Intemational Bank for Reconstruction and Development
FOR OFFICIAL USE ONLY
CG2000-9
Public Disclosure Authorized FROM: Vice President and Secretary March 17, 2000
CONSULTATIVE GROUP MEETING FOR PAPUA NEW GUINEA CHAIRMAN'S REPORT OF PROCEEDINGS Port Moresby, Papua New Guinea November 8-9, 1999
Attached is the Chairman's Report of the proceedings of the Eighth Consultative Group Meeting for Papua New Guinea, held in Port Moresby on November 8-9, 1999. The Annexes to the report are listed on the following pages. Public Disclosure Authorized
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Distribution For Information Executive Directors for:
Australia Korea European Office China New Zealand Tokyo Office France Papua New Guinea Germany United Kingdom
Public Disclosure Authorized Japan United States
Asian Development Bank Commonwealth Secretariat, Development Cooperation Department of International Development, ODA Development Assistance Committee, OECD European Commission European Investment Bank International Finance Corporation International Fund for Agricultural Development International Monetary Fund Multilateral Investment Guarantee Agency
Public Disclosure Authorized United Nations Development Programme
This document has a restricted distributionand may be used by recipients only in the performanceof their official duties. Its contents may not otherwisebe disclosed without World Bank authorization. Contents
Chairman's Report of Proceedings...... ,.1 List of Annexes
Annex I List of Participants.21
Annex II Agenda .33
A. Opening Session
Annex III Opening Statement by Mr. Klaus Rohland, Chairman World Bank. 35
Annex IV President James D. Wolfensohn's Video Address.37
Annex V Opening Statement by H. E. Sir Mekere Morauta, Head Papua New Guinea Delegation.39
B. Review of Recent Economic Developments
Annex VI Statement by Koiari Tarata, Papua New Guinea Delegation.49
Annex VII Statement by Mr. Wilson Kamit, Papua New Guinea Delegation. 53
Annex VIII Statement by the International Monetary Fund Delegation.57
Statements by Other CG Delegations
Annex IX Statement by Australian Delegation.59
Annex X Statement by the Japanese Delegation.63
Annex XI Statement by the Asian Development Bank Delegatin.65
Annex XII Statement by the European Commission Delegation.67
Annex XIII Statement by the United Nations Delegation.69
C. Governance and Performance: The Reform Agenda
Annex XIV Statement by Mr. Robert Igara, Papua New Guinea Delegation.71
Annex XV Statement by Mr. Cyrus Talati, World Bank Delegation.77 Statements by Other CG Delegations
Annex XVI Statement by the Asian Development Bank Delegation...... 83
Annex XVII Statement by the Japanese Delegation...... 85
Annex XVIII Statement by the United Nations Delegation...... 87
Annex XIX Staetment by the European Commission Delegation...... 89
D. Improving Development Effectiveness
Annex XX Statement by Hon. Moi Avei, MP, Papua New Guinea Delegation...... 93
Annex XXI Statement by Mr. Bill Rahill, World Bank Delegation...... 97
Statements by Other CG Delegations
Annex XXII Statement by the Asian Development Bank Delegation.103
Annex XXIII Statement by the Australian Delegation.105
Annex XXIV Statement by the European Commission Delegation.107
Annex XXV Statement by the Commonwealth Secretariat Delegation.109
Annex XXVI Statement by the Japanese Delegation. 11
Annex XXVII Statement by the United Nations Delegation.113
E. External Assistance Requirements
Annex XXVIII Statement by Mr. Camillus Midire, Papua New Guinea Delegation...... 115
Annex XXIX Statement by Mr. Daniel Weise, World Bank Delegation...... 121
Pledging Statements
Annex XXX Statement by the United Nations Delegation...... 123
Annex XXXI Statement by the European Commission Delegation...... 125
Annex XXXII Statement by the Asian Development Bank Delegation...... 129
Annex XXXIII Statement by the Australian Delegation.131 iii
Annex XXXIV Statement by the Japanese Delegation...... 133
Annex XXXV Statement by the Chinese Delegation...... 137
Annex XXXVI Statement by the New Zealand Delegation...... 139
Annex XXXVII Statement by the French Delegation...... 141
Annex XXXVIII Statement by the United Kingdom Delegation...... 143
Annex XXXIX Statement by the United States Delegation...... 145
F. Closing Session
Annex XL Statement by Hon. Moi Avei, MP, Papua New Guinea Delegation...... 147
Annex XLI Summary Statement by Mr. Klaus Rohland, Chairman...... 151
Annex XLII Press Release...... 155 CONSULTATIVE GROUP FOR PAPUA NEW GUINEA CHAIRMAN'S REPORT OF PROCEEDINGS
The Eighth Consultative Group (CG) for Papua New Guinea (PNG) met in Port Moresby on November 8-9, 1999. The Papua New Guinea delegation was led by Hon. Sir Mekere Morauta, Prime Minister, Treasurer and Minister of Health, and included nine Government Ministers and ten other senior government officials. The meeting was chaired by Klaus Rohland, Country Director for PNG and Pacific Islands, of the World Bank.
Participating in the two-day discussions were representatives from Australia, China, France, Japan, Korea, New Zealand, United Kingdom and the United States. Also in attendance were representatives from multilateral and other institutions including the Asian Development Bank, Commonwealth Secretariat, European Commission, Forum Secretariat, International Monetary Fund, United Nations, United Nations Children's Fund (UNICEF), United Nations Family Planning Agency (UNFPA) and the World Health Organization (WHO). The two-day donor meeting also included observers from the Institute of National Affairs, the Consultative Implementation and Monitoring Council, the National Council of Women, the Council of Churches, the National Volunteer Services and the National Association of Non-GovernmentalOrganizations.
On the first day of the meeting, discussions focused on the overall development needs of the country, including promoting good governance, sustaining macroeconomic stability, improving public sector performance as well as improving the quality of life for the people of PNG. Donors expressed their support for revived development efforts in PNG including a special emphasis on oversight agencies, fighting corruption, and service delivery in health and education. They also encouraged more prompt implementation of the Government's proposed economic and structural reform program. The second day of the meeting was devoted to a discussion of aid assistance, including funding for the Government's proposed reform program. Donors expressed their support for the mobilization of a financing package in support of the Government's economic recovery and reform efforts. The proposed assistance package would be anchored in an IMF Stand-by Arrangement and a World Bank structural reform program.
Also discussed at the meeting was the Rural Development Fund and the necessity to upgrade the accountability framework as well as the government's thrust to promote development at the district and village level through the proposed Rural Development Program (RDP).
Background documentation for the meeting included the World Bank's 1999 country economic memorandum: Papua New Guinea: Improving Governance and Performance. Other documentation comprised the World Bank's proposed Country Assistance Strategy (CAS) prepared this year as well as a 1999 poverty report, entitled: Papua New Guinea: Poverty and Access to Public Services. - 2 -
The report that follows is an illustrative summary of the proceedings. Complete texts of donor statements are provided as annexes. - 3 -
A. Summary of the Opening Session
Opening Statement by the Chairman
After welcoming the delegates, the Chairman underscored the importance of the Eighth Consultative Meeting for Papua New Guinea (PNG), emphasizing its timeliness in offering development partners a fresh start in their efforts to consolidate their support for the implementation of the Government's proposed economic and structural reform program, the subject of discussion for the meeting. The Chairman commended the Prime Minister for his leadership since taking office in mid-1999, noting the solid policy platform the Government had announced in support of economic development and structural reforms. He also noted progress made by the Government in the formulation of the 2000 budget to be considered by Parliament at end-November, 1999.
Against this backdrop, the Chairman set forth four objectives for the meeting:
* Hear an update of the government's economic and structural reform program as well as achieve a common understanding on the status of discussions between Government of PNG and multilateral agencies expected to support the government's reform efforts; * Achieve a common understanding on the sequencing of assistance packages expected from development partners and the factors that would trigger funds disbursements; * Improve understanding and coordination among donors in meeting PNG's development needs; and * Hear an update of donors programs and confirm pledges of financial assistance to PNG.
Following adoption of the agenda, the Chairman called for transparency in the deliberations, explaining that openness and forthrightness in the discussions would enable the meeting's objectives to be achieved. Prior to turning the floor over to the head of the PNG delegation, H.E. Sir Mekere Morauta, Prime Minister, Treasurer and Minister for Health, for his opening statement, the Chairman asked participants to listen to a welcome video message from James Wolfensohn, President of the World Bank Group.
President James D. Wolfensohn's Video Address
In his video address, the President commended the Prime Minister and his cabinet for the work undertaken since coming into office in setting a new course for Papua New Guinea. He noted progress made in developing the government's reform program, including framing macroeconomic plans and addressing structural reforms that would be necessary for the achievement of the country's developmental objectives. President Wolfensohn endorsed the broad outlines of the Government's reform program and pledged the Bank's support to work with Government in meeting the country's developmental challenges, including poverty alleviation and improved living conditions for Papua New Guineans. The full text of the President's video address is provided as an annex to this report. -4 -
Opening Statement by Head of Papua New Guinea Delegation: H.E. Sir Mekere Morauta, Prime Minister, Treasurer and Minister for Health.
After welcoming the delegates to PNG, the Prime Minister commenced by noting the deteriorated social conditions in PNG after nearly a quarter century of independence. He said improved delivery of basic social and infrastructure services is the key to sustained growth and better living standards.
The Prime minister cited weaknesses in the design and implementation of policies, limited skills and competency of the workforce, poor communications infrastructure as well as weak respect for law and order, poor governance and corruption as the key impediments to growth in the economy. He indicated that, since coming into office, his Government had committed itself to address these issues and called for support from the international community in this effort. Among other things, he said, he is committed to early restoration of macroeconomic stability which would then allow longer-term issues to be tackled in a more systematic fashion.
In discussing his developmental priorities, the Prime Minister announced a wide range of policy and structural reform measures to be undertaken aimed at bolstering confidence in the economy and putting the economy on a sustainable growth path. These include capacity building, improved public sector management including transparency and accountability in the use of public resources, improved transparency in fiscal and monetary activities, enactment of legislation to provide for the independence of the central bank, reduced and focused role of government in the economy, and implementation of a privatization program. To achieve the objectives of the reform program, the Prime Minister called for advice, technical expertise and financial resources from development partners. He said continued project assistance from development partners as well as fast-disbursing financing from multilateral and bilateral sources to support the 2000 budget in particular are crucial to the success of the reform efforts.
In closing, the Prime Minister reiterated the need for the Government to stay the course of reform while looking to the international community for continued support. He commented on the importance and timeliness of the meeting, stating it would "stimulate immediate development implementationto improve the lives of the people of Papua New Guinea". - 5 -
B. Recent Economic Developments
After brief remarks relating to the Prime Minister's address, the Chairman turned the floor over to Mr. Tarata, Secretary, Department of Treasury and Finance.
Statement by Papua New Guinea Delegation: Mr. Koiari Tarata, Secretary, Department of Treasury and Finance
The Secretary focussed his remarks on the 2000 macroeconomic framework, indicating that the IMF and the World Bank were in broad agreement with Government on the overall thrust of the 2000 budget. The macroeconomic framework aims at restoring a balanced budget for 2000 as well as retiring domestic debt as offshore concessional financing becomes available from donors under the Government's reform program. He explained that budgetary appropriations for all departments and agencies would be held at their 1999 Supplementary Budget levels with the exception of the priority areas of health, education, infrastructure, primary industries and police. He stated that the budget had been approved by Cabinet and scheduled for presentation to Parliament at end-November, 1999.
The Secretary highlighted the sound approach to the formulation of the 2000 budget, pointing out that unlike in previous budgets, salaries and wages in particular had been realistically provided for to avoid spending overruns at a later stage. He further explained that, as a streamlining measure, all project-related expenditures had been transferred from the recurrent to the development budget to ensure that the development budget received substantial share of any additional future resources.
The Secretary stated that restoration of investor confidence would be the most important outcome of the 2000 budget. This would foster private sector activity, ensuring long-term sustainable growth in income and employment. Measures taken in the budget, he noted, would also lead to improved growth outlook, improved external position and lower inflation. Non-mining GDP would grow by 5.8 percent in 2000, underpinned by strong agricultural activity (including forestry and fisheries) and spin-off effects from the minerals sector as construction activity commenced on the PNG- Queensland gas project. Consumer inflation would decelerate to 13 percent in 2000, while the overall GDP deflator would rise by a moderate 0.8 percent, he stated.
In his closing remarks, the Secretary called on development partners to streamline their operations as well as strengthen coordination among one another to ensure the effectiveness of development assistance. He stressed the country's ownership of the reform program indicating that it would be implemented with the assistance of the World Bank and other development partners. He expected agreement to be reached with the World Bank on a structural adjustment operation by early 2000. - 6 -
Statement by Papua New Guinea Delegation, Mr. Wilson Kamit, Governor, Bank of Papua New Guinea
The Governor attributed financial and monetary stability in the period immediately following the change of Government to sound macroeconomic policies adopted by the new administration. These policies, he noted, received strong endorsement by the Government of Australia, the IMF and the World Bank. He cited visits to PNG by high- level Australian Government officials, including the Prime Minister, John Howard, as evidence of Australia's approval of the new administration's policies. These visits, he noted, led to financial assistance from the Government of Australia in the amount of US$80 million.
To consolidate monetary stability, he noted measures that had been taken since September 1999, including abolishing the Standing Facility introduced earlier in the year, a reinstatement of the Kina Auction Facility, and reduction in Treasury bill rates. In addition, the MLAR was raised to 25 percent, up 5 percent from previous levels. He thanked the commercial banks for their cooperation and assistance as these measures were introduced. He explained that the central bank would continue to maintain a strong monetary stance until the 2000 budget framework was fully implemented.
The Governor indicated that he would need technical assistance from donors particularly the IMF, the Reserve Bank of Australia and the World Bank to be able to implement reforms measures envisaged in the financial sector. These would include strengthening the regulatory and supervisory capabilities of the Bank of Papua New Guinea to enable the Bank to assume additional responsibility in the regulation and supervision of superannuation and life insurance industries.
In closing, the Governor called for continued financial support and technical expertise from development partners in the implementation of proposed reforms to ensure attainment of long-term stability in the price level, exchange rate and the financial system of PNG.
Statement by the International Monetary Fund Delegation: Mr. Roger Kronenberg, Advisor, Asia and Pacific Department
Mr. Kronenberg concurred with Government's assessment of the difficulties that the economy had encountered and the measures that had been taken to address them. In this regard, he commended the Government for the August 1999 Supplementary Budget, noting that while addressing a rapidly deteriorating fiscal situation, the budget also demonstrated Government's willingness to address difficult issues rather quickly and courageously.
Mr. Kronenberg confirmed the ongoing discussions with Government regarding policies that could be supported under an IMF program. He noted that the IMF was in broad agreement with the thrust of the general macroeconomic framework, although a few technical difficulties needed to be resolved. - 7 -
Mr. Kronenberg also agreed with the Prime Minister on the need to restore the integrity of institutions in PNG, noting that such a measure is the key to stabilization and long-term sustainable growth.
In closing, Mr. Kronenberg reiterated that the IMF shared the Government's assessment of the economic situation, and looked forward to continued IMF involvement in the reform program.
Statements and Discussion by CG Delegates
The full text of statements on recent economic developments by CG delegates are provided in annexes to this report.
Participants, in general, were encouraged by the new Government's initial policy decisions and the measures taken in the short-term to restore macroeconomic stability, including passage of the August 1999 Supplementary Budget. It was noted by the Australian delegation that the commitment to reform shown by the new administration had resulted in a significant increase in technical assistance flowing into the country from several sources including the Australian Government, the World Bank, the ADB and the IMF. Delegates expressed their commitment to support the country's development and assist in the reform efforts aimed at addressing the structural impediments to development. As expressions of their commitment, it was noted that Australia had signed a new aid treaty with PNG, brought forward AS$35 million in budget support payment, and had announced US$80 million finance facility to be made available shortly before or after the signing of a letter of intent with the IMF. It was also noted that the ADB intended to bring forward the release of the second tranche of its Health Sector Development Program loan.
The Prime Minister, in closing remarks, thanked delegates for support of his policies and assured delegates of his commitment to stay the course of reform.
In summarizing the morning's discussions, the Chairman called attention to issues raised by participants which would be further discussed at subsequent sessions of the meeting. These included transparency and accountability in government operations, reform of the Rural Development Fund, the Rural Development Program initiative, and donor coordination and cooperation on public sector reform. -8 -
C. Governance and Performance:The Reform Agenda
Following brief introductory remarks in which he pointed out the importance of internal policies in promoting sustainable economic development, the Chairman turned the floor over to Mr. Robert Igara, Chief Secretaryto the Government.
Statement by the Papua New Guinea Delegation: Mr. Robert Igara, Chief Secretary to Government
The Chief Secretary focused his address, from a public service perspective, on the issues involved in operationalizing the main elements of the Government's reform agenda as outlined by the Prime Minister in his opening statement. He noted that the depressed state of the country's socio-economic indicators, despite the abundance of the country's natural and human wealth and the high inflow of external assistance, clearly pointed to the need for improved social and economic conditions. However, he explained that the myriad of problems as well as the nature and magnitude of the challenges facing the country would indicate that there is the need for priority setting. Some challenges, he explained, could be easily addressed by Government such as realistic budgeting to improve service delivery, while others caused by external factors such as the Asian economic crisis are beyond the control of Government and would require much longer term solutions.
