing good governance. Limited III Morauta government Legitimacy crisis apparent under first- preferential past-the-post system as MPs were voting system winning with reduced margins. Financial III World Bank in 1999.The IMF and Poor governance of financial sector World Bank undertook other institutions, particularly under Skate. reforms since 1990. Privatisation III Morauta, local think-tanks, World Worsening inability of the government Bank and international donors. to maintain state-owned enterprise profitability.

121 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN

economics. The degree of interaction varies can elucidate an individual’s drive to do among countries and depends principally well for personal gain through whatever on the roles of the respective actors from both opportunities present themselves. Generally, sides. In the pertinent literature, business both theoretical approaches work on the entities are the foremost actors that represent assumption that individuals are economic the economic sector. When the interplay of beings who have the tendency to make politics and economics is projected against choices that would maximise gains and, important policy options, interesting conversely, minimise loses. In relation to questions become apparent. In particular, we structural adjustment programs, it would be may ask why some countries react to an counterproductive for politicians to adopt economic situation in one way, while others SAPs that compromise their own interests. react differently. This suggests that what is They would rather look for more favourable important politically is not necessarily the options that simultaneously protect their same as what is important economically. own interests, or worse still will completely Understanding the relationship between ignore the SAPs and shift the blame for the political and economic spheres is useful failures to other things and even other in understanding and analysing structural individuals. adjustment programs in many countries. The successes and failures of structural adjust- The interplay of Papua New Guinea ment programs depend on the effort and politics and economic reform commitment accorded to them. Analysing the Implicit in this study is Papua New Guinea’s aftermath of the twin oil price hikes of the poor state of economic development. Some 1970s, Joan Nelson (1990:5) confirms what of the causes are bad governance and poor is already anecdotally known—political management by successive governments choices often determine the fate of structural since the 1970s, law and order problems and adjustment programs and economic reform poor infrastructure are the key constraints more generally. (Levantis and Manning 2002). A compelling There have been findings from some argument put forth by Andres Ruis and recipient countries suggesting that the Bretton Nicolas van de Walle (2003) is that the level Woods institutions’ SAPs might have of economic development is important to exacerbated existing problems. What is understanding the success and failure of apparent then is that what would be economic policy reforms. considered necessary and even indispensable Compared to low-income countries, for resuscitation of the economy may not be middle-income countries are more receptive readily seen as such by individuals whose to reforms such as trade liberalisation, interests probably extend beyond purely privatisation, and macroeconomic stabilis- economic concerns, but who are making ation. First, middle-income economies tend political decisions. In Papua New Guinea, to have diversified economic structures that the most basic requirement of expenditure can allow some latitude for governments to restraint and increased investment in manoeuvre and also cushion fallouts from wealth-creating assets is made difficult by reforms. Second, middle-income economies the fact that handouts for trivial matters such generally tend to be supported by strong state as plane tickets are constantly demanded by capacity. the populace. One of the problems that Papua New Rational choice theory also offers Guinea faced during its transitional phase another useful theoretical framework that to statehood was inadequate private capital

122 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press UNDERSTANDING REFORM IN PAPUA NEW GUINEA

