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Understanding Reform in Papua New Guinea

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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.
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