As a senior public servant charged with coordinating public policy in an environment where Ministers, constitutional offices and statutory bodies, as well as different levels of government, have their own rights and responsibilities, Chief Secretary Igara pointed out that "planning, budgeting and implementation involve more than merely issuing orders or making laws". He explained the intricate processes involved, citing as, a case in point, the constitutional and legal requirements that must be met if, for instance, statutory bodies needed to be abolished or provincial and local-level governments needed to be changed, a rather long and time-consuming process.
The Chief Secretary drew participants attention to the progress made by the Government since coming into office in an effort to improve governance and performance. He cited, inter alia: (1) the establishment of the Central Agencies Committee charged with providing leadership in developing, implementing and managing the reform program; (2) tightening up of Cabinet and budget-making procedures so they comply with the National Constitution, Public Finance Management Act, Public Service Management Act, and the Attorney General's Act; (3) signing of the National Development Charter with the Provincial Governments; and (4) the establishment of the Corporatization and Privatization Commission to oversee the Government's privatization program. He explained that while the outline of the reform program had been approved by Cabinet, it would need to be developed further in close consultation with implementing agencies and their chief executives, noting that a wide range of social, political and cultural factors would come into play during implementation of the program.
In closing, he called attention to the emphasis the Government has placed on strengthening procedures and institutions in the policies announced by the Prime - 9 -
Minister. He called on all stakeholders including the international donor community and the recently established "Friends of PNG" group to work together to mobilize the necessary expertise and advice needed to achieve the objectives of the reform program. As Chairman of the Central Agencies Committee, he pledged his commitment to ensure the success of the reform program.
Statement by World Bank Delegation: Mr. Cyrus Talati, Senior Economist, East Asia and Pacific Region
Mr. Talati began by noting that the crises experienced by the Papua New Guinea economy during the 1990s exposed the inherent weaknesses in the structure of governance. He further noted that the law and order problems in the country are the result of poor development, deteriorated governance and weak social capital. He explained that the approach adopted by successive govermnents in managing the crises through one-off injections in the economy such as increasing debt levels and arrears and requests for extraordinary finance from donors, among others, led to a reduction in the country's net worth as Governments were unable to repay such financing during economic upswings. The task facing the current administration then is to restore the country's balance sheet and commit itself to raise the living standards of the vast majority of the population through improving fiscal and financial management, structural policies and governance across the public sector.
Against this backdrop, Mr. Talati called for a redefinition of the role of government and policies focused on improving the efficiency of government. He supported the Prime Minister's call for the Government to exit out of the finance industry as past investments in the sector had yielded limited returns and attracted corruption. Another government industry that needs to be privatized, he said, is the utilities as most enterprises have negative net worth despite years of financial support from the state. Privatizing these enterprises, Mr. Talati said, would not only help debt repayment but would also improve the quality and coverage of services as well as the efficiency with which these services are provided.
Mr. Talati also noted that the erosion of basic systems and processes in PNG during the 1990s also contributed to the deterioration of institutions. He therefore welcomed the Prime Minister's initiative to restore the integrity of institutions, focusing on the public sector. He called attention to the need to improve budget management and control, accountabilities and disclosure, among other things.
Drawing on global experience, Mr. Talati made a few recommendations for government consideration in the area of public sector reform, noting the difficulties often encountered particularly by small countries in undertaking such reforms:
* In the near term, Government efforts should focus on re-establishing systems of management, control and monitoring in the budget. A re-mastery of these practices, he noted, would then provide the basis for a gradual move to performance-based systems. - 10-
* To guide reduction in the size of the civil service, government must determine what activities or functions it should undertake vis-a- vis functions that can be partially or fully provided by elements of civil society. * Government should end the practice of employing complex accounting vehicles that allow funds to be used inappropriately-- sometimes across categories of expenditure, and other times across time. * On environmental protection, Government should build on earlier initiatives to strengthen the governance framework in the resource sectors. Transparency in resource allocation decisions and effective involvement of landowners early in the process are critical.
In conclusion, Mr. Talati noted that achieving improvements in the governance framework is a complex task and called attention to the need to strengthen accountability. He welcomed Government's reform initiative to support and strengthen oversight institutions which are critical elements of the reform program. While noting the difficult challenges ahead, he commended the government for its commitment to reform and for engaging all development partners in the reform effort.
Statements by CG Delegates and General Discussion
The Chairman summarized the positions taken by the two speakers and asked for contributions to be centered around these two viewpoints. The full text of statements by CG delegations are found in annexes to this report.
The cross-cutting issues arising out of the discussions are summarized as follows:
* the need for more effective donor coordination and cooperation in the area of public sector reform as well as the need for more effective coordination of donor assistance by both government and donors; * the need to arrest the deteriorating law and order situation to foster private sector development; * the need to introduce transparency and accountability with respect to operations of the Rural Development Fund; and * the need for continued use of non-governmental organizations to improve service delivery in a decentralized system of government.
The issue of the Rural Development Fund was discussed more extensively during the next session on Improving Development Effectiveness. - I1 -
D. Improving DevelopmentEffectiveness
Statement by the Papua New Guinea Delegation: Hon. Moi Avei, Minister for Planning and Monitoring
The Minister began by noting that PNG has failed in its attempts over the years to improve the effectiveness of development expenditures despite the availability of a Medium-Term Development Strategy. He attributed this failure to the lack of an implementation plan focused on programs and activities that would lead to a realization of planned government objectives. To address this issue, he noted the new administration's initiatives aimed at improving development effectiveness and the impact of development programs:
* Governance. Reform initiatives in this area include the introduction of a legislation on the integrity of political parties and candidates, electoral reform and strengthening as well as streamlining of Cabinet's decision-making procedures. These reforms would not only promote political stability and a more transparent policy process but would also improve long-term development effectiveness.
- Coordination and Accountability. An important initiative in this area was the introduction of the National Dialogue, a forum that brought together officials from all levels of government to debate and agree on a common development framework, the Charter of Reconstruction and Development that was endorsed by all parties. This aimed at improving coordination among different levels of government in a decentralized government system. Another initiative aimed at improving accountability and transparency in government operations was the proposal to merge the RDF with other domestic and external funds to support development at the district level, the District Development Program.
In concluding, the Minister thanked all participants for their continued support for PNG's development efforts.
Statement by World Bank Delegation: Mr. Bill H. Rahill, Country Officer, East Asia and Paciflc Region
Mr. Rahill concurred with Minister Avei on implementation-related issues, explaining that much planning without effective implementation would not improve rural service delivery. He commended the Government for establishing the Department of National Planning and Monitoring as a central agency, pledging the Bank's support to assist in setting up the Department's operational framework particularly regarding the implementation and monitoring functions. He explained that current systems in place in the Department could be improved to strengthen donor coordination and development effectiveness in the years ahead.
On donor coordination, Mr. Rahill stressed the importance of improving the overall coordination function in order to improve the effectiveness of development assistance. He explained that the scope of the CG as a donor coordinating mechanism is limited, suggesting that improving donor coordination would require, among other -12- things, strong coordination within the PNG government apparatus, at both the strategic level and among departments that benefit from development assistance.
While calling for stronger country leadership vis-a-vis donor coordination, Mr. Rahill also requested Government support to help position Bank's assistance within the overall development framework in PNG. He explained that the massive amount of assistance available from Australia and other concessional sources leads Bank management to question the level of engagement necessary in PNG. He suggested that the adoption of a comprehensive development type framework, spelling out the role and responsibilities of each donor, or the establishment of a strategic development forum might help address this issue.
In closing, Mr. Rahill noted that from the Bank's perspective, improved project implementation is the key to development effectiveness. In this regard, he called for a strengthening of the project implementation environment, including actions to allocate the necessary counterpart funds and allowing for timely drawdown of loan funds. On a separate issue, he also called attention to a proposal under consideration by the Bank's Board of Executive Directors, that would require the CG process to be managed by countries as part of their aid coordination function in the future.
Statements by CG Delegates and General Discussion
The full text of statements by CG delegates on the subject are provided in annexes to this report. The main themes that emerged out of the discussions centered around:
* Restructuring the Rural Development Program. While expressing support for the government's renewed emphasis on rural development, PNG's development partners sought clarifications regarding the proposed design and operational framework of a new facility, the Rural Development Program. With agreement between Government and development partners that development must take place at the village and district level, the RDP is an attempt to restructure the RDF to make it more effective for Members of Parliament and their constituents and much more accountable and transparent. The Prime Minister requested Bank assistance in designing an accountability and transparency mechanism which would be implemented as part of the RDP. In agreeing to provide this support, Bank requested that no disbursements be made in 2000 until the guidelines were in place.
* Improving Project Performance. Reflecting mainly contribution by the ADB delegation, and reinforced by other participants, suggestions included : (1) the need to shift resources away from project preparation and more towards the supervision of the implementation of such investments; (2) the need to review the process of project design to include not only government but also the private sector and civil society at the design stage to ensure better local acceptability of projects; (3) the need to develop performance milestones with Government; (4) the need to strengthen provincial and local level government administration in light of continued weaknesses in planning, management and technical capacity at - 13 - such level of government; (5) the need for a strong, accountable and stable national administration; and (6) the need for strong country leadership in coordinating donor inputs. - 14-
E. External Assistance Requirements
Statement by the Papua New Guinea Delegation: Mr. Camillus Midire, Secretary, Department of National Planning and Monitoring
Mr. Midire focused his remarks on project implementation issues and effectiveness of development assistance. He noted the implementation problems that PNG had encountered over the years and discussed measures to address them. These problems, as outlined by Mr. Rahill earlier in his address, included, inter alia, slow drawdown of donor funds, untimely release of counterpart funds, as well as land issues.
In discussing measures to address these issues, Mr. Midire saw the creation of the Department of National Planning and Monitoring as providing a mechanism for coordinating external assistance to ensure that such aid would fully support Government's development objectives and priorities. Mr. Midire also saw the public sector reform program initiative as a step toward addressing project implementation issues. He noted, among other things, measures in the 2000 budget aimed at right-sizing the bureaucracy and reviewing procudures and systems of government. He also explained that capacity constraints to project implementation could be addressed through strengthened donor coordination on the part of govermnent.
In closing, Mr. Midire pointed out that any assistance that donors could provide in setting up the Department's operational framework would be very much appreciated.
Statement by World Bank Delegation: Mr. Daniel Weise, Resident Coordinator, World Bank Office, Papua New Guinea
Mr. Weise began his remarks by discussing the macroeconomic prospects of the economy over the medium term. He explained that on the basis of government commitment to reform, economic growth could exceed 4 percent in 2000 with inflation reduced to single digits by year-end. On the external front, reserves could reach US$170 million by end-1999, the equivalent of 1.5-2.0 months of import, up sharply from under one month of import cover at end-July, 1999 when capital flight and declining terms of trade caused reserves to dwindle precipitously. The improved reserve position would include a loan commitment in the amount of US$80 million expected from the Government of Australia.
For 2000, however, Mr. Weise said there would be limited movement in the reserve position from end-1999, due to Government commitment to a balanced budget, anticipated balance of payments prospects and estimated debt service commitments. Financing being sought from the IMF to boost reserve levels was still under consideration, linked to the signing of a letter of intent with the IMF, as was also the roll- over of a US$80 million loan facility from the Government of Australia. Similarly, financing from the World Bank to support the government's reform program was also under discussion. Under these circumstances, Mr. Weise said extraordinary financing in the amount US$200 million would be needed from donors, other than the World Bank and the IMF, to meet PNG's external financing requirements in 2000. This level of - 15- assistance, Mr. Weise explained, was reasonable given the costs of the reform program and associated debt resrtucturing objectives.
Based on existing project and program commitments, Mr. Weise said development budget requirements for 2000 should be easily met, albeit changes in funding structures might result in some difficulties due to sharp reductions to loan funded projects which could prevent scheduled project implementation.
Pledging Statements by Donors
The full text of pledging statements by donors are provided in annexes to this report. In summary, donors confirmed their intentions to mobilize a financing package in support of the Government's economic reform program. The proposed assistance package would be anchored in an IMF program and a World Bank structural reform program.
A total financial package relating to extraordinary financing in support of the government's reform program could be in excess of US$300 million subject to further bilateral and multilateral discussions. Key milestones that were highlighted by the CG include: i) the initialing of a letter of intent to the IMF, which would lead to the release of Australia's US$80 million bridge financing; ii) Board presentation of the IMF program which would include a Stand-by Arrangement and CCFF facility, and iii) Board presentation of the World Bank's structural adjustment program loan. These milestones would facilitate consideration of additional assistance from Australia, Japan and European Union. Assistance from the Asian Development Bank would flow in the latter part of 2000 subject to progress on the public sector reform front. This special assistance would supplement donors' ongoing development programs. - 16 -
F. Closing Session
Closing Statement by the Papua New Guinea Delegation: Hon. Moi Avei, Minister for Planning and Monitoring
Minister Avei expressed his sincere gratitude to each and every development partner for the pledges made. He commented on their respective roles in the development efforts of PNG and called for continued assistance in the years ahead particularly in support of the reform efforts. He explained that the Government will do its utmost to see that the funds provided are used effectively and expeditiously. He also reassured donors that all commitments made with respect to the reform program will be met beginning with the 2000 budget. These would include, among others, the presentation of a balanced budget, restoration of the integrity of the central bank, reduced role of government and promotion of a private sector -oriented development. He looked forward to the next CG meeting where he would give an account of the funds that will be entrusted to the Government.
Chairman's Summary and Closing Remarks
The Chairman thanked the Minister for Planning and all the participants. On behalf of the meeting, he conveyed his best wishes to the Prime Minister who had to leave the meeting for another engagement in South Africa. The Chairman's concluding statement which was not read at the meeting but circulated among participants and adopted, contained a summary of the key messages that emerged out of the meeting:
D Donors endorsed the Government's economic reform program, urging Government to move quickly beyond short term measures and begin tackling the numerous development issues facing the country in order to improve the quality of life of Papua New Guineans.
* The CG meeting confirmed donors intention to pull together a financing package that could be in excess of US$300 millon in support of the Government's economic recovery and reform efforts. The proposed assistance package would be anchored in an IMF program and a World Bank reform program.
* Implementation of the financing arrangement would rest on the Government's performance in meeting agreed macroeconomic framework targets and actions agreed to within the structural reform agenda.
* Development success for PNG and its development partners will be assessed on the basis of on-the-ground results and sustainability of stabilization and reform efforts. - 17-
The Government of PNG and the CG agreed that there would be a need to take stock of developments on a regular basis and that the next CG be held in the same timeframe next year. The city of Madang, Capital of Madang Province on PNG' s north coast, was proposed as the venue for the Ninth Meeting of the Consultative Group for PNG. I - 19 -
ANNEXES
Some of the statements presented herein were transcribed from audio tapes of the proceedings. Should there be mistakes in the transcription or different views on what was said, then the wording on the tapes would take precedence over the transcribed text.