among the national population. That meant the ultimate goal of using their public that there was little investment capacity positions to gain higher personal status. among the people. Big business enterprises ‘Wealthy’ bigmen began aspiring to political were left to companies, many of which were roles at the government level (Standish 1983). owned by foreigners, and a small emerging On other occasions, the bigman MP kept local bourgeois class. But with the advent of what he acquired for his private use. the cash economy and capitalism in general, Sometimes the traditional bigmen has people sought opportunities that could fulfil sponsored a follower or a son to run for office their desires for improved quality of life and with the hope that he would deliver benefits also provide material gains. back to the tribe. The cooperative and savings and loans The general point, however, is that, society movements of the 1960s and 1970s without any established culture or accepted were the main conduits for domestic capital mode of conduct to offer any protection to accumulation through the popular practice the state and its institutions, these governing of resource pooling (see May 1998). ROSCAS and administrative entities eventually or rotating credit schemes, popularly known became the means through which well- in Papua New Guinea as sandes, were also positioned and self-aggrandising individuals used to practice the art of modern cash could acquire business opportunities and savings. In 1978, the national government monetary gains. Corruption is just one reformed the plantation sector by introducing among the many factors that epitomise the the plantation redistribution scheme. outward manifestation of how the state Through this scheme, plantations were system has been manipulated for private returned to landowners in order to promote reasons (Okole and Kavanamur 2003). a vibrant rural smallholder agriculture sector. The endeavour to prosper was no secret, Political and economic reforms and generally Papua New Guineans were mesmerised by the ‘magic’ that capitalism The reform measures evaluated in this sphere exuded. The established culture also provided of Papua New Guinea’s reform experience unique inclinations to amass wealth through include the public service, the provincial capitalism. Present among many traditional government system, the Organic Law on the Melanesian societies, including Papua New Integrity of Political Parties and Candidates, Guinea, is an unrestricted system of status and the limited preferential voting system. mobility. In contrast to structures based on Political reforms birthright or heredity, merit-based structures are open systems where people can move up The public service. The public service has through achievements that are valued by the generally been characterised as ineffective societies concerned. ‘Bigmanship’ is a and lethargic in its performance, at least concept coined to describe this type of social since the late 1980s. Systems and procedures status (Finney 1973). have broken down and incapacity has crept Like many traditional practices, the in over the decades. The public service and culture of bigmanship was redefined as the other state institutions appear to have been modern political system introduced new ‘captured’ by private and sectional interests. opportunities. The state system introduced The main task of reform then is to revamp these opportunities. People began entering the public service. It must be said, however, national politics and the public service with that some of the earlier reform measures may

123 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN

have actually contributed to the collapse of governance principles, and monitoring and the public service. For instance, The Public evaluation have collapsed. Essentially, Service (Management) Act 1986 resulted in however, these problems have stemmed from the dismantling of the constitutional role of a basic error—the strategic intent of the the Public Service Commission and the reforms was not aligned to the prevailing creation of the Department of Personnel environmental factors, resource capacity and Management. As a result, parliamentarians culture. Although reforms to structure and were given greater leeway to control the processes were undertaken, the reform public service, which then increased the level process increasingly became misaligned of politicisation in the public service. because of important omissions in the design Appointment processes were abused, and phase. The initiators of reforms were driven theft and corruption became rampant. by power politics between provincial Attempts at retrenchment have produced politicians and national politicians when the little result. However, a serious attempt now latter group felt it was being outmanoeuvred appears underway to restore the independ- by the provincial politicians at the local ence of the public service with the restoration constituency level in terms of popularity and of the Public Service Commission’s powers. resource distribution. The Somare This is going to take time because not only government, however, is currently do structures and processes have to be rebuilt, canvassing strategies to correct anomalies. the appropriate culture has to be re- Apparently, service delivery to rural areas inculcated. Other reform exercises are also has collapsed because of inefficiencies in the being implemented, such as the Public provincial government and local-level Expenditure Rationalisation and Review government delivery systems. and the Financial Improvement Program Limited preferential voting system. The supported by the Asian Development Bank Morauta government felt that economic (ADB), AusAID and World Bank. reforms depended on political stability and The provincial government system. A key therefore decided to reform the voting system. reform adopted during this period is the The political landscape in Papua New replacement of the old Organic Law on Guinea is characterised by frequent changes Provincial Governments (OLPG) instituted of government and high turnover of in 1976 with the new Organic Law on the politicians. Part of the explanation stems Provincial and Local Level Governments from the voting regime. Under the first-past- (OLPLLG) in 1995. The reform, covering both the-post system PNG politicians tended to processes and structure, was said to be home- win seats with very small margins because grown and wholly driven by the Chan each electorate tends to have a large field of government. It is now obvious the new law candidates and because the party political has failed to achieve what it set out to achieve. system is highly fragmented and evades A number of constraints can be cited: there conglomeration. The limited preferential are not enough people at the local govern- voting system was introduced as a home- ment level who can carry out their delegated grown initiative to stabilise the political responsibilities, funds were built into system by encouraging broader coalitions. A legislation when clearly the state does not clearer picture of the outcomes will be gained have the capacity to pay, the increased after the 2007 elections, but anecdotal presence of politicians at the various levels evidence from a couple of by-elections thus of decision-making have hampered good far points to positive results.