-21 - AnnexI
EIGHTH MEETING OF THE CONSULTATIVE GROUP FOR PAPUA NEW GUINEA
Port Moresby, November 8-9, 1999
LIST OF PARTICIPANTS
PAPUANEW GUINEA
Government Ministers
Hon. Sir Mekere Morauta, Kt, MP Head of Delegation Prime Minister, Treasurer and Minister for Health
Hon. Moi Avei, MP Minister, Department of National Planning and Monitoring
Hon. Philemon Embel, MP Minister, Department of Public Service
Hon. John Waiko, MP Minister, Department of Education
Hon. Bart Philemon, MP Minister, Department of Transport and Civil Aviation
Hon. Andrew Kumbakor, MP Minister Department of Provincial and Local Level Government Affairs
Rt. Hon. Sir Michael Somare, GCMG, CH, MP Minister, Department of Foreign Affairs
Hon. John Kaputin Minister, Department of Mining
Hon. Stephen Pokawin, MP Dean of Provincial Governors
Hon. Arthur T. Somare, MP Governor of East Sepik -22 - Annex I
Senior Officials
Mr. Robert Igara Chief Secretary to Government
Mr. Koiari Tarata, ISO Secretary, Department of Treasury and Finance
Mr. Camillus Midire Secretary, Department of National Planning and Monitoring
Mr. Bill Kua Secretary, Department of Personnel Management
Mr. Wilson Kamit Governor, Bank of Papua New Guinea
Mr. Puka Temu Secretary, Department of Health
Mr. Peter Miria Baki Secretary, Department of Education
Mr. Miri Setae Secretary, Department of Agriculture and Livestock
Mr. Colin Travertz Secretary, Department of Provincial and Local Level Govermuent Affairs
Mr. Evoa Lalatute Secretary, Department of Foreign Affairs
Ms. Marianna J. Ellingson First Assistant Secretary Foreign Aid Management Division Office of National Planning and Monitoring
Ms. Marjorie Andrew Acting Director General Governance, Law and Social Policy Department of Prime Minister and NEC
Mr. Maimu Raka-Nou Acting Secretary, Department of Foreign Affairs
Mr. William Penias Deputy Secretary, Department of Education
Mr. Phillip Pondikov -23 - AnnexI
First Assistant Secretary Department of Agriculture and Livestock
Mr. Dickson Guina Director, Finance and Administration Department of Provincial Affairs
Mr. Michael Gene Attorney General Department of Attorney General
Mr. Vele Iamo Deputy Secretary, Department of Treasury and Finance
Ms. Fui Williame-Igara First Assistant Secretary, Department of Treasury and Finance
Mr. Nino Saruva First Assistant Secretary (Budgets) Department of Treasury and Finance
Mr. Simon Tosal FAS Economic Policy Unit Department of Treasury and Finance
Ms. Ruth M. Joel Assistant Secretary, Economic Policy Department of Treasury and Finance
Mr. Joe Demas Acting Deputy Secretary Department of National Planning and Monitoring
Mr. Ronald Kuk First Assistant Secretary, Policy Department National Planning Office
Mr. Homolpi Warom First Assistant Secretary, Sectoral Planning Department of Planning and Monitoring (DOPI)
Mr. Karl Sopol Senior Advisor - UN agencies Foreign and Management Division Department of National Planning and Monitoring - 24 - Annex I
Mr. Joe Degemba Desk Officer, Foreign Aid Management Department of National Planning and Monitoring
Mr. Paolo de Renzio Senior Policy Analyst Policy Development and Analysis Division Department of Planning and Monitoring
Mr. Peter Memafu Manager, Technical Support Division Department of National Planning
Mr. Simond Sipian Assistant Secretary National Planning Office
Mr. Thomas Lisenia First Assistant Secretary - Monitoring Planning Division National Planning Office
Mr. Nick Suvulo National Statistician National Statistical Office
Mr. Nao Badu Chairman and Chief Executive Officer National Economic and Fiscal Commission
Ms. Felecia Dobunanba, OBE Director (Project) Public Sector Training Project Department of Personnel Management
Mr. Ravu Vagi Director, Strategic Management Department of Personnel Management
Mr. Williams Soiat Deputy Secretary (Policy) Department of Personnel Management
Mr. Loi Bakani Manager, Economics Department Bank of Papua New Guinea -25 - Annex I
Mr. Sali David Research Officer, Research Unit Bank of Papua New Guinea
Dr. Jakob Weiss Consultant Bank of Papua New Guinea
Mr. Tarun Brahma Consultant, Research Unit Bank of Papua New Guinea
Mr. Chris Gaskell Consultant Bank of Papua New Guinea
Mr. John Siau Provincial Administrator Bougainvilie Provincial Government
Mr. Kila Ai Project Manager Central City Project Management Central Provincial Government
Mr. Maran Nateleo Provincial Administrator Sandaun Provincial Administration
Observers
Mr. Michael J. Manning Director, Institute of National Affairs (INA)
Mr. Mel P. Togolo General Manager, Corporate Affairs Placer Niugini Limited Consultative Implementation Monitoring Council (CIMC)
Mrs. Susan Setae President National Council of Women
Ms. Scholsa Kakas National Council of Women
Ms. Matilda Pilacapio NGO/Woman Activist Grass-Root Representative - 26 - Annex I
AUSTRALIA
Mr. Bruce Davis Head of Delegation Director General AusAID Canberra
Ms. Margaret Regnault Minister-Counsellor Development Cooperation AusAID Port Moresby
Mr. Robert Jauncey Acting Assistant Director General PNG Branch AusAID
Mr. Mark Palu Counsellor Development Cooperation AusAID Port Moresby
Ms. Robin Schott-Charlton Counsellor Development Cooperation AusAID Port Moresby
Ms. Allison Sudradjat Counsellor Development Cooperation AusAID Port Moresby
Mr. Alan Moody Acting Director PNG Governance Renewable Resources, Economic Analysis & Private Sector Section AusAID
H.E. Nick Warner Australian High Commissioner to Papua New Guinea Australian High Commission Port Moresby -27 - Annex I
Observers
Mr. Tony O'Dowd First Secretary Education, Training and Private Sector Development Cooperation AusAID Port Moresby
Mr. Ali Noore First Secretary, Economic Department of Foreign Affairs and Trade
Treasury
Mr. Gary Johnston Chief Adviser International Economic Group Department of Treasury
Mr. Mark Sewell Program Manager International Finance Division Department of Treasury
Mr. Ewen Waterman Executive Director, Access Economics
CHINA
Mr. Shi Longzhuang Head of Delegation Consular Embassy of China Port Moresby
Ms. Jee Lee Embassy of China Port Moresby
FRANCE
H.E. Thierry Bernadac Head of Delegation Ambassador of France to Papua New Guinea French Embassy Port Moresby - 28 - AnnexI
Mr. Jean-Yves Marquet Attache Financier Embassy of France Tokyo
Mr. Hubert Dugu6e First Secretary Consul of France Port Moresby
JAPAN
Mr. Tatsuo Tanaka Head of Delegation Ambassador of Japan to Papua New Guinea Embassy of Japan Port Moresby
Mr. Yuji Okada First Secretary Embassy of Japan Port Moresby
Mr. Mitsushi Edagawa Second Secretary Embassy of Japan Port Moresby
Mr. Akio Miyajima Director, Oceania Division European and Oceanian Affairs Bureau Ministry of Foreign Affairs Japan
Mr. Keiichi Matsui Assistant Director, Oceania Division Ministry of Foreign Affairs Japan
Observers
Mr. Hiroshi Suzuki Director, Division 3 Development Assistance Department I Japan Bank for International Cooperation(JBIC) Japan -29 - Annex I
Mr. Iwasaki Kaoru Resident Representative Japan International Cooperation Agency (JICA) Port Moresby
KOREA
H. E. Yo Hanjohng Ambassador Extraordinary and Plenipotentiaryof The Republic of Korea to Papua New Guinea
NEW ZEALAND
Mr. Craig Rickit Head of Delegation Acting High Commissioner New Zealand High Commission Port Moresby
Mr. Mike Shaw Second Secretary New Zealand High Commission Port Moresby
UNITED KINGDOM
Mr. Michael Plumb Deputy High Commissioner British High Commission Port Moresby
UNITED STATES
H.E. Arma Jane Karaer Ambassador of United States to Papua New Guinea United States Embassy Port Moresby 30 - Annex I
MULTILATERALAGENCIES
ASIAN DEVELOPMENT BANK (ADB)
Mr. Basudev Dahal Head of Delegation Director Office of Pacific Operations Manila
Mr. Cedric D. Saldanha Manager, Area B Office of Pacific Operations Manila
Mr. Steven H. van der Tak Sr. Programs Office/Economist Office of Pacific Operations Manila
Mr. Bruce Knapman Macroeconomist Office of Pacific Operations Manila
Mr. Helmut S. Marko Project Implementation Officer, PNG Office of Pacific Operations Manila
Mr. Michael Heppell Governance Specialist Strategy and Policy Office Manila
COMMONWEALTH SECRETRIAT
Mr. Semisi T. Fakahau Chief Programme Officer Agricultural Development Unit Export and Industrial Development Division London - 31 - Annex I
EUROPEAN COMMISSION
Mr. Juan Carlos Rey Head of Delegation Head of Delegation European Commission Port Moresby
Mr. Richard Applebee First Counselor European Commission Port Moresby
INTERNATIONAL MONETARY FUND (IMF)
Mr. Roger Kronenberg Head of Delegation Advisor, Asia and Pacific Department
Mr. Mohammed Tareen Senior Economist, Policy Development and Review Department
Mr. Geoffrey Oestreicher Economist, Papua New Guinea
Ms. Karen Ongley Assistant to the Executive Director, Papua New Guinea
FORUM SECRETARIAT
Mr. Rima Ranusiro Trade and Investment Forum Secretariat Suva, FIJI
UNITED NATIONS
Mrs. Elizabeth Reid Head of Delegation Resident Coordinator of the UN & UNDP Resident Representative Port Moresby
Mr. Michael Dalton Project Manager The Office of National Planning UNDP Port Moresby - 32 - Annex I
Dr. Ruth Stark WHO Representative in Papua New Guinea Port Morebsy
Mr. Birat Simha UNFPA Representative Port Moresby
Mr. Nazar Memon UNICEF Office-in-Charge Port Moresby
WORLD BANK
Mr. Klaus Rohland Chairperson Country Director
Mr. Bilal H. Rahill Country Officer
Mr. Cyrus Talati Senior Economist
Mr. Dan Weise Resident Coordinator
Mr. Peter Osei Research Analyst
Ms. Danielle Tronchet Operations Analyst
EXECUTIVE DIRECTOR FOR PAPUA NEW GUINEA
Mr. Neil Hyden - 33- AnnexII
EIGHTH MEETING OF THE CONSULTATIVEGROUP FOR PAPUA NEW GUINEA
Port Moresby: November 8-9, 1999
Agenda
Monday, November 8
9:00 a.m. A. Opening Session
1. Opening Statement by Chairman 2. Welcome Message from President Wolfensohn 3. Approval of the Agenda
9:30 a.m. Opening Statement by H.E. Prime Minister Sir Mekere Morauta
10:00 a.m. B. Recent Economic Developments
4. Statement by Secretary Koiari Tarata 5. Statement by Governor Wilson Kamit 6. Statement by IMF Delegation
11:00 a.m. Coffee Break
11:30 a.m. 7. General Discussion
12:30 p.m. Buffet Luncheon
2:00 p.m. C. Governance and Performance: The Reform Agenda
8. Statement by Chief Secretary Robert Igara 9. Statement by World Bank Delegation 10. Statements by Other Delegations 11. General Discussion
3:45 p.m. Coffee Break -34- Annex II
4:15 p.m. D. Improving Development Effectiveness
12. Statement by Hon. Moi Avei 13. Statement by World Bank Delegation 14. Statements by Other Delegations 15. General Discussion
6:00 p.m. E. Press Briefing
Tuesday, November 9
9:00 a.m. F. External Assistance Requirements
16. Statement by Secretary Camillus Midire 17. Statement by World Bank Delegation 18. Statements by Other Delegations
10:30 a.m. Coffee Break
11:00 a.m. G. Closing Session
19. Closing Statement by Hon. Moi Avei 20. Other Business 21. Arrangements for Next Meeting 22. Closing Statement by Chairman
12:30 p.m. Buffet Luncheon
2:00 p.m. I. Press Conference -35- Annex III
Eight Meeting of the Consultative Group for
Papua New Guinea
Port Moresby: November 8-9, 1999
Chairman's Opening Statements
Prime Minister Morauta, Ministers, Officials, Ladies and Gentlemen, Friends and Colleagues:
I welcome you to this Eight Meeting of the Consultative Group for Papua New Guinea, the first I believe to be held in Port Moresby. I'll have the pleasure of chairing this most important meeting for PNG and its development partners. This meeting should provide us with a fresh start in out efforts to consolidate our support for the implementation of PNG's economic and development agenda. While this meeting was long in the planning, its is nevertheless very timely, as the government has announced a solid policy platform supporting economic development and structural reforms, which will be the subject of much discussion today and tomorrow. The 2000 budget is also well advanced and will soon be considered by Parliament.
We are fortunate to be in the presence of Prime Minister Sir Mekere Morauta this morning. He will be addressing this meeting in a few minutes. I know I speak on behalf of all of us when I mention how much we value your leadership since taking office in July. We support the vision you have set forth for the country and very much appreciate the positive tone you have set for our dialogue.
The agenda we have prepared should provide us with an opportunity to review recent economic developments. But looking back is not what this meeting is all about. Its clearly about looking forward and the road ahead. The meeting should therefore allow us to assess the Government's plans to address pressing macroeconomic issues and the human development needs of the people of PNG. The country and its leaders must stand together in supporting renewed economic vigor and a new commitment to social development and poverty alleviation.
I would like to share with you my own aspirations for this meeting and set some objectives for us for the next two days.
First, we will need to be updated on PNG's economic and reform program. We will also need to achieve a common understanding of the status of discussions between the GoPNG and the multilateral agencies that have been asked to support PNG's stabilization and reform efforts. This we will cover in this morning's session on economic developments and this afternoon when we examine developments in the reform agenda in more detail. - 36 - Annex III
Second, it will be important that we all achieve a common understanding of the interlinkages that are being considered between the bilateral and multilateral offers of assistance. The question we are trying to answer here is how will the various assistance packages be sequenced and what are the pre-conditions or milestones for unlocking funds. For example, I know that many of you are thinking of linking your assistance to agreements between PNG and the IMF and/or World Bank, in effect proposing a form of co-financing. We owe it to PNG to make our views and positions on this matter as clear as possible so that there is as little confusion as possible regarding next steps and the road ahead.
Thirdly, we need to take stock of the modalities and effectiveness of our donor coordination, both within country and between capitals/headquarters. It is our common responsibility to be supportive and responsive to PNG's development strategy and priorities, and we must therefore endeavor to improve the effectiveness of our respective programs. In this regard, we could discuss options in furthering the leadership role of the country in donor coordination, on terms and modalities which are satisfactory to PNG's development partners. We will examine questions relating to this issues this afternoon.
Finally, we will of course update each other on the status of our programs and plans for the future. We will do this while keeping in mind that the format of this meeting does not allow us to get into the details of every activity proposed by agencies or countries.
I encourage you to be open and forthright and to have confidence in this group's capacity to deal with any situation, no matter how difficult it may be. If this meeting is to be of any value then we must deal with the more difficult issues in an open manner. To speak openly about difficult issues would be to me a sign that this forum serves an important purpose.
We have a very busy agenda ahead of us for the next two days. I for one am looking forward to hearing Prime Minister Morauta address this meeting so I will stop here.
Thank you very much and I look forward to catching up with all of you during the social events planned over the next two days.
I am also pleased to report that the Bank's President, Mr. James D. Wolfensohn, very much wanted to address this meeting and that he recorded a brief welcome message which I propose we listen to now.
Klaus Rohland. - 37 - Annex IV
Check Against Delivery
World Bank President James D. Wolfensohn's Address Consultative Group for Papua New Guinea November 8, 1999
I would like to thank Sir Mekere Morauta and his governmentfor welcoming this Consultative Group in Port Moresby and to say how very glad I am to be able to attend by medium of this video I am sending to you. It comes with my very best wishes to the Prime Minister and his cabinet for the work that they have undertaken in setting a new course for Papua New Guinea. We have felt that for some time a major change was necessary and we are surely delighted with the progress that's been made by the government in terms of framing macroeconomic plans and dealing with the type of sectoral reforns that are clearly going to be necessary for the achievement of the objectives of the people of Papua New Guinea. The challenges,of course, are very great but they are not so great that we can't give assistance to the government in helping them to achieve their objectives. Much has to be done on the economic front and much on the social front, to improve the conditionsof the lives of the averagePapua New Guinean.
We very much support the outline program as expressedby the Prime Minister and let me just remind you of the importantplanks of that program; to restore the integrity of private and public institutions, to focus the governmenton doing a few things well by reducing it's involvement in numerous activities through a comprehensiveprivatization program, and to reduce private sector cost by reducing utility cost and removing impediments to investments and business. These are of course the central planks for development of the country, combined of course with a vigorous campaign against corruption, which is so necessary in all the countries in which we operate. We were delighted that the government prepared to choose for these meetings a. strategic development plan. We believe that establishing a medium and a long term set of objectives, determined not just by governmentbut with consultationswith various sectors of society and presenting that in a way that one knows not only the contribution of the Government, but organized and rational contributions by multilateral and bilateral donors, by civil society and by the private sector. That this type of strategy is what is essential to an effective development.And I say effective developmentbecause in today's world effectiveness and measurement of effectiveness has become a watchword of continued aid and development assistance. We know that this government has it's own objective, effective development, so we feel very comfortableindeed to be working with the governmentalong these lines.
We know in the coming days a lot of talk will be held around macroeconomic plans, the size of the budget, the finances, and these are extraordinarily important elements in determining the growth pattern of the country. But I know that the objective of this government,which we share, is to insure that the average lives of the individual are met. There are significant social challenges. There are challenges in terms of poverty. There are challenges caused by distance and ethnic differences in the country and what we are anxious to do is to work with the government in every way we can, to be supportive not only on the financial side, but in the extraordinarytasks that you have to bring social benefits to the people of your country. We are delighted to be working with you again. We look forward to the associationand you can be assured of our enthusiastic support.
-39- Annex V
PRIME MINISTER PAPUA NEW GUINEA
Presentationto ConsultativeGroup and Friendsof PapuaNew GuineaMeeting
By Hon MekereMorauta, Kt MP
Prime Ministerand Treasurer
Port Moresby
08 November1999 Mr. Chairman, ladies and gentlemen, welcome to Papua New Guinea.
Papua New Guineahas been an independentstate for almost25 years. But we have not done well in terms of improving the lives of our people. We are nowhere near realising the nation's potential.
We can do better. And we will do better. We will start to deliver adequate education, health and communications to our villages and settlements, where most of our people live. With decent services, our people will be able to participate more productively in economicactivities. That is the key to sustainedgrowth and better livingstandards.
Restoring,then improvingthese basic serviceswill need better policies as well as more resources. But the problems go deeper. We need to rebuild the foundationsof good government.Otherwise, even the best policy intentionswill not lead to tangible and sustainedimprovements on the ground.
In our first 100days, my Governmenthas startedto tacklethese problems.
We have made some hard decisions, which have begun to stabilise the terrible macro-economicsituation we inherited. We are beginning to tackle some blatant problemsof corruption.We are startingto restorea more orderlyprocess of government. We are makingpleasing progress towards a lastingpolitical solution to the long-running conflict in Bougainville.We are also workinghard to re-establishprofessional working relationswith the rest of the world.
I think we have demonstratedour seriousnessof purpose.Now we need to maintain a consistentpace of reformfor the full term of this Government.
We will only be able to do so with considerablehelp from friends in the international community.In that sense,this meetingis very importantand very timely. -40 - Annex V
We greatly appreciate that you have made the effort to travel to Port Moresby for this Consultative Group meeting, the first in four years. I believe this meeting will mark a watershed in the development of Papua New Guinea.
I have been greatly heartened by the expressions of encouragement and increasing confidence from the international community. I particularly appreciate the formation of the new Friends of Papua New Guinea group and welcome their representatives to this meeting.
At this meeting, we need to confirm significant short-term support, alongside an International Monetary Fund program and the support already provided by the Australian Government. Such support will stabilise the economy.
Only then will we be able to turn our full attention to longer-term fundamental issues.