124 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press UNDERSTANDING REFORM IN PAPUA NEW GUINEA

Economic reforms Financial sector. Papua New Guinea has a small financial sector that requires financial Reform measures evaluated here include deepening and broadening, and this in turn wages and employment, the budget, will be influenced by the volume of business financial sector, privatisation, land reform, and the general law-and-order situation. and forestry. With privatisation and restoration of peace Wages and employment. A significant and good order, the sector is bound to reform that took place at the beginning of the expand. Although there were some financial reform period under study was the sweeping deregulation of the labour market. This had sector reforms throughout the reform period, previously proved difficult but, after the they took a more serious turn when the Bougainville closure and much intellectual Morauta government came into power in debate about the merits and demerits of 1999. In fact, it must be noted that this is labour productivity and competitiveness, the perhaps one of the few reform areas that have pro-reformers finally had their way. There produced some early relatively positive was little resistance, as there appeared to be results. a consensus that competitiveness needed to Privatisation. Privatisation has been a be improved and jobs needed to be created. sensitive area of reform because it evokes a Others have argued that the other side of the strong sense of nationalism and because house was disorganised. In terms of the politicians have used public enterprises as results, our study demonstrates that, cash cows or reservoir of useful positions to although real wages have fallen, nominal which political cronies can be appointed as wages have not due to market rigidities. pay off for political support. In the entire The budget. Concerns throughout much of period of reform only one fully government- the reform period have revolved around the owned enterprise was privatised. Even this need to set realistic budgets and devote was not easy in the face of strong opposition sufficient funds to the creation of an enabling from both the unions and university students. export environment. There has also been the Sadly, riot squad police killed four protestors need to address the ongoing problems of as the issue of privatisation got entangled deficit-financing and debt accumulation. with the issue of land reform. The Somare Reform measures have been put in place to government that came to power after the 2002 reduce expenditure on recurrent items that elections decided to reroute the reform process do not generate wealth. Departments have through a strategy known as ‘Public–Private been asked to exercise fiscal discipline. The Partnership’. Under this policy, no new ability of the government to increase domestic public enterprise is slated for privatisation; borrowings through the central bank has almost all public enterprises currently still been limited to K100 million at any time as a in government hands are technically result of reforms to the Central Banking Act. insolvent and are being rehabilitated. But sustained positive results are not yet in Land reform. Land reform is akin to the sight. It appears that, given the high level of privatisation issue, attracting much public public debt, fiscal indiscipline urgently outcry. Only 3 per cent of land in Papua New needs to be reined in, partly through greater Guinea is alienated for development compliance to expenditure ceilings and purposes. The remainder is held under partly through prudential investment in different customary land rights. Land reform wealth generation projects. will only take place once the populace fully

125 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN

understands the benefits that will accrue to Also, the need to retain favour with the them and their country. public has meant that some of the more Forestry. The issue of forestry reform is one controversial reform programs were either of the most convoluted that this study has attempted only half-heartedly or left had to grapple with. There are numerous unimplemented. Privatisation of state- stakeholders, including landowners and owned enterprises, land reform, and the counter-landowners, the national govern- retrenchment of public servants are difficult ment, various government departments, issues for any government to confront due to international and local non-government their immense sensitivity in relation to the organisations involved in green politics, the public and those directly affected. That is World Bank, consultants, and so on. why it is futile and perhaps unfair to PNG Allegations of corruption have raged on for governments for institutions such as the decades since the Barnett Inquiry in the World Bank to impose stringent conditions— 1980s. The issue is inextricably linked to the for example, land registration—that are land issue and poverty, further complicating almost impossible to carry out given the policymaking in the sector. Forestry is cultural and political conditions. inexorably caught up in controversies over However, it would be a misrepresent- land, environmental conservation, and ation to assume that implementation economic benefits. In this study we conclude problems are entirely due to the state’s that reform in this sector will remain administrative incapacity. Poor macro- controversial for a long time yet. economic conditions have been part and parcel of the government’s incapacity from the start. Papua New Guinea has not been General views from the study able to achieve favourable economic growth for any respectable time span since It would be a fallacy to assume that there is a independence. Therefore, any reform was set of uniform explanations for all reform always bound to be difficult. Thus, while the successes and failures in Papua New Guinea. reforms were initially motivated by poor How reforms have fared depends to a large economic growth, the lack of economic degree on the environment surrounding the growth may be taken to imply that these decision-making, policy design and reforms failed. This lack, however, should implementation stages, and the general really be attributed to the absence of a whole nature of the relationships between the major of government and economy reform, a reform stakeholders. that was comprehensive and strategic in nature. Successful reform requires early gains Revisiting the hypothesis and would necessarily require the invocation The evidence from this study shows that of the principle of ‘success begets success’. implementation of reform initiatives was Another area of the hypothesis that needs indeed poor. The weak capacity of the state to to be re-examined carefully is the assertion institute the reform programs was one main that the poor prioritisation of the reform is a reason. The political instability characterising consequence of reforms being pushed from much of post-independence Papua New outside rather than from within Papua New Guinea has resulted in poor commitment to Guinea. The failure of reforms has been the structural reform programs and other caused by both foreign and domestic sources. reform areas as political survival became a Some of the main reforms in the 1990s, such more salient issue for parliamentarians. as the amendment to the Provincial

126 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press UNDERSTANDING REFORM IN PAPUA NEW GUINEA

Government Act, were pushed through by the Our analysis shows that there are five main incumbent government. Holding foreign reasons for this in Papua New Guinea. actors accountable for all reform mishaps is Policy decision and implementation. Some therefore a mistake. Both foreign and domestic of the reform initiatives that were adopted sources are at fault for drawing attention to lacked appreciation of the socio-political and resources towards, fruitless reform reality of Papua New Guinea. The problem agendas, and steering the focus away from here lies with the design of law or policy. areas in urgent need of reform—such as law Designers need to consider the problem and order and infrastructure provision. thoroughly in relation to the actual context (that is, the implementation environment) in Explaining reform outcomes: the scope of order to understand upfront how implement- success and failure ation might take place. Reform is not always an easy exercise to The political landscape of Papua New undertake, let alone understand. Nonetheless, Guinea is changing all the time. Thus, while what can be comfortably concluded from the a law made in good faith may have been case in Papua New Guinea is that decisive appropriate for one moment in the country’s political leadership at the national level is history, it may not be relevant over time. essential for reform to be successful. Further- Sometimes law drafters fail to anticipate how more, stakeholders need to work together to the political landscape will change, and facilitate reform endeavours. As Joan Nelson hence laws are designed in ways that do not (1990) notes, the fate of economic reform is cater for the unfolding political climate. intimately bound up in politics and Reform endeavours are half-heartedly determined by political choices. implemented or restricted when they become Why do some governments respond entangled with local interests. For example, promptly to signs of economic difficulty, the new provincial government system in while others muddle indecisively for 1995 was ill-conceived and hastily years? What factors enter the choice implemented, generating problems in (explicit, or by default) to treat subsequent years. difficulties as short-term only, or to Also, reform initiatives in general have adopt a longer-term strategy of been designed among élites, with limited adjustment? Why have some countries consultation with the public. Financial experimented with heterodox reforms, such as the floating of the kina, were approaches, while most have, however implemented as a top-down enterprise. reluctantly, pursued neo-orthodox Furthermore, some reform initiatives have courses? Why have structural reforms been earmarked for implementation and the failed to get off the ground in some public basically only consulted as a countries and forged ahead in others? formality. The privatisation exercise is a good And why, when confronted with example of this. heated political protest, have some What is also evident in Papua New governments persisted, while others Guinea is that very often advisors and have modified or abandoned their drafters of laws fail to foresee the workability courses? The answers to these of some laws. To give an illustration, if the questions are mainly political, not provincial governments under the old system economic (Nelson 1990:5). found it difficult to acquire qualified Successive PNG governments have manpower from the national government persistently faltered on the key reform areas. (that is, the idea that decentralisation would