In tackling our problems, we intend to learn from experience. Not only our own, but that of others. During the past few decades, many governments have had to confront the kinds of problems we are facing. Some have been very successful but there have also been some obvious mistakes. It is clear which development strategies work better than others - those are the ones we intend to adopt.
Our friends in the international community, represented at this meeting can help us with their ideas, as much as with financial resources.
There are many things I would like to fix straight away. But things take time. Vested interests created by our past mistakes cannot be wished away. We need to sort out what must be repaired or strengthened most urgently, to build the momentum and political support for other reforms to become more acceptable. If we promise too much to our people, or to you, there will be disillusionmentall around.
Basic objectives
My government's economic policy reform program is focused on the five key challenges I outlined to Parliament on the day we took office. These are:
1. to build a lasting peace in Bougainville.Prospects for that continue to improve; 2. to remove, systematically, obstacles to growth and development; 3. to stabilise the currency and the national economy; 4. to restore order to the national budget; and 5. to strengthen Papua New Guinea's institutions of state.
We need to tackle two sets of obstacles to growth:
* serious weaknesses in the design and implementationof policy. * serious weaknesses in the level of skills and health of our people, combined with poor communications and weak respect for law and order. - 41 - AnnexV
Both these weaknesses stand in the way of the private sector driven economic development that we need. One blurs the signals; the other weakens the ability to respond to them.
Macro-economic stabiisation
To restore prospects for growth, we must put a decisive end to high rates of inflation and interest. These problems arose because of the previous govermnent's excessive budget deficits and excessive reliance on domestic borrowing. Almost complete exhaustion of foreign exchange reserves and a collapse in the exchange rate were the results.
The August 1999 Supplementary Budget began the task of economic stabilisation. A deficit of over 200 million Kina in the first half of the year was fumed into a surplus of 60 million Kina projected for the second half of 1999. That is a significant early step towards monetary stability, by reducing the Government's debt to the central bank.
The revised budget has already achieved a modest degree of stabilisation. Its timely endorsement by the IMF helped to restore confidence. The recent commitment of 80 million US dollars of short-term support from the Australian Government makes it possible to stabilise our foreign exchange reserves. The exchange rate has steadied.
Interest rates are also starting to fall. That is a useful start, but the external situation remains unacceptably vulnerable.
The day after the 1999 Supplementary Budget was approved, we began work on the 2000 Budget, which Cabinet endorsed last Friday. It is a budget that will increase the share of expenditure for development and basic services. It will also be a balanced budget. But that, alone, is not sufficient.
Clearance of more of the Government's excessive debt to the central bank must occur, if we are to rebuild foreign exchange reserves sufficiently to underpin a stable exchange rate. To pay for that, it will be essential to sell all significant Government owned commercial enterprises. It will take up to three years to do that properly, but Papua New Guinea needs to stabilise its economy now.
Therefore, we need substantial additional external financing for the 2000 Budget, alongsid,ethe stand-by program from the IMF. We hope that, between them, the Friends of Papua New Guinea will contribute several times the amount committed by Australia for 1999.
Once we stabilise the economy, we can move out of crisis-management mode and focus on longer-term challenges.
Strengthening management
Illiteracy, preventable diseases, poor communications and crime continue to be serious obstacles to growth. Government after government has promised to provide better basic services; but they have not been able to deliver. Why? - 42 - Annex V
First of all, we are trying to do too much, with too little, too quickly. Moreover, some of our policies are flawed, and thus send the wrong signals to enterprise or create fertile ground for corruption. Attempts to deal with policy problems have not been based on clear general principles, so they have led to inconsistencyand unpredictability.
An even more fundamental problem is that we lack the capacity to implement our policies. That needs to change. We intend to devote considerable effort, skills and resources to tackle this problem during the next three years.
We have started to strengthen the management of public expenditure. We not only need to live within available resources. We also have to make sure that scarce public funds are spent efficiently and productively.
Our capacity to monitor and manage budgets has been seriously weakened. Keeping the 1999 Supplementary Budget on track while framing the 2000 Budget has required an extraordinary effort from a few highly dedicated people. I thank them for their efforts.
But we need to put budget management on a more sustainable footing; strengthening procedures, looking for:
e greater transparency; * timely reporting and effective monitoring of performance; and * more accountability.
Future Budgets must be realistic, and must be implemented. That requires stepping up capacity for forecasting, debt and cash flow management.
We are about to enact legislation to ensure the future independence of the central bank and to increase substantially its powers and capacity to supervise all parts of the financial sector.
We are implementing measures to strengthen expenditure control at both provincial and national level. We need more timely reporting and more capacity to monitor these reports.
All these skill and resource intensive improvements are needed just to be able to manage fiscal and monetary policy. We would like to attend to all our other functions in the same way, but that is just not realistic. We have to reduce the currently excessive workload of government.
Towards more focused government
All around the world, governments are concentrating their efforts on what is really necessary. In view of our very limited institutional capacity, we must do likewise.
Moving towards more focused government can lead to important medium-term gains in efficiency. However, it is much more than a simple maker of load shedding or cost- cutting. - 43 - Annex V
The disastrous experience of the previous government shows that trying to eliminate lots of functions at the stroke of a pen does more damage than good. Trimming the scope of government needs to be based on careful, systematic reviews of functions.
Privatising, or contracting out activities currently carried out by public enterprise or public servants can only be expected to work well with adequate incentives for good performance. Very often, the best way to achieve that is to dismantle obstacles to competition embedded in our current set of regulations.
Deregulation
During the next 12-18 months, with your advice and assistance, we will review the structure of regulations and incentives for various forms of economic activity. This review will seek to promote closer adherence to some basic guiding principles, which reflect the way more successful governments have reamed to steer their economies.
As I have said in my Supplementary Budget speech, we are aware that rapid development is more likely in economies that are open to opportunitiesfor trade, as well as new ideas and investment. When we look around our region, we see that those who have been serious about opening to the outside world are the ones with the most rapidly improving standards of living.
We have already moved away from quantitative restrictions on trade and we see it in our interest to simplify and reduce the pattern of remaining tariffs. We share the goal of free and open trade and investment with our friends in the APEC community.
Review of government functions
Once we stabilise the macro-economic situation, we will begin a systematic review of the activities and resource requirements of all public sector activities. This time, with economic and technical co-operation from multilateral agencies and from APEC governments, we hope to get it right.
An important aim of the reviews will be to avoid duplication or poor co-ordination among levels of Government.
Even more importantly, the reviews will aim to concentrate more of the Government's attention and resources on delivering basic services to villages and settlements.
Accordingly, the review will begin with identifying the core public goods whose adequate provision requires Government involvement.
Privatisation
Within three years, the privatisation process we have launched will end the many headaches and the large past drain on public resources by the Government's so-called commercial enterprises. These are activities that should be able to operate profitably in a competitive and genuinely commercial environment. -44- Annex V
All proceeds from privatisation will be used to retire debt; thus repaying the external support we need, right now, to stabilise the macro-economic situation.
Privatisation is hard to get right. We need to do a lot of work to set up sensible sectoral policies and to restructure some enterprises before they are ready for sale. I have appointed Sir Henry ToRobert, our highly respected founding Governor of the Bank of Papua New Guinea, to manage the privatisation effort. We have also been able to secure access to advice from people of high international reputation and practical experience.
Division of labour
Successful privatisation will reduce the workload of Government. However, it will still leave Government with large responsibilities in areas like education, health and law enforcement. We will need to set policies to ensure that adequate financial resources are allocated and services are delivered.
But that does not mean that public servants need to be involved in all aspects of operations. I want a public service that focuses on setting policies rather than routine day-to-day tasks that can be better managed by others.
Many aspects of public works and maintenance are already contracted to private enterprise. In an environment of transparency, accountability and competition, it should be possible to arrange for a more substantial range of services to be delivered by the private sector.
Therefore, as we proceed to enhance the scope for competition, the forthcoming review of public sector activities and expenditures will seek to identify specific ways of reducing the day-to-day administrative workload of Government. Such a review, rather than across-the-board retrenchments, will lead to a smaller and better-managedpublic service.
Towards better government
I have already explained the urgent steps we are taking to enhance the capacity of the central economic management agencies. As soon as we can, we will extend this effort to the functions we need to retain. In all our activities, we will be seeking to enhance transparency and accountability.
Transparency
We can use more transparency within government itself. In the recent past, far too many National Executive Council decisions have been taken without considering their legislative, staffing and financial implications, let alone whether they are consistent, either with past policy or with any general principles of good governance.
We have reintroduced coherent procedures for preparing and reviewing proposals for National Executive Council decisions. We will make them stick. - 45 - Annex V
To help that, I intend to publish all National Executive Council decisions, unless there are over-riding reasons for not doing so. Making our decisions transparent will encourage us to think through issues carefully. It will also make it possible for others to point out and help us to correct inconsistencies and unintended adverse effects.
Government decisions are ultimately reflected in a large body of legislation and consequent regulations. Even as we begin our drive for reform, we are already experiencing bottlenecks in the capacity to draft sound legislation. We urgently need more resources to make better rules.
We also need to make sure that those who are expected to implement or to live by the rules have access to them and can keep up with changes. Modem information technology makes it possible to provide such access and transparency.
Reporting and monitoring
Most public sector agencies are required to report regularly, usually to Parliament. Very few do so, which makes it impossible to know whether the policies are being followed and whether they are achieving their objectives.
Poor reporting is reinforced by the weak capacity of others in Government to react to such information. Managers in most line agencies do not have the time to read, let alone prepare reports. And central agencies, such as Treasury and the Auditor General, lack the resources to vet reports thoroughly.
The important offices of the Attorney General and Ombudsman also need more, and more secure funding to allow them to spot and correct breaches of policy or illegalities.
We also need to upgrade, significantly, our capacity to gather and analyze social and economic indicators. Without that we will not know if our policies are leading to real overall improvements.
Accountability and incentives
Once we can monitor the execution and effects of policies, then we can begin to be serious about accountability.
We need to punish those who are guilty of gross neglect or misappropriation. But that is only one part of the answer. It is simply not practical to rely on sanctions alone. We need to find ways to reward good performance to obtain good results. It is simple to propose that pay be linked to performance. But it is difficult to do it without opening up new opportunities for nepotism or corruption. However, with care, it can be done. We will draw on international experience to devise a transparent way to begin rewarding better commitment, leadership and performance.
At the political level, we are revising our electoral and party membership rules to enhance accountability of Members of Parliament to those they represent and to link the - 46 - Annex V chances of re-election more closely to the successful pursuit of nation-wide as well as local interests.
Paying for good government
All these proposals for leaner and better government will take time and money.
Privatisation or contracting out current public sector activities requires care, with short- term costs to be faced before gains can be expected. In the medium-term we may be able to have a smaller and more cost-effective public service, but we all know that efforts to reduce the number of public servants leads to higher, not lower personnel costs in the short-term. Moving to better practices of reporting, information gathering, monitoring and evaluation also require sizeable establishment and recurrent costs.
So we face a dilemma. We are determined to have responsible budgets and live within available resources. But we can no longer afford to defer the direct allocation of more resources to providing basic services such as better education. Nor can we afford to defer devoting the resources needed to improve transparency, accountability and incentives for better performance. Without such reforms, a great deal of scarce resources will continue to be wasted.
The outcome of this meeting will in large part determine our ability to get out of this dilemma.
Conclusion
I have set out an ambitious agenda. I am mindful of the risk that these ambitions will not be followed up. Many new governments, not just in Papua New Guinea, start with high aspirations, but sink back into the swamps of weak and corrupt management.
If my reform agenda is to go beyond ambitious plans, we need three kinds of help.
Firstly, we need to see further commitments of 'routine' development assistance. There are many potential programs and projects to boost the availability and quality of basic services.
Last month, I signed an agreement for generous ongoing commitment of development assistance from Australia. I am confident that other friends around the table will also make forward commitments to sustained ongoing support.
The intended strengthening of budgeting and other government functions will allow us to make much better use of development assistance.
Secondly, as I have explained in letters to the heads of the governments and agencies represented here today, 1999 is not business as usual. We have steadied the economy to some extent, but the situation remains far too uncertain and vulnerable. As I said earlier for 2000 we are looking for a multiple of the support already committed by Australia and the People's Republic of China for 1999. -47 - Annex V
Together with balance of payments support from the IMF, such short-term support will allow us to escape from our current crisis-managementmode. Several of the Friends of Papua New Guinea have indicated they are considering their response. We hope to hear them at this meeting.
Thirdly, to make early progress towards more focused and better government, we need fast-disbursing structural adjustment. I am pleased with the progress of discussions with the World Bank and the Asian Development Bank about support for structural adjustments and public sector reform.
To get these reforms right, we will need advice and expertise as well as financial resources. There is a lot to be done. There is therefore plenty of room for several agencies to be involved. This meeting is an opportunity for the World Bank, ADB and the IMF to sort out how they can complement each other efficiently, to provide us quickly with the support we need.
Bilateral donors can contribute to our structural adjustment efforts in at least two ways. One is to offer to co-finance support for reform programs. The other is to make available to us some of the policy-makers who have been directly involved in the successful implementation of the kinds of reforms we want to make. That will prove a very positive example of economic and technical co-operation among APEC economies; sharing their diverse resources of information, experience, expertise and technology for mutual benefit.
Let me leave you with these thoughts. We are quietly proud of what we have achieved in the short time since forming the Government. We are eager to do more to improve our performance. We are also confident that your advice and indications of tangible support will make it possible to sustain the momentum of progress, allowing us to realise more of our potential.
Ladies and gentlemen, once again, welcome to Papua New Guinea. - 49 - Annex VI
"THE 2000 MACROECONOMICFRAMEWORK"
Consultative Group Meeting Port Moresby, 8-9 November 1999
Koiari Tarata, ISO Secretary for Treasury and Finance
Ladies and Gentlemen,
During the past two weeks we have reached agreement with the International Monetary Fund and the World Bank on the broad budgetary framework to be pursued in the year 2000.
Such framework was initially set out in very broad terms by the Prime Minister and Treasurer, and found the International Financial Institutions in accord with its overall thrust, including the basic objective of achieving a balanced budget.
In all my years of service with the Department of Treasury and Finance, we had never decided to use austerity measures such as those that form the basis of the 2000 Budget.
Following the decision taken by the National Executive Council, the appropriations for all departments and agencies were kept at their 1999 Supplementary Budget levels, with the exception of the six priority areas, namely health, education, infrastructure, primary industries, police and revenue generation.
The 2000 Budget framework was endorsed by Cabinet last Friday, and all the detailed infornation will be available only after it has been presented to Parliament. You will find some useful background in the material that we have prepared for this meeting. In the meantime, let me give you a few general indications of what the various components of the 2000 budget look like.
Salaries and wages are fully budgeted for, in line with the expected outcome for 1999. The approach taken in the past was often misleading. It involved under-budgeting first, and then over-spending on salaries and wages, in order to make the budget look good, but ignoring the outcome. Parliament was then forced to validate over expenditure when it had already been incurred. We do not want this to happen again. Given the decision by Cabinet to freeze all new recruitments, I am confident that the amount appropriated for these items will be sufficient.
The brunt of the adjustment therefore falls mainly on the goods and services the departments will have to work with. They will remain at the same nominal level set for the 1999 Supplementary Budget, without any adjustment for the decline in the exchange rate and the rise in inflation.
Even with the priority departments we have had to be very restrained, to ensure that we do not jeopardise the stated target of achieving a balanced budget. -50 - Annex VI
Regarding the statutory agencies that were either abolished or zero-funded under the 1999 Budget, a Cabinet decision last week confirmed that they will remain operational as authorities and will receive some funding in the 2000 Budget, until a proper review is undertaken.
When my staff showed me the outcome of their discussions with the departments, and the adjustments made between the SupplementaryBudget and the 2000 Budget, my reaction was: "This is not exciting, but given the excesses of the past this is what we can reasonably afford".
It is my hope that as we progress through 2000, the implementation of some of the measures included in our public sector reform agenda might free up resources that will give the budget a more exciting look.
We also did some streamlining in the 2000 Budget: all project-related expenditure was transferred from the recurrent to the development budget. This includes funding for projects in the provinces under the District Support Grants, the Mining Agreements and the Special Support Grants. In addition we allowed the development budget to increase both on the domestic funding and on the concessional loan component. This reflected our intention to ensure that the development budget received a substantive share of the additional resources available.
In summary, on the fiscal side of the macroeconomic framework, it can be stated that:
=> We will table in Parliament a balanced budget;
=> The off-shore extraordinary concessional loans that will become available following the agreement reached with the donor community will allow for a substantial reduction in domestic debt; and
=> We want to thank the World Bank for allowing the use of part of the Structural Adjustment Loan for one-off type of payments that will improve the economic productivity of the public service, or are essential for the structural reform program to be implemented.
The budget framework will impact on many other macroeconomic variables. As you all know the Central Bank is maintaining a very tight monetary stance. Interest rates on Treasury Bills and bank deposits with the Central Bank are at the present around 20 per cent. The Minimum Liquid Asset Requirement is at 25 per cent, while deposit and lending rates are around or above the official rates. If the budget is balanced, and the expected donor assistance materialises, the Governor Mr. Wilson Kamit, sitting here with us today, might consider it prudent and desirable to ease on the tight monetary stance pursued by the Bank of Papua New Guinea, which could result in:
=> Maintenance of a stable financial environment, with a stable exchange rate and a decline in inflation; => A decline in interest rates; => An increase in lending to the private sector; and - 51 - Annex VI
=> A reduction in the Minimum Liquid Asset Requirement, which at the moment stands at almost three times what is required for prudential purposes.
The combined impact of the budgetary and monetary framework, coupled with the expected off-shore extra-ordinary financing by donors, should see the foreign exchange reserves increase to a comfortable level.