127 Pacific Economic Bulletin Volume 20 Number 1 May 2005 © Asia Pacific Press PACIFIC ECONOMIC BULLETIN

facilitate the spread of qualified manpower makers and their advisors have had little to provinces), what would make anyone or no necessary prior information, think that qualified individuals would make qualifications, or negotiation skills to themselves available for local-level protect and/or enhance Papua New government duties under the new system? Guinea’s national interests. Therefore, That local-level governments have generally they accept programs that are not found it difficult to function properly is suitable for their country. symptomatic of an area that should have been These categories are the key but by no means better researched. exhaustive, possible decision-making Quality of reform decisions. The success or scenarios faced in Papua New Guinea. failure of reform programs largely depends State capacity for reform. Ruis and van de on the type of commitment and the Walle (2003) say that middle-income perseverance displayed by the people countries have the resources and drive to charged with their implementation. In Papua push political and economic reform programs New Guinea’s experience, the reform when they are deemed necessary. Low- programs hinged on the commitment of four income countries find it difficult to reform types of decision-maker categories. since they are often preoccupied with other Beneficiaries of the status quo. Some things that inhibit reform implementation. individuals and groups with vested This points to a truncated linkage between interests in the status quo resist reforms program design on the one hand and because any reform is likely to affect the program implementation on the other. flow of benefits from the existing Central to this problem is the weak capacity situation. In some ways, this is evident of low-income countries to sustain reforms. in the long drawn-out battles among Because of the combination of low stakeholders in the forestry sector. administrative capacity and the Survivalists and opportunists. The absence or weakness of interest groups, execution and impact of reform programs the decision-making process in low- have often been dictated by instincts of income states tends to be closed and political survival and other opportun- non-participatory. Public decision- istic practices. Procrastination and making is exclusive to a small cadre of indecisiveness are quite often used to public elites, at least within the ward off detrimental situations, just as domestic arena…Relatively weak reforms are done for political expediency. administrative capacity prevents low- income governments from fully Desperate recipients. PNG counterparts carrying out their initial reform sometimes are caught out where they agenda...In the language of this have to negotiate from positions of literature, policy is characterised by weakness and helplessness. Hence extensive leakage, capture, unintended reform programs are often accepted consequences and partial implement- reluctantly. That haughtiness has marked ation (Ruis and van de Walle 2003:4). the behaviour of some PNG governments Papua New Guinea clearly falls within this towards some donor bodies is perhaps line of reasoning as it has been ranked as a low understandable. middle-income country (World Bank 2003). Inept recipients. Reform programs have The state, in the Weberian sense, has been accepted even when PNG decision- always struggled against the forces of society

in Papua New Guinea (see Dinnen 2001). can mean that decision-makers are Although it is true that the state is a unable to choose from a range of options. representation of society, it is not influenced Therefore, they either procrastinate or solely by domestic society, as there are refuse outright to make decisions external influences as well. The reform can also mean decision-makers simply exercises were in some way caught up in this tussle between the two sides as they competed do not know why they have to make for loyalty from those within the inner circles decisions that are pending as per their of reform. The heavy politicisation of the responsibilities. Poor familiarity with public service caused low morale among responsibilities is a problem here personnel over time. What has also caused a can arise from a poor information certain degree of state incapacity has been network. It can also mean that leaders endemic corruption, and it cuts both ways. sometimes are stubborn, refusing to hear Opportunistic corrupt practices reduce the alternative views from advisors. capacity of the state in terms of how it Therefore, advisors end up telling them performs, but, from the other end, an what they want to hear rather than incapacitated state machinery can be too objectively assessing choices weak to deter corruption (Ruis and van de can mean that decision-makers feel Walle 2003:6). Political will. Looking at this 13-year period, compelled to take heed or take note of political will was also an issue that was advice or pressure from outside in order appropriately linked to the prioritisation of to be on common ground with these much-needed reforms. Thus, if the first-past- external actors. This is often the case the-post electoral system was producing when the country is in a desperate ‘unrepresentative’ results in the 1980s, why situation. did the government wait over 12 years to There is no one single way to make finally change the electoral system in 2001? decision-makers show political will. It is for such reasons that the phrase ‘lack of Decision-makers have to have the heart to political will’ is sometimes invoked. But what prioritise the interests of the country ahead does the ‘lack of political will’ really mean? of personal utilitarian interests, but the ‘Lack of political will’ has been liberally people should also hold their leaders used, mainly to describe the perceived poor accountable for decisions. Moreover, leaders commitment of national leaders to reform need resources—including qualified staff— programs. However, the view encapsulated to assist them as they confront decision- by lack of political will can easily camouflage making situations. other possibilities, and it all comes down to Timing of specific reform initiatives. Ruis perception. Here are some illustrations of and van de Walle (2003:5) note that reform how public perception can misconstrue the often only happens when ‘old policies have decision-making world of leaders. Lack of failed so miserably that politicians begin to political will see that keeping the status quo may be can mean misplaced political will, where politically more dangerous than plunging decision-makers have the urge or drive into the unknown world of economic reform’. to make changes, but for the wrong Some of the reform initiatives that have been reasons. This is often the case where adopted were suitable for Papua New Guinea decisions are made for limited and/or but were introduced so late that where they private interests would have been easy to fix early on they had