The most important outcome of the framework highlighted above will be its positive effect on private sector confidence in the economic management of the nation's affairs. Following the recovery seen in recent weeks, we think that the outcome of this Consultative Group Meeting, combined with the passing of the 2000 Budget by Parliament, will establish a medium to long term stability, and assist in our aspirations for a sustainable long term growth in economic activity and employment.
Apart from the Budget itself, let me talk briefly about other economic indicators projected in the budget framework.
Real GDP is forecast to increase by 4.6 per cent in 2000 and real non-mining GDP is forecast to increase by 5.8 per cent.
The main contribution to increased GDP growth in 2000 is expected to come from the agriculture, forestry and fisheries sector. In particular, coffee output is expected to grow strongly after a weak year in 1999 and palm oil output should also con cinue to show solid growth. Output of timber products is forecast to remain at a relatively high level in 2000, consolidating the recovery experienced in this sector since 1998.
The construction sector is also forecast to contribute to stronger growth in 2000, with preliminary work expected to commence on both the Ramu Nickel and PNG-Queensland gas projects. These projects are also expected to provide some benefits to other sectors of the economy, although flow-on benefits from the gas project will be constrained by its relative isolation from major population centres.
Average CPI inflation is forecast to fall slightly to 13.0 per cent in 2000, as the price effects of the Kina devaluation remain an important factor. Inflation is then expected to slow as the exchange rate steadies in response to greater economic stability.
The GDP Deflator is forecast to rise by 0.8 per cent in 2000. The GDP deflator is more closely linked to movements in commodity prices than the CPI, and the medium term forecasts are consistent with the relatively stable outlook for commodity prices in general.
As far as wages and employment are concerned, some of the policies included in our structural reform agenda will allow private sector decision-making to take place in a more stable and transparent environment with less Government interference.
As interest and inflation rates will fall, private sector investment will increase, leading to improved employment opportunities for all Papua New Guineans. Similarly, the reduction in the rate of inflation will allow wage decisions to be better based. - 52 - Annex VI
Finally, the overall balance of payments is forecast to record a surplus of K364 million in 2000. Gross foreign reserves are expected to grow from 2000 onwards.
In my view these projections are an understatement of the potential developments for the year 2000 and beyond. Our models do not take into account the boost of investors' confidence in the non-mining sector, and the growth prospects following the recent adjustment to the real exchange rate, that makes our labour costs more competitive.
Before I conclude, let me add a few remarks on sormeother issues that I consider very important. It is fundamental for the efficient management of our limited resources that this Consultative Group Meeting evaluates some of the technical aspects of the relations between the Government and donors.
Specifically, the use of trust accounts for every single project has to be revisited. It is also essential to evaluate each and every project, and ensure that only those that are to be implemented are included in the 2000 Budget at a realistic level. This is specifically important in relation to projects funded through concessional loans that have an impact on the deficit level.
The Consultative Group Meeting is an opportunity for all of us to streamline our operations, strengthen coordination, and devise ways to improve the overall performance of the public sector and the economy at large.
In recent weeks we invested time and effort to put in place some mechanisms that will improve on the poor performance and results achieved from previous Structural Adjustment Programs. We acknowledge that this time around it is our own program that we plan to implement, with the help of the World Bank and other donors. During the next few weeks we will be working with the Bank towards sorting out some of issues already contained in our structural reform program, with a view to finalising agreement on a Structural Adjustment Loan early next year. The ownership of this program is ours, and no one could be held responsible if it fails except us.
We all know that we cannot allow this to happen.
Thank you. 53- - Annex VII
ADDRESS
TO THE
EIGHTH CONSULTATIVE GROUP MEETING FOR
PAPUA NEW GUINEA
BY
MR. L WILSON KAMIT
GOVERNOR BANK OF PAPUA NEW GUINEA - 54 - Annex VII
The stability achieved in the financial system in recent weeks, should be credited to the very strong endorsement the policies of the Government received from the Australian Govermment,expressed by the visits of very Senior Ministers, the Treasurer Mr. Costello, the Minister for Foreign Affairs, Mr. Downer, immediately after the change in Government and the very strong statement of support and the package of assistance of US$80 million by Prime Minister John Howard on his State visit to Papua New Guinea in October. All of this would not have been possible without the endorsement of the International Monetary Fund and the World Bank, of the basic thrust of our policies. This Consultative Group meeting of donors and friends of Papua New Guinea is the beginning, that has to lead to a medium to long term stability, in our financial and monetary system.
To assist the process of stabilising the financial system, the Bank of Papua New Guinea took some corrective measures, in September this year. The Standing Facility introduced earlier in the year, as an overnight deposit facility by the banks with the Central Bank, was abolished.
The Kina Auction Facility, introduced in 1995, for the purpose of assisting the banks, in managing their short term liquidity needs, was reinstated to its initial purpose.
The yield curve on Government securities was flattened with the anticipation that stability will be reinstated.
The exceptionally high interest rates, on the longer term maturities of Treasury Bills of 27 percent and above, brought down. These very high rates, were not passed on to the depositors, and did not ease the pressure on the exchange rate.
The Minimum Liquid Asset Requirement, was raised by five 5 percent to 25 percent, to indicate to the market, that the changes are not an ease in the monetary stance, they are house cleaning steps.
All the above measures taken in September, were discussed with the managing directors of the six 6 Commercial Banks and they all agreed that the cleansing is necessary. It was also agreed that the consultation process, established in Septemberhas to continue.
I want to thank the banks, for their co-operation and assistance, in stabilising the financial system. Without their assistance it would have been very difficult, given that there were no foreign exchange inflows from donors.
The system of on going changes to the monetary regime and instruments is over. All future steps will be taken after due consideration given to their impact on the monetary regime, and the banking system. The consultation with all effected parties will continue. The shooting from the hip stopped, and will not be used anymore.
The commitment by the Government to balance the Year 2000 Budget, combined with a planned substantial reduction in the domestic debt, should allow the Central Bank, to free itself from the juggling with the monetary stance and instruments. This was the order of 55 - Annex VII the day for the last two years The expected large inflows of donor funds, will be of great value to the stabilisation of the exchange rate and the projected outcome of lower inflation.
The Bank of Papua New Guinea will continue and maintain a tight monetary stance, until it will be convinced beyond any reasonable doubt, that the planned budged framework is implemented and the expected foreign exchange flows materialise.
Domestic official interest rates will remain relatively high, on average 15 percent in the Year 2000. Around three times higher than in Australia, which is the substitute financial market for Papua New Guineans. The experiments of the 1996 and 1997, years, in which under pressure from the Finance Minister, domestic interest rates were allowed to decline below the rates in Australia, should not be repeated. Papua New Guinea is still a developing country. Depositors and investors demand a premium on the funds held in the country.
The other subject that the Bank of Papua New Guinea took a very firm stand on is, the Pyramid Schemes, which are called by us Fast Money Schemes. The money is taken very quickly, it is slow and as we all know, never to be paid back. It is now in the hands of the State Prosecutor and the legal system.
The agenda for the financial sector reform, is detailed in the documentation presented to the Consultative Group Meeting by the Government.
Some of the reforms are to be dealt with in the short term, Central Bank independence, strengthening the regulatory and supervisory power and capacities of the Bank of Papua New Guinea, and bringing under its umbrella the regulation and supervision of the superannuation and life insurance industries. The reform will place a heavy burden on the management and staff of the Central Bank. The assistance of the donor community, and especially those directly assisting the Bank of Papua New Guinea, the International Monetary Fund, the Reserve Bank of Australia and the World Bank, is very much needed and greatly appreciated.
I hope that this Consultative Group Meeting will turn the tide, and the reforms we undertake to implement, will result in a long term stability in the price level, exchange rate and the financial system.
The many sleepless nights of the first few weeks of my Governorship, when the Kina was on a slow, but steady decline will be an episode of the past.
It is us Papua New Guineans that will have to make it happen, it is the donor community that will have to create the enabling environment and fund the initial stages.
Thank you
- 57 - Annex VIII
Statement by the International Monetary Fund Delegation (from transcription)
Mr. Prime Minister, Ministers, Ambassadors and distinguished guests, it's an honor for me to be here to speak with you today. My remarks are going to be short for two reasons. One is the very strong agreement that I find myself in with the much more eloquently put words of the Prime Minister, the Secretary, and the Governor. I think they very accurately and, as I said, eloquently set out the challenges the government has faced and the actions it's taken to address these.
The Fund mission, is here for this particular meeting to encourage donors about the progress we believe is being made here, and we're here to advance our own work, our own discussions with the government,which are being conducted very productively.
As has been pointed out, the government almost immediately upon coming into office 100 days ago--I think it was three or four weeks within coming to office--put together a supplementary budget that was an extremely important signal of the direction of things to come. It was an important signal because it was ambitious, because it, I think, came just in time to deal with what was truly a rapidly deteriorating fiscal position, and it demonstrated the government's ability--willingnessto address really tough issues and to do so quickly and courageously.
And, of course, it's still early days, but I share the impressions of others that the results do already appear to be coming in. Perhaps most importantly,through the reading of the markets, the financial markets themselves, the exchange rate has stabilized. Indeed, it has come off its lows a bit. And we think that that will likely be translated quite quickly into an improvement in inflation performance.
The budget performance itself--the new measures, the tax measures, spending restraint--from what we see looks to be well on course, and these are very encouraging developments.
As the Prime Minister and Secretary mentioned, we have been discussing policies that can be supported by a stand-by arrangement with the Fund. Those discussions are progressing very well. We, I think, are in large measure in agreement on the general macroeconomic framework. There is still more technical work to be done because both the government and we are determined that these numbers be more than just numbers that are put down on paper, but something that we understand and that really makes sense and adds up from the details up and from the top down in both directions. And that's the process that we're going through right now.
As the Prime Minister mentioned, this is also the time and an opportunity that cannot be missed to get the institutions, the institutions of government, institutions of the budget, institutions of central bank, in place so that this is not just another blip in the experience of stabilization and loss of stabilization.
We see this as an opportunity to achieve stabilization and achieve sustainable growth based on strengthened institutions. We see this work going on in a variety of - 58 - Annex VIII areas that have already been mentioned. The Central Bank Act, this is crucial work that's going on. I think it will very significantly change the way the central bank acts, the relationship between the central bank and the budget, and in turn, the disciplines that will be put back on the budget itself.
We are looking at other mechanisms with the government, detailed mechanisms to ensure that spending, particularly development spending, is well targeted and effective in meeting the real needs of services in the rural districts, addressing poverty, and building human and physical infrastructure for the development of the economy.
I think with those remarks I will end at this stage because, as I said, I think I share both the assessment of the situation that has been given by the authorities and I share their optimism about the outcome of the process and certainly the involvement and continued involvement and support of the International Monetary Fund.
Thank you. 59- Annex IX
OPENING STATEMENT BY THE AUSTRALIAN DELEGATION
AGENDA ITEM B: RECENT ECONOMIC DEVELOPMENTS
Australia appreciates the opportunity provided by this consultative group meeting to discuss priorities and programs with PNG and its development partners. As a major supporter of PNG's development efforts, we are keen to ensure we all work together to ensure that our activities are well targeted and effective in helping PNG to relalise its development goals. We are a strong supporter of an effective CG process: It can provide a key channel for PNG to advance its development agenda through positive dialogue with all partners.
PNG'S DEVELOPMENT CHALLENGES
PNG is clearly facing formidable long- term development challenges. While technically a middle - income country, economic statistics mask a dual economy where a significant proportion of the people live in poverty.
Poor health and social indicators show that poverty is a real problem. Life expectancy and maternal and child mortality rates indicate that primary health care is still limited. One in twelve children die before the age of five, infectious diseases claim far too many lives, and there are serious public health risks from endemic diseases such as malaria. In Education, Participation rates for primary schooling are improving, but remain lower than in many equivalent countries in the region.
Much of PNG's difficulty in delivering basic social services stems from limited capacity in areas such as financial management, planning, implementation, and performance monitoring at the national and provincial levels of government. These weaknesses also have the unfortunate consequence of retarding private sector development and investor confidence. Addressing these capacity gaps remains an important development priority.
AUSTRALIA'S COMMITMENT TO ASSIST REFORM EFFORTS
The Australian Government has welcomed the commitments made by the Morauta Government to date to address these structural issues. The 1999 supplementary budget was an important first step in restoring fiscal stability. Australia also welcomes improvement in dialogue between PNG and the international financial institutions and the willingness by PNG to Utilise the technical assistance being offered by donors. Together, these developments constitute a window of opportunity. PNG and its development partners must move decisively, or risk losing the chance to move the country onto a higher development path. As a long-standing friend of PNG, Australia is prepared to help where we can to support development and the reform process.
The signing of an new aid treaty by Prime Minister Howard and Prime Minister Morauta in October was a reflection of our commitment. Under this treaty, ODA levels will be - 60 - Annex IX
held at a nominal maximum of AUD 300 million through until 2003, subject to agreed performance benchmarks. This is equal to one fifth of Australia's total aid effort.
The new treaty provides a robust framework for Australia's aid program to PNG. A heightened focus on governance will see a growing proportion of the program devoted to rewarding and encouraging good performance by organisations inside and outside the government. The primary means of achieving this will be trough a new mechanism known as the incentive fund. The quality and effectiveness of our aid interventions will also be more closely monitored through a strengthenedsystem of benchmarks.
Prime Minister Howard also announced a USD 80 million finance facility to be made available as soon as PNG signs a letter of intent with the IMF. This funding will be over and above the funds provided under the aid treaty. As Prime Minster Howard noted, Australia also remains ready to consider additional assistance once an IMF stand-by arrangement with PNG is in place.
In August this year, Australia was also able to advance the final AUD 35 million in budget support payments due to PNG. This is a reflection of our willingness to be flexible to support the reform effort in PNG.
CHALLENGES TO COME
Despite the encouraging progress being made, however, there are clearly still major challenges facing PNG. It will be critical that the 2000 budget provides a solid foundation to address poverty.
It will be vital that the budget is set with sound economic parameters. Recent increases in commodity prices have helped the Kina to stabilise. But having a responsible budget bottom line will also be important to ensure that further pressure is not put on the currency. A transparent process of privatising key assets will need to be a key element of the budget.
It will also be critical to address governance issues, such as promoting the rule of law, strengthening civil participation and improving economic management and planning. Improving the effectiveness of service delivery in areas such as health and education is vital if large numbers of people, particularly in remote rural areas, are to be given a chance to improve their situation.
In our view it is critical that PNG enter into a formal program with the IMF and World Bank as soon as possible. We hope that negotiations over the next few months can be conducted with the same level of flexibility and good faith on both sides as shown n the past few months. Aside form the obvious direct financial benefits; entering into formal IFI programs would be the best possible signal that PNG could give to prospective investors - both domestic and foreign. - 61 - Annex IX
DECENTRALISATION WITH ACCOUNTABILITY:REFORM OF THE RURAL DEVELOPMENT FUNDS
One area in which it will be critical to reach agreement is in how responsibility for development programs can be decentralised in a way that ensures there is still an appropriate level of transparency and accountability.
Clearly there is a need to ensure that decisions about development priorities are made by institutions as close as possible to the community or grass-roots levels. This is one of the fundamental thrusts of PNG's Organic Law.
But decentralised schemes also need to be transparent, accountable and linked to national planning priorities
In this sense, we support the government's efforts to reform rural development funds in a way that will increase transparency and accountability. Australia would be prepared to consider supporting efforts to strengthen sub-national government agencies as well as to provide support for development activities identified in a transparent and accountable way.
COORDINATING PUBLIC SECTOR REFORM
We applaud the PNG Government's efforts to introduce a comprehensive program of public sector reform. The PNG Government itself has to own and drive the reform program and must, at the end of the day, be responsible for providing the services required to help people throughout the country to improve their living standards. Australia is ready to provide support for the central institutions of government, such as Treasury, the Bank of PNG and the Department of Personnel Management. We would also be happy to support the privatisation effort in PNG..
Effective donor coordination and cooperation in the area of public sector reform is, however, a fundamental prerequisite to maximising the value of aid. The commitment to reform shown by the current government upon taking office has resulted in a significant increase in technical assistance flowing into PNG form several sources, including Australian Government Departments, the World Bank, the ADB and the IMF.
We encourage PNG to take a lead in setting out a blueprint for donor assistance in the area of public sector reform as well as introducing effective coordination mechanisms that will enable all interested donors to remain inforrned of the reform process and continue to provide support in a coordinated and effective manner.
CONCLUSION
Australia is heartened by the commitment of the current PNG Government to an ambitious reform program. But the challenges still remain significant. Alleviating poverty and ensuring the economy is on a sustainable economic growth path will be a long-term process. - 62 - Annex IX
At the end of the day, donors can assist the development process, but only the PNG Government can really drive it. In our view, the supplementary budget that was handed down in August constituted a solid step forward for the reform process. The challenge now is to keep the impetus for reform moving. We look forward to seeing this happen in the 2000 budget. But this will not be an end in itself - only a new foundation.
Finally, we believe there is scope for some cautious optimism regarding PNG's prospects over the short to medium term. Though the challenges are great, a chance exists to fundamentally raise the development prospects of the entire country. But the risks are high. A shared sense of urgency will be essential if we are not to all meet again at the next CG, only to reflect on the reasons why the opportunity that exists today has slipped away. We look forward to playing our part now. - 63 - Annex X
The Government of Japan's Written Statement to the Papua New Guinea ConsultativeGroup Meeting, Port Moresby, 8-9 November, 1999
Mr. Chairman, The Honourable Prime Minister, The Honourable Members of the Cabinet, distinguished delegates, ladies and gentlemen:
1. Recent Economic Development
(1) Until recently, the macro-economic situation in Papua New Guinea was adversely affected by the Asian economic crises and other international factors and also by some domestic factors such as the drought and the tsunami disaster coupled with political instability in the country.
In August this year, the new Govermmentunder Prime Minister Sir Mekere Morauta introduced the revised supplementary Budget, which aimed at the financial and budgetary stability, taking such positive measures as expenditure cut and revenue increase, and suspension of domestic borrowing. The Government of Japan supports its policy direction. The budget is contributing to recovering the market confidence of the country as has been shown by the strengthenedkina.
(2) At the same time, we recognize that Papua New Guinea is blessed with natural resources, but these are not leading to the economic development that benefits Papua New Guinean standard of living, and the subsistence and semi-monetary activities in traditional village communities still play a major role in the people's life. While those traditional village economies offer safety-net, the influx of people from rural areas to urban city centers leads to increasing poverty in major cities in the county. We consider therefore that poverty alleviation measures in cities is a major task for the government to do to improve the law and order situation.
(3) The Government of Japan regards that the 1999 supplementary Budget was in principle set in line with the Medium Term Development Strategy, and the year 2000 Budget, by incorporating recommendations and advice from the IMF, the World Bank and the other institutions, will be a key factor for getting the Papua New Guinean economy to the right track for recovery.
-65 - Annex XI
PNG Consultative Group Meeting - 8-9 November 1999 Asian Development Bank Statement On Recent Economic Developments
Allow me, at the outset, to thank the Government and the World Bank for the excellent arrangements for the meeting. We also appreciate the various background documents prepared by the Government, the World Bank and the IMF.
The IMF's and the World Bank's diagnoses of recent economic developments in PNG are comprehensive. We agree with these diagnoses and support the recommendations. PNG was badly hit by external developments over the last few years - particularly the drought, and the effects of the Asian financial crisis. However, the impacts were greatly exacerbated by internal developments. For various reasons, the quality of economic decision-making and fiscal management deteriorated, and efficiency and transparency of public sector management has suffered. One significant result was a serious loss of confidence. The new Government's initial policy decisions and related actions have been encouraging. One of the most significant moves has been to resume serious dialogue with key non-government stakeholders within PNG and with the international community.
The results are positive and encouraging:the reserves are recovering, and the kina is stabilizing. Obviously improved external circumstances have helped -commodity prices have risen and agriculture exports improved. The Australian Government's rapid response has been the most critical: bringing forward budget support as well as direct balance of payments support. The ADB will also be making a contribution soon to resolving the immediate fiscal difficulties - we are bringing forward to this month the release of the second tranche of the Health Sector Development Program. It is critical that the Government also secure assistance as soon as possible from the IMF and from the World Bank. This will open the way for assistance from other sources as well as reinstitute confidence of the international community in PNG.
The short term difficulties have to be put in the context of the overall problem, which is the failure to translate considerable resources into broad based sustainable development, improving the standard of living of the majority of the people and especially addressing the growing problem of poverty. The Government has been making encouraging progress in developing the necessary reform program to address these broader problems. Perhaps most important, and certainly very impressive from our viewpoint, has been the process of dialogue and consensus building through which this reform program is being developed. This is essential to ensure that the new reform program is implemented with proper resolve.
While the Government faces formidable challenges on a variety of fronts, the essentials of a successful recovery appear to be in place:
* The new government continues to command the respect and support of the people; * The initial fiscal difficulties are being surmounted with the assistance of stringent expenditure cuts, and emergency external assistance; - 66 - Annex XI
* The Government appears committed to take on the longer term structural adjustment issues and has already begun this process, and * And key donors have responded to the need and have gathered here today to offer support.
A major task now is to ensure political continuity and stability to allow for the reform process to take deeper root and establish its own sustainable momentum. We are encouraged by actions being taken by the Government in this area. We urge you to continue your focus on this. And perhaps your wisest strategy in this regard is to allow for your actions to speak for themselves. - 67 - Annex XII
Statement by the European Commission Delegation (from transcription)
Thank you very much, Mr. Chairman, Prime Minister, Members of the Cabinet, Friends of Papua New Guinea. The European Commission very much welcomes the convening of this meeting. This is a great opportunity for donors to meet collectively with the new government and also to have an open discussion concerning its policies for reform.
There can be no doubt that the meeting is held now in a very critical time for Papua New Guinea. We have read carefully the documents circulated by the World Bank, and the panorama is not the best.
Like other donors here around this table, Prime Minister, the European Union has maintained a consistent level of support to the development of Papua New Guinea for the past quarter of this century.
We share the conclusion of the World Bank that the root of the social and economic problem of Papua New Guinea lies in the issue of the governance. Good governance is one of the principles to which the signatories to the Lome Convention have committed themselves.
It's important, I will say vital, for continued aid flows that the structure and practices of government should create confidence that those funds are used in the environment which ensures sustainable development. In this respect, we are encouraged by the policy statement by the new government and several steps which have been taken to implement them.
I would like to make reference to resumption of negotiation with the World Bank and IMF, the action taken through the supplementary budget to strengthen the fiscal policy and reduce the budget deficit, the rethinking of the retrenchment program, the launching of the national dialogue on reconstruction and development, the action taken to eradicate corruption, notably through the integrity of political parties and candidate bill, the deliberation of the constitutional development commission, and the review of the government-funded contracts, the initiative taken by the government to achieve privatization in the economy, in particular the establishment of the privatization comnuission.
We are also very supporting with your decision to assure the independence of the central bank.
We are expecting to see with details the budget of 2000, but we are from now and from this position this morning, we are sure that we'll be able to maintain a fiscal and budgetary discipline.
At this point, Prime Minister, I wish to make mention to the Rural Development Fund. This question will be treated with more details in the future interventions. - 68 - Annex XII
At the time when the development budget is likely to be constrained under the macroeconomic reform program, it is doubly important to donors that this fund should be deployed in the clear, planned way in support of national planning priorities. Transparency, accountability, clarity of reporting, and objective criteria for project selection are very important.
I wish to reaffirm that the European Commission will support a clear and sustainable program of macroeconomic reform in Papua New Guinea. We encourage the government to reach agreement with the IMF and the World Bank on measures to establish and structurally reform of the economy. If this happens, the European Union will be in the position to consider deploying the structural adjustment facilities for next year.
Finally, Prime Minister, I would like to take this opportunity to express the full support to the overall reform program announced by your government, and we recognize openly that will require a very--a lot of courage and sometimes difficult decisions.
Thank you very much. - 69 - Annex XIII
EIGHT CONSULTATIVEGROUP MEETING FOR PAPUA NEW GUINEA
Intervention by Elizabeth Reid, Resident Coordinator of the United Nations
Agenda Item B: Recent Economic Developments
The United Nations family in Papua New Guinea wishes to congratulate the Prime Minister and his team of close Ministerial advisers on the progress made in moving towards macro economic stabilization and, at the same time, initiating processes of widespread consultation about the type of development this macro-economic stabilization will facilitate.
These parallel processes of consultation include:
* The Development Forum: which brought together the private sector, NGOs and government; a National Dialogue: which brought together provincial, district, local level government officials with national government officials; Ongoing consultations and negotiations with Provincial governors and administrators on development priorities and their inclusion in the Budget 2000.
These consultations have resulted in a reaffirmationof the vision of the Founding Fathers of the nation and that of the incoming Government.
The United Nations wishes to make just one small contribution to this discussion of the recent economic developments in PNG.
It is timely to recall that there is no automatic link between economic growth and human development, or equitable sustainable development, in the words of the World Bank.
Neither economic growth nor advances in human development are sustainable without the other. However, economic growth, if not properly managed, can be detrimental to human development, especially, when it is:
* Jobless, i.e. growth without the creation of jobs/livelihoods;
* Voiceless, i.e. growth without the participation of people in its management;
* Ruthless, i.e. growth that benefits the rich at the expense of the poor;
* Rootless, i.e. growth which leads to a loss of cultural identity; or
* Futureless, i.e. growth where the present generation squanders the resources held in stewardship for future generations. - 70 - Annex XIII
Because of this, the links between economic growth and human development must be deliberately forged and regularly fortified by skilful policy management.
In particular, economic growth which creates employment is critical for translating the benefits of economic growth into an improvement in the lives of people, the key social objective identified by the Prime Minister. With growth, job opportunities normally expand, but the process is not automatic. It requires employment generating growth strategies.
The macro-economic objectives of this Government and its social objective are linked and will need to be well managed. - 71 - Annex XIV
Agenda Item C. GOVERNANCEAND PERFORMANCE: THE REFORM AGENDA
"Improving CovernanceAnd Performance"
Speaking Notes by Mr. Robert Igara, Chief Secretary to Government, to the Consultative Group Meeting on Papua New Guinea Monday 8th November 1999
1. Openingformalities
2. Beinginvited to speakon "improvinggovernance and performance"is an obvious invitation to address issues in the World Bank Report with the same title:
- but, like the WorldBank Reportitself, the terms employedare so broad that, apart from inviting us to look forward and to focus on making things better ("improving"), they achieve lime more than remind us how much has to be done to improve the way in which power / authority / public affairs are managed (including governance in the private sector), and to achieve better outcomes / results.
3. The address by the Prime Minister this morning provides a clear statement of what the Government wants to achieve, the issues involved, and the main elements of PNG's reform agenda.
4. My intention here is to speak on the issues involved, from a public service perspective, in translating the Government's reform agenda into action, and how the process needs to be managed. I would also like to remind us of the title of this gathering ... "Consultative Group"... which suggests that we ought to spend some time on sharing thoughts on how Papua New Guinea and the International Community can work together to achieve our shared objectives.
5. The very fact that we have not brought the CG together for four years - while many vitally important socio-economic indicators were known to be slipping - an eloquent comment on what needs to be done to mobilise, allocate and use resources better, including your advice and support,
though your willingness to attend at short notice and the very existence of the Friends of Papua New Guinea show very clearly that we are not, and do not have to be, on our own.
6. Current socio-economic indicators remind us how much needs to be done - especially, when we consider what Papua New Guinea's natural and human wealth, - 72 - Annex XIV
including a strong and continuing subsistence sector, together with relatively high per capita rates of external assistance, would allow us to do.
7. If the record is not good - and, in some cases, disgraceful - then there is need to ask why? While we need to take a holistic approach to the many diverse and inter-connected problems/challenges we face, we must also recognise that we cannot proceed at the same rate on every front. We must therefore ask what our priorities should be?
* while the first question, why?, draws our attention to the availability of resources (which includes not only the Budget and foreign aid but a population which is less healthy, not as well-educated and with shorter life-expectancy than we should be),
* the second question about priorities reminds us that our discussions are being held in a democracy where Governments change, people are free to express and organise themselves, and leaders are made / unmade by public opinion.
8. Explaining Papua New Guinea's present predicament requires us to distinguish between different kinds of problems / shortcomings / challenges:
X those which find their origins even before colonial rule (certain diseases, low life expectancy, lack of certain kinds of experience and skills)
* those which have arisen / become worse as a result of slippage from previous achievements (decline in services / maintenance, often following improvements which have since independence)
* those which are relatively new (AIDS, rapidly rising population, urbanisation)
9. Some are more clearly within Government's grasp (budgeting so that services can be properly staffed, supplied and run) than others (increasing birthrate, spread of new diseases, and even the desire for employment / enjoyment in town); a number are beyond national control (the Asian economic crisis, international discussions about selling-off gold reserves, changes in global demand).
10. Some can be addressed immediately (for example, insisting that NEC Submissions are first vetted by all interested agencies) while others have different time-horizons: short term (for example, the time required for legislation), medium-term (building schools and hospitals), and long-term (such as the time for children to pass through the education system).
11. As the senior public servant charged with co-coordinating public policy in an environment where Ministers, constitutional offices and statutory bodies, as well as different levels of government, have their own rights and responsibilities, I am -73.- Annex XIV
constantly aware that planning, budgeting and implementation involve more than merely issuing orders or making laws:
* the latter must meet constitutional/legalrequirements (e.g. changing I abolishing statutory bodies, changing provincial and local-level government grants, altering RAP allocations, etc.)
* the Public Service consists of career officers who work loyally with me in trying to give effect to the current Government's policies - and have also had to serve previous Governments, and will, no doubt, serve future successors too - whatever our private, political opinions; and
* the people to whom government as a whole is ultimately answerable often want answers and opportunities now: it is one thing to know that certain changes take a long time, and quite another to tell parents that that is the reason why their children do not have ready access to high-quality medical services or cannot go to / progress through school.
12. We need to recognize that Papua New Guinea has a quite comprehensive, set of law-based and State financed Government institutions. Basic Laws already exist, are widely respected, and have operated reasonably well. We need to ask whether current weaknesses and failures stem from flaws or gaps in legislation, or are due to other factors, for example lack of resources, managerial or skill constraints.
13. This Government also recognises that reform does mean the same as "cuts". We must seek to focus on those core functions that government should perform as the Prime Minister has stated.
14. A number of important changes with potentially long-term effects have already been put in place, even in the few months since the change of Government in July:
* establishment of the Central Agencies Committee
* tightening up of Cabinet and budget-making procedures so that they comply with the National Constitution, Public Finance (Management) Act, Public Service (Management) Act, and the Attorney General's Act
* the National Development Charter signed with Provincial Governments
* establishment of the Corporatisation and Privatisation Commission and preparation of a policy White Paper
* draft legislation on the integrity of political parties, measures to strengthen the independence of the BPNG, tightening of procedures for senior public appointments, and the taxation review
15. The NEC at its meeting last Friday approved an outline of the Government's Reform Program which is set out in the document " Structural Reform Program 2000". We will need to develop it further, in close consultation with lead and - 74 - Annex XIV
implementing agencies and their chief executives performance indicators. Specifically, the program proposes 9 areas of intervention as follows -
* Improving policy and decision-making and transparency at all levels of government * Improving policy formulation, management, resource planning and decision-making through better data and information systems and conduct of national census * Strengthening legislative drafting * Improving government procurement * Ensuring compliance with legislative requirements for reporting by all agencies and institutions of the State * Strengthening capacity and performance of "Watch-Dog" institutions such as the Ombudsman Commission ( and a Bill to establish ICAC is currently before a national ParliamentaryCommittee) * Improve policies, systems and practices in granting of government approvals, permits and licenses in key agencies such as forestry, fisheries, environment, foreign affairs (immigration)and employment * Improving political stability through strengthening financial integrity and stability of political parties
16. As we proceed with these and other initiatives and changes, we need to bear in mind -
* political realities (pressures on MPs, the need for majority support for Bills to become law, Ministerial Government responsibility to the National Parliament, accountability at the 2002 national elections, etc.)
* cultural / social factors ( for example, transparency of certain kinds of activities does not always produce uniform reactions)
* availability of skills, experience and other resources (including literacy to make accountability effective)
* possible tensions between political responsiveness and constraints of aid (time-horizons, procurement requirements, output / process orientation, etc.)
17. Many of these differences are most starkly visible in the post-conflict situation in Bougainville - where solutions are often quite elusive.
18. The strong emphasis on respect for / strengthening procedures and institutions in the policies announced by the Prime Minister provides both hope and challenges for the role that the Public Service can play. 19. My experience and assessment is that we do have many excellent people serving in the public service at different levels and capacities including as heads of departments, constitutional offices and statutory bodies. Our challenge is to ensure they are given the opportunity to perform and reach their full potential, and to prepare the next generation of managers. - 75.. Annex XIV
20. It is also vital that a good mutual understanding, respect and working relationship is maintained with the members of the international donor community through the Consultative Group process and the recently established "Friends of PNG" arrangement. We all need to work together on this, especially in mobilizing the critical expertise and advice needed for the reform program.
21. We also need to be mindful of the World Bank's own advice that in looking at foreign experience and models, the rest of the world is neither like Nepal or New Zealand, or any other individual country: while there are many useful lessons to be learnt (both positive and negative), there is no single model.
22. As Chief Secretary and Chairman of the Central Agencies Committee, I believe it is the duty and challenge of the Central Agencies to provide the necessary leadership for successfully developing, implementing and managing the reform program, working closely with all levels of leadership, all agencies and levels of the government, the PNG community and, just as important, with all partners from the international community. I have every confidence that the team I lead can provide that leadership.
Thank you for your attention and patience.
-77 - Annex XV
EIGHTH CONSULTATIVEGROUP MEETINGFOR PAPUA NEW GUINEA Port Moresby, October 8-9,1999
Improving Governance and Performance: The Structural Reform Agenda
Cyrus Talati Country Economist East Asia and Pactfic Region World Bank
Mr. Chairman, Prime Minister, Members of Cabinet, distinguished delegates and invited guests:
1. The current weak economic situation facing Papua New Guinea, as well as the successive crises that have impacted the country in the 1 990s have been precipitated by both exogenous factors and domestic actions. These crises have exposed the inherent weaknesses in the structure of governance and the ability to plan, develop essential instruments, apply credible crisis management and implement the reforms necessary to establish a more resilient economic base.
2. In response to these crises, successive governments have sought to shore up the budget through one-off injections such as increasing debt levels and arrears, requests for extraordinary finance from donors, asset sales or the bringing forward of future income flows, and off-budget quasi fiscal activities. These have not subsequently been repaid during economic upswings. This type of crisis management has increasingly reduced Papua New Guinea's net worth, with the result that resort to such one-off injections has become increasingly difficult to obtain.
3. The Government must therefore commence the difficult task of restoring the country's balance sheet and to demonstrate its commitment to raise living standards of the vast majority of Papua New Guinea's citizens. This will only come about through a concerted effort to improve fiscal and financial management, structural policies, and governance across the public sector. As confidence remains delicately poised, it will be critical for the Government to maintain the momentum for reform.