deteriorated considerably by the time did not have the funds to facilitate reforms. politicians turned attention to them. A good While Morauta borrowed from donor example was the introduction of the Integrity agencies and countries—‘Friends of Papua Law to curb political instability in Parliament. New Guinea’—to fund various reform The introduction of the limited preferential programs, however, Skate attempted internal voting system in 2001 is another case. adjustments in order to reduce reliance on Observing the trends over the last 13 foreign financial sources and make up for years of reform, it is imperative to say that the shortfalls caused by the fallout with the the last six years have seen a deepening sense Bretton Woods institutions. of urgency to do something substantive. That, in many ways, explains the success While Bill Skate (1997–99) tried to institute and failure of reform attempts under the drastic measures (at times in unconventional successive governments. But more ways) to reduce reliance on the Bretton Woods importantly, it shows that the success of institutions, and particularly on their reforms will depend on whether the aid- contentious structural adjustment conditions, recipient country is on good terms with the Sir Mekere Morauta indicated that a better donor community, particularly the World strategy was to work with donor groups Bank and IMF. and accommodate differences whenever situations warrant it. The present Somare government started Conclusions and implications for off on a cautionary footing of reviving the further research reform undertakings agreed to by the previous government. Public sector reform Obviously more remains to be done if Papua is one area where Sir Michael Somare has New Guinea is to rid itself of the ‘back-water’ allowed the reform process to remain label that many have attempted to tag the unchanged. Privatisation is more sensitive country with. Whilst some reform measures and has advanced on a case-by-case basis. have been successfully adopted, others have If there was a propensity to undertake failed. reforms in the late 1990s, what does that say Some of the measures already adopted are about the leaders of the country at that time? those with the least benefit to the country’s Sir Mekere Morauta has been depicted as the economy. Some of those left unimplemented prime minister who was more inclined to are the ones with the greatest potential undertake reforms. Looking closely at what benefits; they remain undone because they are his predecessor Bill Skate tried to do, too difficult, politically and otherwise. however, it seems that Skate was more Reforms in Papua New Guinea have thus determined to reduce the public service mainly been undertaken along the principle workforce than any other prime minister of ‘least resistance’, where reform measures since 1990. He was determined, at times likely to evoke the least socio-political unapologetic, and adamant that what he was resistance are preferred by policymakers. doing was absolutely necessary for the Hence, it can be safely asserted that on the recovery of Papua New Guinea’s economy. whole the current piecemeal approach to What then were Skate and Morauta’s reform has not led to economic development general approaches to the need for reform? within the expected period of time, and indeed The initial point to acknowledge is that both may take some time to yield these results. prime ministers confronted similar A number of key lessons can be gleaned difficulties. The main problem was that they from this study. While they are drawn mainly