4. As a number of previous speakers have highlighted earlier, the deterioration in the country's balance sheet is reflected in the underlying situation of the population at large, where the facts tell a sober story. 3 8 percent of the population are considered poor, with 93 percent of the poor to be found in rural areas, and income inequality is among the highest in the Asia Pacific Region. The wealthiest 25 percent of the population enjoy a per capita consumption level which is in real terms more than eight times as high as the poorest 25 percent. Papua New Guinea appears to be the only country in the world where the life expectancy for women is lower than that for men. The poor have to travel almost three times as long as the non-poor to reach the nearest road, which is nearly 4 hours distant. The law and order problems of the country, which are well recognized, are really the end result of poor development, deteriorated governance and weak social capital. - 78 - Annex XV
5. These disappointing outcomes clearly point the direction that reforms must take if they are to arrest the deterioration of the past decade and to improve the current situation-the role of government must be re-defined and policies must then focus on improving the efficiency of government.
6. Clearly this is a tall order and made all the more difficult by having three different levels of government, each requiring funding-the decentralization program has placed a huge burden on the national finances. But we believe that decentralization, is ultimately the right approach through which government must deliver services to its citizens and it will take considerable time and effort to get it right. Donors too, are part of this equation through the zeal with which they expand funding in every direction and to all sectors. Today Papua New Guinea finds itself confronted with a budget with so many demands that services simply cannot be delivered to the people. It is therefore essential to redefine the role of government!
7. How does one move from rhetoric to reality, from vision to action? Countless reports, even the Bank's most recent one before you today, have recommended new functions be taken on by government making the task of moving to action more difficult. Papua New Guinea needs to move away from world rhetoric and on to reality. We need to look within Papua New Guinea, to see what it is that is in relative abundance-a well distributed network of churches, NGOs, community based organizations, world class accountants, miners, civil engineers, a committed and vibrant private sector and a competitive financial sector. So why not start here. Government needs to get out of these activities because the cost of government participation is quite enormous. In the finance sector alone, hundreds of millions of kina have year after year failed to generate any returns for the state and have attracted corruption. The Prime Minister wants to get government out of this area and we support him in this. But Government needs to commit to it and accelerate the process.
8. Another area from which government should exit is the utilities. Let no one be in doubt that the Papua New Guinea model of public ownership has failed miserably. Recent media reports have highlighted quite publicly the financial state of these enterprises-most of which have negative net worth and are on the brink of insolvency- despite many years of financial support from the state. Privatizing these entities is not important solely as a question of repaying debt. The issue must be to improve the quality and coverage of services and the efficiency with which these are provided. There have been recent public statements critical of privatization programs throughout the world. But such perceptions are not correct. The facts are that privatization, if it is done correctly, can lead to major improvements in enterprise performance, with commensurate gains for consumers and overall welfare. Countries around this region have benefited greatly from privatization through quantum improvements in services and the performance of the privatized entities.
9. If there can be a good privatization process, characterized by integrity, transparency and an open and fair process, then without a doubt the Government will make a giant stride towards achieving its objectives by releasing public resources to allow it to focus its efforts on primary service delivery, protection of the environment and advancement of the poor. - 79 - Annex XV
10. Basic systems and processes have been eroded in Papua New Guinea in the 1990s which have been major contributors to the deterioration of institutions. Thus the Prime Minister's initiative to restore the integrity of institutions, focusing on the public sector is both welcome and necessary. There is a need to improve budget management and control, accountabilities and disclosure. In this respect fiscal rules may have an important role to play. Other countries have employed such a strategy by announcing a commitment to abide by a charter of fiscal honesty. This, for example, may embody principles as public employment to be based on merit, to build safeguards against improper dismissal of civil servants, and enhanced independence for the bureaucracy to improve the quality of advice that could be obtained from a well trained civil service. In this regard some early initiatives have been taken by the Government to restore order to the civil service but there remains much work still to be done.
11. Public sector reform is a difficult area of reform particularly in small countries. This is because it is often about changing values and behaviors and because administrative reforms of this nature can be easily reversed. While it is accepted theology that public sector systems should move to a performance basis, there remains much debate about the speed of such shifts. Global experience shows that one cannot measure the performance of outputs if one is unable to measure, monitor and control inputs. This suggests that Papua New Guinea should concentrate its efforts in the near term on re-establishing systems of management, control and monitoring in the budget. Once such practices have been re-mastered then the basis would exist for gradually moving to systems that are performance based, but this remains an exercise for the medium term.
12. Similarly, when the perennial issues of civil service size and affordability arise there is a temptation to undertake personnel cuts either in an across the board fashion or in an unplanned fashion, in both instances, with predictable outcomes-the reforms fail to improve productivity and are often reversed. Development experience suggests that civil service downsizing is more successful when it is planned and when it is undertaken in the context of a removal or transfer of functions from government. Even when it needs to be undertaken in an environment that does not allow much advance planning, it is relatively more successful when it is based on a correct identification of those that are the least productive. The choices facing the Government are then to determine, in the first instance what activities or functions it should be undertaking and what functions can be partially or fully provided by elements of civil society-the churches, NGOs, community based organizations and the private sector.
13. Given the difficulties often encountered by countries undertaking public sector reform, the results are often mixed. In this respect the Bank welcomes the establishment of the inter-departmental implementation committee under the Chief Secretary. This is an innovative and appropriate response to a pressing need and a necessary vehicle to guide the Government's reform program. Most important, we believe, that this mechanism can be an important vehicle to build ownership of the reforms that will be undertaken. That ownership, will be essential to their successful implementation and ultimately their sustainability.
14. There is a need to end the practice of employing complex accounting vehicles that allow funds to be used inappropriately-sometimes across categories of expenditure, at - 80- Annex XV other times across time and yet in other instances off-budget. These practices are not transparent, confuse fiscal policy and weaken governance. There is a grave danger when such practices become institutionalized. Thus it is all the more imperative that Papua New Guinea address these issues now.
15. Protection of the environment is an important issue for Papua New Guinea given its extraordinary endowment of nature's bounty-in terms of the forests, their biodiversity and maritime resources. Yet Papua New Guinea needs to safeguard these to ensure their sustainable utilization both for this generation and those yet to come, as well as to ensure adequate rent capture from these activities. But the history of governance in these areas has been poor and the losses to the nation enormous. Of more pressing concern are the immeasurable losses of opportunity and advancement that the owners of these resources, the people of Papua New Guinea, have had to endure. It is therefore critical that Government continue to build on earlier initiatives to strengthen the governance frameworks in these sectors. Transparency in resource allocation decisions, and effective involvement of the resource owners early in the process are both essential in these sectors. In fisheries much important progress has been made in respect of the legal, regulatory and institutional arrangements for managing these resources. In forestry, despite many attempts and initiatives the agenda remains full. But the rewards of success in these areas are surely worth the effort.
16. Achieving improvements in the governance framework is a complex task. There is a need to strengthen accountability from above-to improve supporting processes and systems of government, strengthen government commitment through rules-based policies and disclosure, impose sanctions for breaches of the law and processes and improving oversight institutions. Importantly, accountability must be demanded by the broad electorate. This underscores the need to build social capital from the bottom-up.
17. In this respect we welcome the Government's reform initiative to support and strengthen oversight institutions which are critical elements of such a reform program and need to be supported in their respective roles. For example, the Office of the Auditor General needs to expand its activities into performance auditing, expenditure audits, and to provincial systems to ensure the accountability of budget processes and underpin the work of the Public Accounts Committee. Oversight entities reinforce one another so this is especially important in the context of corruption because in most cases no single agency-neither police, nor the Ombudsman Commission or the Auditor General-is equipped to deal with this area. But jointly they have the potential to achieve much in deterring and fighting corruption.
18. Social capital needs to be nurtured by increasing community participation- through churches, NGOs community based organizations, trade unions and the media. In this regard the role of disclosure is very important. As much information as possible should be disclosed to the public in a timely manner to ensure and build broad based demands for accountability. Systems that work well, the world over, show that accountability is forced most effectively for societal betterment by a broad based group. The Prime Minister's announcement regarding cabinet submissions is a welcome move, but this disclosure policy should be applied across departments, particularly the central agencies. -81 - Annex XV
19. These then are formidable challenges and the reform agenda is a daunting one. But we are heartened and encouraged by the openness and stated resolve of the Prime Minister in engaging Papua New Guinea's development partners and in laying out his vision for Papua New Guinea through his reform program. The reforms envisaged by Government must not, however, be undertaken as an ad hoc collection of initiatives. Rather they need to be viewed as an integrated package of reforms that all need to be worked on and achieved in order for momentum to be maintained and goals attained. This is why the community of Papua New Guinea's development partners, represented here today, views the reforms as a joint exercise to be jointly supported by them. The first steps have been taken but a long road remains to be traveled as we stand ready to assist Papua New Guinea in this journey.
Thank you
- 83 - Annex XVI
PNG - Consultative Group Meeting 8-9 November 1999 Governance and Performance ADB Statement
Mr. Chairman, the ADB is indeed pleased with the priority the PNG government has piaced on good governance and the performance of its public sector. This issue of governance and public sector performance is all pervading. It affects the daily lives of people in terms of their access to basic services such as education and health, in terms of their access to jobs and to markets to trade their goods and services, and in terms of their sharing the fruits of economic development of the country. This issue is at the heart of what aiis this economy; and unless it is determinedly and immediately addressed, the large majority of this country's population will continue to be bypassed by the benefits of development.
PNG is a richly endowed country. But its people have too long been deprived of the benefits of its riches. PNG's past governments have failed it in this most basic of responsibilities, viz, to ensure the country's rich natural resource heritage is used responsively, efficiently, effectively and equitably for the benefit of all.
Thus, it is very encouraging to see the commitment of this government to improve the governance of the nation, and to streamline efficiencies of the public sector. PNG has the potential to become a prosperous nation, and the leading star of the Pacific. The Prime Minister has provided this vision. It is now up to politicians, public sector managers, and leaders of the community to give substance to this vision. We donors wish to join you in this challenge. We wish to assure you that we are as committed as you are to this challenge.
The government has begun designing its reform program. We, the ADB, will help, with a comprehensive diagnostic exercise focused on improving governance and public sector performance. This new work builds on extensive earlier work by Govemment and other funding agencies, notably the World Bank, UNDP, and AusAID. The objective of this diagnostic phase is to identify those critical factors which will lead to tangible improvements in the transparency, accountability and effectiveness with which government is run. The potential scope of issues to be addressed is enommous. The secret of success, I believe, will be for the government to address it in manageable segments, beginning with the most important priorities. We suggest that six areas initially be targeted - (1) policy and decision making in government, (2) budgetary and public financial management, (3) improving delivery performance of essential services, (4) human resources management, (5) the coordination between national, provincial and local levels of government, and (6) strengthening good govemance institutions such as the Auditor General, the Public Services Commission and the Ombudsman. It has been agreed that the govemance and public sector reform process will be led by the government, with the Treasury, National Planning, the Department of Personnel Management and the Prime Minister's Departmentjointly steering the process. We would - 84 - Annex XVI look forward to all donors also offering support: first in the initial diagnosis phase, then during the design phase, and finally in implementationof the reform program.
Allow me to underscore some important principles which must be followed in this reform process, targeted at better governance and improved performance. These are lessons which we as a development agency have learned the hard way in our assistance to many Pacific countries in this area. They also reflect the World Bank conclusions from 50 years of experience with foreign aid, as reflected in the report on Assessing Aid. First, whatever the prescriptions we donor agencies bring to you, in the final analysis this reform program is yours. You must own it, you must design it, and you must lead it. Additionally, you must ensure as wide participation of your people in the process as possible. Your private sector, your NGOs, your churches, your business and trade associations - all have contributions to make and vital roles to play in the knitting together of a new system of govemance in this country, a system which is accountable, transparent, efficient and equitable.
Then there is the issue of cultural traditions which may, on occasion, run counter to the reform processes and hinder change. These issues must be dealt with openly, constructively and with the sensitivity that cultural traditions demand. There are no easy formulaic solutions, and certainly not any available from outside PNG. Answers need to be worked out by PNG's own leaders and public sector managers, and offen in ways that may even remain unclear to outsiders like ourselves. We encourage you in this most challenging process.
And finally, what of our role, as donors and supporters of your development process? Experience teaches us that attempting to impose development solutions from outside, without internal ownership, is of limited if any value at all. No sustainable purpose is served if such solutions are accepted by government without an accompanying conviction on their merit and commitment to their implementation. It is therefore incumbent on us donors, as responsible development partners, to bring to the government our advice and our policy recommendations with objectivity, respect and persuasion; and to work with you as true partners and collaborators. It is equally incumbent on the govemment to make every attempt to work constructively and cooperatively with the donors, while maintaining its own sovereignty. We would suggest that as part of its responsibility of managing the reform process, govemment must keep to itself and even strengthen its central role in negotiating, assigning and coordinating all donor inputs. And, it must do so in a mature, constructive and considered manner.
I bring to the Papua New Guinea government, wishes of support and promises of assistance from my President. There is no more important challenge today than improving the state of governance and the performance of the public sector in PNG. However, there is also no more difficult task that the one ahead. As a trusted development partner, we assure the government of our continued support in this critical area. -85 - Annex XVII
The Government of Japan's Written Statement to the Papua New Guinea Consultative Group Meeting, Port Moresby, 8-9 November, 1999
2. Governance and Performance: The Reform Agenda
(1) Major concerns in terms of increase of foreign investments and good implementation of Official Development Assistance (ODA) are changes in governments and institutional organizations. Appropriateness and consistency in efforts by the government is vital for getting confidence from the international community and making successful reforms.
(2) The Government of Japan appreciates the efforts the Morauta government has been making to implement structural reforms including reforms in the public sector, financial sector and the promotion of privatization, with the aims of "Recovery of the Integrity of Governmental Organizations" and "A Sound Finance."
(3) In practice, we consider it important to learn the lessons from the past and to proceed with these reforms, keeping in mind that the Central Bank and the other governmental institutions should be assured of their independence and also that they should be made transparent and accountable.
(4) For these efforts, the Government of Japan would like to continue to join hands with the Government of Papua New Guinea, and at the same time, would like to express our concerns over the worsening law and order situation in the country, for fear that it may affect the safety of personnel engaged in development assistance to Papua New Guinea.
- 87 - Annex XVIII
EIGHT CONSULTATIVE GROUP MEETING FOR PAPUA NEW GUINEA
Intervention by Elizabeth Reid, Resident Coordinator of the United Nations
Agenda Item C: Governance and Performance: The Reform Agenda
The World Bank, in its report on Governance and Performance, and in its presentation on this agenda item, identified the strengthening of social capital as a precondition to good governance and sustainable development.
The Honorable John Momis, in a speech at the recent Leaders' meeting on Nissan, identified the strengthening of social capital as a critical imperative for peace and reconciliation on Bougainville.
Normally when talking about good governance, we focus on the institutions, systems and mechanisms within a society through which transparent, accountable and equitable decision making occurs.
So what is this social capital about which people here in PNG have begun to talk?
The term refers to the nature or quality of relationships between and amongst people and, by analogy, between and amongst organisations. It refers to the extent to which these relationships are based on mutual respect and trust, and the extent to which these interactions contribute to the common good.
It also captures the mapping out of those with whom people interact over time, and, in particular, to whether these patterns of interaction are mainly limited to social relations with people of the same language group, or church group, or village, or socio-economic status. Thus the concept of social capital also captures the density and extension of social networks, alliances and groupings.
Social capital is a prerequisite for collective efforts and for sustained development processes. It is the basis of a sense of collective agency.
PNG has strong social capital within groups, but these groups have weak ties or links to other groups, even negative linkages.
Thus one might say, as the Bank does, that social capital is PNG is fragmented, that there is a lack of interlinking ties. This captures one aspect of the concept of social capital. But one needs also to capture the nature or quality of interpersonal relations.
Thus, it is being argued, the strengthening of social capital or, if you like, the strengthening or rebuilding of communities, is necessary for good governance and for development. - 88 - Annex XVIII
But more is needed also. Strengthened social capital improves the quality of peoples' lives. But the commitment and energy so generated needs to be harnessed for people's development. This is the role of the organizations of civil society and of local government. These organizations create the possibility of social accountability: people holding institutions and systems to account, requiring them to take into account their interests and priorities.
Two other things might be briefly mentioned as preconditions for good governance:
* The creation of a sense of citizenship. This would mean, for example, that members of village development committees would be those with a commitment to the good of the village, rather than those who voted for the winning MP; and. * Building capacity for participatory and relevant planning and budgeting for the common good, from village development committees, through the ward committees, through all levels of government.
Whilst the Government focuses on structural reforms and on the development priorities outlined by the Prime Minister and the Minister for National Planning and Monitoring, thought might also be given to ways in which these pre-requisites for good governance can also be addressed. - 89 - Annex XIX
Statement by the European CommissionDelegation (from transcription)
Thank you, Mr. Chairnan.
As was stated this morning, we view the question of governance as a fundamental one and see it as the basic problem in Papua New Guinea. There has been a permissive and perhaps interested lack of transparency and inappropriate practice at several levels, the public/private sector and also affecting the political life. This is reflected in the failure to meet the objective of increasing the welfare of Papua New Guineans, mainly in the rural areas. It has been at the root of disparities and inequalities in income and distribution of wealth throughout the country.
Amongst other things, it has contributed to the growth of the law and order problem, as mentioned by my Japanese colleague, which does more than simply create a bad image of Papua New Guinea abroad. This is a serious brake to investment and business deals in the country.