from Papua New Guinea, they are considered float, and the new provincial government important for any domestic governments as system. Optimism unfulfilled led to well as donor organisations and other widespread disillusionment, which proponents of reform. The lessons follow. dampened enthusiasm for reform both current The importance of the election cycle. The and future. electoral cycle matters in Papua New Delayed outcomes. Where reforms have been Guinea. First, elections beget budget undertaken in a crisis, their outcomes, even blowouts. Generally, this means one of two if positive, were not realised immediately. The things. At one level, there is a propensity for lag leads to a fall in support for reforms. incumbent governments to spend beyond Planning ahead. While it is true that reforms planned limits to entice or lure voters. At are often induced by crises, governments also another level, public funds are deliberately introduce restructuring programs to prevent channeled in ways where they end up in the the country sliding into another debilitating hands of MPs and political parties, and are state of chaos. In other words, reform then used for electoral purposes. Both types programs can be planned in times of calm or of spending often lead to budgetary blowouts. after crises to prevent problems in the future. Second, due to the high attrition rate of MPs Managing opposition to reforms. Many in Papua New Guinea, elected represent- controversial reforms have not included atives would rather do what they can to be strategies to deal with resistance from their re-elected even if it means abandoning much- probable losers. This problem was needed reform packages. This is also deemed compounded when the public, and logical since there is no guarantee that most sometimes significant stakeholders, were not MPs will be returned anyway. Moreover, it informed of the necessity of reforms and how would be counterproductive for incumbents objectives were to be achieved. By the same to press ahead with austere and controversial token, different reforms require appropriate reform packages before elections since strategies for informing people and undesirable effects could be used against stakeholders, which in turn greatly depend them by opponents and voters. on the circumstances. For example, land The dilemma of coalition governments. registration required mass education. Coalition governments pose a dilemma for Whether the strategies were adopted at all is the prime minister when he is forced to another matter. choose between implementing reform External support. Reforms that drew on programs and attending to the wishes of external resources inevitably required the coalition members. This dilemma becomes support and approval of international more problematic when members of the donors. One significant development during coalition have a vested interest in the second half of the 1990s was massive maintaining the status quo. mismanagement on the part of the Skate Understanding reform objectives. Improper government, which brought the country implementation of reforms has been partly perilously close to terminal paralysis. This due to the poor understanding of reform situation understandably led to fallout objectives, and particularly economic reform between Prime Minister Skate and the Bretton objectives. Woods institutions. The fact that Skate Unrealistic expectations. A common thread brought in Pirouz Hamidian-Rad, contrary across certain reform areas was the excessive to the employment policies of the World Bank, optimism about expected outcomes. This meant that Skate had burnt bridges long was evident in wage deregulation, currency before he was to work with the World Bank

and International Monetary Fund. His Dinnen, S., 2001. Law and Order in a Weak successor, Sir Mekere Morauta, then brought State: crime and politics in Papua New together a consortium of ‘Friends of Papua Guinea, Crawford House, Adelaide. New Guinea’ to rescue the country. To that Dorney, S., 2000. Papua New Guinea: people, extent, reform endeavours were supported politics and history, ABC Books, Sydney. as part of the corrective measures that were Fidrmuc, J. and Noury, A.G., 2002. Interest adopted by Sir Mekere. groups. Stakeholders, and the Range of reforms. Finally, the study distribution of benefits and costs of concludes with the proposition that reform, paper prepared for the GDN important areas of reform were not Global Research Project on considered. These include law and order, Understanding Reform, Cairo, 16–17 including the judicial system, infrastructure January. rehabilitation and development, and land reform. The study is of the view that these Filer, C., Dubash, N.K. and Kalit, K., 2000. areas must be looked at carefully, taking into The Thin Green Line: World Bank leverage account all the competing views and values and forest policy reform in Papua New with a view to finding a way forward. Guinea, National Research Institute and There is room for further research into the Resource Management in Asia-Pacific areas of reforms discussed here and those not Project, The Australian National covered, such as educational reforms, at a University, Port Moresby and Canberra. more case-specific level. Future research could Finney, B., 1973. Big-Men and Business: also place Papua New Guinea’s reform entrepreneurship and economic growth in experience within the context of ‘change the New Guinea Highlands, The management’ and ‘change leaders’ in the University of Hawaii Press, Honolulu. implementing organisations. More research Hardin & Associates Pty Ltd, 2000. Asian is necessary to test further the thesis advanced Development Bank: report on the financial in this paper that the political economy of and credit needs of micro and small reforms is the key to reform results. enterprises, Technical Assistance Project—Microfinance and Employment Notes in Papua New Guinea, Sydney (March). Kavanamur, D. and Okole, H. (with M. 1 This article is an abridged version of a more Manning and T. Levantis), 2005. extensive paper published by the Institute of Understanding reform in Papua New National Affairs (Kavanamur and Okole Guinea: an analytical evaluation, 2005). Discussion Paper 91, Volume 1, Institute of National Affairs, Port References Moresby. Levantis, T. and Manning, M., 2002. The Asian Development Bank, 2001. ‘Moving business and investment environment in to a performance-based public sector in PNG: the private sector perspective, Institute Papua New Guinea’, News Release of National Affairs, Port Moresby. 192/01, Asian Development Bank, May, R., 1998. Nugget, Pike, et al. The role of Manila. the Reserve Bank of Australia in Papua

New Guinea’s decolonisation, Discussion Small Business Development Corporation, Paper No. 8/1998, North Australia 1995. Establishment, Management and Research Unit, The Australian National Operation of a Small Business Guarantee University, Darwin. Fund, National Executive Council Nelson, J. (ed.), 1990. Economic Crisis and Policy Submission No. -/95, Small Policy Choice: the politics of adjustment in Business Development Corporation, the Third World, Princeton University Port Moresby. Press, Princeton, NJ. Stake, R.E., 1995. The Art of Case Study Nelson, H., 1974. Papua New Guinea: black Research, Sage, Thousand Oaks, CA. unity or black chaos?, Penguin Books, ——, 2000. ‘Case studies’, in N.K. Denzin Middlesex. and Y.S. Lincoln (eds), Handbook of Okole, H., Narokobi, B. and Clements, Q., Qualitative Research, Sage, Thousand 2003. Strengthening a parliamentary Oaks, CA. democracy for the 21st century: legislative Standish, B., 1983. ‘They want to be the needs assessment report, National highest always: the elections in Simbu’, Parliament of Papua New Guinea, Report in D. Hegarty (ed.), Electoral Politics in for a UNDP Consultancy Project, Port Papua New Guinea: studies on the 1977 Moresby and Canberra. National Election, University of Papua Okole, H. and Kavanamur, D., 2003. New Guinea Press, Port Moresby. ‘Political corruption in Papua New Waddell, R., 1979. ‘Local government Guinea: some causes and policy policy in Papua New Guinea from 1949 lessons’, South Pacific Journal of to 1973’, The Australian Journal of Politics Philosophy and Culture, 7:7–36. and History, XX(2), 186–200. Patton, M.Q., 1990. Qualitative Evaluation Waters, G., Dondorp, A., Stillings, I., and Research Methods, Sage, Newbury Wemin, J., Keruwa, R., Stefaniw, R. and Park, Ca. Thomas, S., 1995. A Survey of Vernacular PNG-Australia Development Cooperation Education Programming at the Provincial Program, 1996. PNG private sector Level within Papua New Guinea, Summer development study: final report Vol. 2, Institute of Linguistics of Papua New Working Papers, PNG-Australia Guinea, Ukarumpa. Development Cooperation Program, World Bank, 1993. Papua New Guinea Jobs, Port Moresby and Canberra. Economic Growth and International Popper, K.R., 1963. Conjectures and Competitiveness, Country Operations refutations, the growth of scientific Division, East Asia and Pacific Region, knowledge, Routledge & Kegan Paul, World Bank, Washington, DC. London. Yin, R.K., 1989. Case Study Research: design Ruis, A. and van de Walle, N., 2003. and methods, Sage, London. Political and cultural institutions and ——, 1994. Case Study Research: design and economic policy reform, paper prepared methods, Sage, Thousand Oaks, CA. for the GDN Global Research Project on Understanding Reform, Cairo, 16–17 January.