Crime, violence, and corruption have exaggerated the concept of high-risk investment in Papua New Guinea in addition to the lack of economic and political stability, and also promoting a concept of "get rich" culture which undermines economic stability and drives up some of the economic indicators affecting the cost of living, which jeopardizes the increase of the living standard of Papua New Guineans.
It is not my intention to repeat in details the analysis which has been included in the documentation for this meeting or to repeat all the statements made by the other speakers. I only wish to make the following comment in relation with some sectors where the European Union is engaged in development activities, and also it can be considered as part of the general governance and performance in these specific sectors.
I would like to make mention concerning the forestry sector. The rationalization of the forestry sector, has experienced an unsustainable level of rotation linked with the nontransparent process of exploitation of permit allocation is more than a necessity.
The national forest plan has been in existence since early '90s. Various forestry regulation has been adopted at different times to improve regulation of the industry. The European Commission will condemn that option of the logging code of practices. With regards to the standard for selective logging and the ongoing log monitoring control implemented by an independent company, in this specific issue we would like to see the commitment of the government for the future.
An appropriate review of tax exemption granted under the previous government should be undertaken and amendments made as necessary. Legislation should be firmly applied under the integrity of the provincial and national board and management committee. 90 - Annex XIX
We strongly recommend to the government to maintain a firm commitment to sound and sustainability resources management through an effective forest policy and to implement the regulations which are adopted to support it.
Under our point of view, and according with our experience on the ground, the forest tax should be modified to allow an appropriate legal space and protection to the small-scale logging operation as an alternative--I repeat, as an alternative--to the massive logging, industry logging operation.
Concerning the education sector, we would like to state that the education sector remains from our perspective the highest priority. The ambitious education reform process launched in the early '90s has achieved mixed results, but they have been impressive in some aspects, notably regarding the expansion of elementary schooling. The restructuring of the education system has continued on a broad front, and total enrollment at all levels has come close or exceeded the targets.
However, the achievement of the reform could be jeopardized by the newcomers to the primary education sector in the coming years, a result of the substantial increase of population in Papua New Guinea. They will request important extra resources to accommodate these new students in coming years. Already the expansion in number is straining teaching resources and infrastructure.
In our opinion, more attention should be paid to vocational and training sector, both formal and informal; great concentration on primary education, mainly in the rural areas; achieving a better gender balance at the old level of the system; and providing teachers with the means to be effective.
Concerning agriculture, the European Union through the Stabex program has been a major supporter of the agriculture sector. Despite the substantial contribution of the European Union as well as the donors, very poor results have been achieved. This low achievement is partly due to the lack of medium- and long-term planning and constant change of the department heads.
We are convinced that this is a vital sector for Papua New Guinea which will assure the full security, increase the revenue with exports in terms of the foreign currencies, and to reduce expenditure in imported foods.
Continued high dependence on imported food, even for primary products which can be produced in Papua New Guinea, remain a paradox in the agriculture sector in this country. We recommend that the stable national plan of agriculture be defined, concentrating on reducing food import dependency. That could include to design a national strategy for rice production. The rice is important in the daily consumption of Papua New Guinea and it remains a clear priority. One hundred percent of the rice consumption is imports.
Improvement in green crop yields, given the importance of a daily staple for many Papua New Guineans and also to assure the food consumption, and quality improvement of the four traditional crops of the country--coffee, copra, cocoa, and palm oil--in order to - 91 - Annex XIX increase the competitiveness in the more competitive market which will inevitably arise with globalization.
We would like also to make mention to the mining sector, as has been explained, the environmental and social impact of this important sector requires deep consideration, the lesson from the environmental impact, and social as well, and consequent polemic surrounding the Ok Tedi mine need to be learned. A code of practices in this sector needs to be adopted.
Concerning the transport sector, our main comment at this stage concerns the need to increase the resources to be planned and budgeted for the maintenance of the national and provincial roads, as well to implement the axle load control in order to avoid a quick deterioration of the roads.
Finally, under this heading of governance, I will briefly return to the cross-cutting issue of the Rural Development Funds. It has been suggested that this money should be used as counterpart funding for donors' projects. We welcome this idea and should like to hear how it is intended to ensure that the funds will be used consistently with national planning objectives and managed transparently, accountably, and with clear reporting. Objective, projects managed transparently, accountability, and with a clear--sorry, with clear reporting.
Also, this is important, our point of view, the criteria of the selection of the projects need to be established under very clear and transparent decision-making.
Thank you.
93_. Annex XX
CONSULTATIVEGROUP MEETING
Port Moresby 8-9 November 1999
"Improving Development Effectiveness" Address by
Hon. Moi Avei MP
Ministerfor Planningand Implementation
Ladies and Gentlemen,
A lot has already been said during the course of today on what we are here for. And since this is the last session before we break up until tomorrow, I will t and keep my comments brief and to the point
Improving the effectiveness of development expenditure and the impact of development programs is one of the major challenges [acing Papua New Guinea. Year in ye out, we seem to be struggling with it, forever committing ourselves to improvement and change and forever failing in our endeavours The health and education status of our population, or the level of overall poverty, as the report prepared by the World Bank shows, are there to prove that we are far from living up to our own expectations Since I was re-nominated as Minister for Planning and Implementation in July, I have been struggling to get my head around these contradictions, in order to come up with the explanations that can help us find the right solutions.
Are we lacking in vision? Do we not have a PLAN that ca show us the way ahead? I believe that is not the case. When we talk about how wee would like our country to look like ten or twenty years down the track, I believe we all share the same vision. And that vision has been spelt out in a number of plans, policies, reports and papers. We have the Medium Term Development Strategy, which I presented to Parliament in 1996, and which still today charts the direction for Government to take in a very enlightening way. It specifies the priority areas that Government needs to focus on. it describes the way in which Government should function, and it gives a clear sense of what needs to be done. We have medium term plans in the health sector and in the education sector, detailing government programs for the years to come. We have an established National Development Forum through which we can regularly make sure that private sector organisations, churches, NGOs and others get the chance to tell government what we are doing right and what we a e NOT doing right - 94 - Annex XX
The sort of plan that we need is not a plan of big ideas or broad statements. What we need is a plan focused on programs and activities; on implementing the big ideas and broad statements that we have talked about so much. That is the way I would like our "Plan for Reconstruction and Development" t o look like. Not a plan where we just state our objectives and goals; but a plan where we find ways of reaching those objectives. Not a plan based only on sound principles but a plan where action based on common purpose and understanding is the main focus.
We are already taking a number of steps in that direction. Let me take a moment to tell you more about them.
First of all, I completely agree with the Prime Minister when he stated the Government's first objective to be the one of "restoring integrity to our great institutions of state". As we have heard again today, from the Prime Minister, from the Chief Secretary, and from the World Bank and others, the main problem Papua New Guinea is facing is one of a crisis of Governance
Openness, transparency, accountability: these three words has become the new yardsticks that Governments have to measure themselves against in order to turn themselves into promoters of sustainable human development. Well, let me tell you: sometimes I have such a hard time even understanding what they mean that I wonder how we can actually put them in practice. The complexities of running a govermnent al-e so many, and so multi-faceted, that finding ways to rum these abstract concepts into working realities seems to be too daunting a task. Nevertheless, it is our job to do just that, and we as politicians are directly responsible for ensuring that whatever can be done in that respect takes precedence over other less important matters that we sometimes like to squabble about.
Important initiatives in the area of governance have been highlighted by previous speakers, such as the introduction of legislation on the Integrity of Political Parties and Candidates, electoral reform, and the strengthening and streamlining of Cabinet's decision-making procedures. These reforms are fundamental in promoting political stability and a more transparent policy process. They are also important in improving long-term development effectiveness Public sector reform will also be of paramount importance in addressing some of the main weaknesses of our management systems. We need to ensure that public agencies are more efficient, their employees more motivated and accountable, and the positive impact of the activities they carry out and the services they deliver more tangible at all levels.
But there are two other important areas that are more directly relevant to the improvement of development effectiveness even though they are strictly linked to governance issues. They deal with COORDINATIONand with ACCOUNTABILITY.
Coordination between different levels of government, or the lack of it, is one of the crucial obstacles to development effectiveness that PNG has been facing since 1995. The introduction of a decentralised system of government under the New Organic Law has meant that Papua New Guinea today is virtually made up of twenty semi-independent states, with wide-ranging powers almost matching those of the national government. - 95 - Annex XX
Activities in the main priority areas identified by the national government now fall under the responsibility of provincial administrations.Primary health, primary education, feeder roads, agricultural extension: all of these are now mostly functions carried out at lower levels of government. Poor capacity and insufficient funding have mean; that the overall machinery that is supposed to deliver basic services to the rural population has seriously deteriorated and is in evident need of repair and renewal.
Development engines in the provinces need to be cranked up and brought back to normal speed. But this is only possible if there is a common understanding and a common purpose between the different levels of government on what needs to be done and what needs to be done FIRST.
The National Dialogue that we have held just a few weeks ago was a first step in the direction of fostering coordination to improve development effectiveness across the country. We brought together ministers and governors, departmental heads and provincial administrators, to put their heads together and agree to a common framework for action, the Charter for Reconstruction and Development, that all Governors and -the Prime Minister signed lent Friday at Parliament House. This is just a small step forward in addressing the difficulties posed by our decentralised system, but still a very important first step. We can now work at all levels with a common understanding and a common purpose
An important proposal endorsed at the National Dialogue, and approved by Cabinet last Friday when looking at the2000 Budget Framework, is an attempt to improve the development effectiveness and the accountability of one of the most controversial programs introduced by the previous governmentthe Rural Development Fund.
In our discussions with the Governors, the provincial administrators and the line agencies responsible for the priority sectors, the need to target the funds available under the RDF more effectively was widely supported. The basic idea is that we could create a substantial pool of resources by bringing together funds from the RDF, from the District Support Grants, donor financing, and other relevant sources. These resources could then be devoted to a small set of agreed-upon specific activities each year under a District Development Program, in order to maximise their impact and reduce the obstacles created by a lack of planning capacity. Accountabilitywould be protected by adopting the guidelines that are used for any other development project at the national level, since the DDP would work in the same way all around the country. District Committees chaired by the local members of Parliament will still be the leading body, but with much greater help and assistance from the national governiment,and with better coordination with other districts.
Another area that was also highlighted in the Charter is that of addressing the different levels of socio-economic development that different areas of the country have attained, and therefore giving special attention to disadvantaged areas This point will need to be developed further, but in that context I would like to mention two studies that will prove very useful in supporting such an exercise: the Human Development Report for PNG, that will be officially launched very shortly, and the Report on Poverty in PNG presented here by the World Bank. - 96 - Annex XX
Governance reforms, the National Dialogue, the District Development Program: these initiatives are among the most important that the Government is undertaking in its commitment .to improve development effectiveness. They go hand in hand with our ongoing work on the Development Budget and on the implementation of many donor-funded projects that are part of it.
Some information on these initiatives, along with work on putting together a Comprehensive Development Framework for Papua New Guinea, is presented in the material that we have distributed to you.
I would like to thank you all for your continuing support and your confidence in our reciprocal commitments. I am sure we will all feel more comfortable with what we are doing after these two days of discussion.
Thank you very much. - 97 - Annex XXI
Eight Consultative Group Meeting for Papua New Guinea Port Moresby, November 8-9,1999
Thoughts on Donor Coordination,Development Effectiveness and Beyond
Bill H. Rahill Country Off cer East Asia and Pacific Region World Bank
(check for delivery)
Chairman, Ministers, Members of Parliament, Development Partners, Friends and Colleagues:
It is my pleasure to be with you today and address this meeting on subjects that are of great interest to us all: donor coordination, development effectiveness and the road ahead. I would like to take this opportunity today to:
1) react and respond to the views and information provided in the Department of Planning and Implementation's background document, titled Development and Reform Program,
2) focus our attention for a few minutes on the implementation aspects of our work and raise issues and opportunities for your consideration;
3) say a few words about donor coordination;
4) highlight the importance of improving the overall effectiveness of the development program, and;
5) say a few words about the budget process that supports the preparation of the development budget and some of the issues it raises for the Bank, from an implementation and program management perspective.
Reaction to Background Document and Minister Avei's Presentation. On the basis of yesterday's presentation by Minister Avei, and the background documentation, I am encouraged and optimistic that we can improve upon the present systems that are in place in the Department of Planning and Implementation and that donor coordination and development effectiveness can experience tangible improvements in the weeks and months ahead. In particular, we would like to voice our support for the following initiatives and developments:
- the establishment of the Department of Planning and Implementation as a central agency is a welcome development. But this development is only the beginning, with a daunting task ahead of achieving a more effective integration of the development agenda, from planning at the district levels through the budgeting cycle and finally on-the-ground implementation of projects. It can be done. It must be done. We stand ready to support in -98 - Annex XXI a tangible way the strategic analysis work that will go into setting-up the department's operational framework, in particular with regards to supporting the implementation function.
- I also wish to further emphasize the importance of the "implementation-related" responsibility which has been assigned to this newly established Department. All the planning in the world will not improve rural service delivery if the implementation functions of the overall development equation are not improved markedly. In effect, the ultimate indicator of our common success or failure in the development area is easily monitorable: the number of people living under the consumption poverty line, literacy rates, health statistics, among others. As was stated earlier, positive GDP growth does not necessarily translate into human and social development, hence the importance of implementing the development program in its entirety year after year. From this perspective, the Bank is supporting a renewed focus on implementationthrough increased focus on implementation performance reviews. In this regard, I would like to thank my colleagues from various agencies that participated in the recently completed portfolio review. I also which to invite my colleagues in the Department of Planning to lead the exercise, beginning with a mid-year review next March/April and to bring on board all agencies active in project implementation.There is no doubt in my mind that we can, and need, to learn from one another.
Regarding donor coordination, nobody would argue against the view that we must all strive to improve the overall coordination function in order to improve the effectiveness of our development assistance. As cliche as it may seem, it nevertheless remains an important objective for our work in Papua New Guinea. While we have made some gains in recent months, there is still much to be done. Even though the Bank's program in PNG is relatively small, although it is poised to grow, the need for stronger country leadership on the coordination front is more critical then ever. Our internal resources are always under scrutiny and we are always being challenged regarding our role in a country which receives massive assistance from Australia and concessional financing from other sources. So improved coordination and stronger strategic planning through a comprehensive development framework type approach simply make things easier for all concerned. We need your help and leadership Minister Avei in better positioning the Bank's assistance and support within the overall development framework in Papua New Guinea. This would strengthen our position within our own institution and would provide all development partners with a clear understanding of our respective roles and responsibilities. I think this applies to most of PNG's development partners, but I do not claim to speak on their behalf In effect, one of the Bank's objectives is to move beyond the generally held view that we are simply a lender of last resort: we are and want to be recognized as a full-fledged development partner.
If we are to move donor coordination into a higher ground of effectiveness, we must take support a structure within the government that which requires all of us to convey our plans and ambitions for the country in a development oriented forum.
It is therefore on this basis that the first step in improving donor coordination requires first and foremost strong coordination within the PNG government apparatus, at both the strategic level and amongst departments that benefit from development assistance. In this - 99 - Annex XXI regard, a first step, from the Bank's perspective, is for a much stronger and more effective planning function, supported by a pro-active foreign aid coordination division. PNG must be in the driver's seat.
The use of the CG as a donor coordination mechanism provides us with limited opportunity to compare and discuss the specifics of our respective programs. The CG allows us to do a consistency check at the macro level, but does not provide us with the necessary forum for upstream planning and subsequent integration of our respective programs.
Opportunities for formalizing the development dialogue do exist but we must be more aware of these opportunities and use them explicitly as a strategic planning function. For example, PNG has a Medium Term Development Strategy (MTDS) which it uses as a road map for its development effort. The MTDS, like any strategy, must be refreshed on a regular basis. In fact, in periods of crisis or adjustment, the strategy must be reassessed for its feasibility and continued relevance. The country has set up systems and mechanisms to consider economic development issues, it is now time to set up or more appropriately, to resurrect a mechanism which also deals with development and development assistance. I think that this is perfectly consistent with recent efforts by this administration to establish a dialogue with all stakeholders. The Bank, as one of the agencies assisting PNG, needs an expanded dialogue with PNG and its development partners, a strategic development forum if you will, as one of the lead-ups to the preparation of the annual budget. Yet another meeting you will say! Yes, more talking! But can we afford not to spend a couple of days comparing notes and looking for a better fit for our respective programs.
The background documentation prepared by the Department of Planning includes a matrix that summarizes in a compact and succinct way the pillars of the country's development program. The one common thread of course is that there is a designated PNG counterpart/leader for each of these pillars, but not all have a clear statement of strategy. There are some sectoral strategies in place, education and health for example but no integrated plans for development. More needs to be done along the lines of sectoral strategies. This document can and should form the basis of continued dialogue with PNG's development partners. It also forms an excellent background document for future meetings of the Consultative Group.
On Development Effectiveness: There are many angles to examine if we are to look at development effectiveness in a comprehensive manner. We could spend an entire CG on this subject alone. But I thought that I would focus my comments on the opportunities we have in improving the upstream planning and management of donor assistance. This is probably more relevant and timely given the establishment of the Department of Planning and Implementation. Strengthening upstream management and strategic planning of resources is an increasingly important factor in determining a country's ability to attract development assistance. This is now an integral part of the performance equation.
What would be the likely benefits of a more concerted and proactive coordination program? My personal view is that our reaction time during periods of crisis would be -100- Annex XXI improved and we would have greater flexibility in program delivery while at the same time delivering more timely investment operations.
The Bank also feels that development effectiveness starts with improving project implementation. And as our recent portfolio review revealed, one of the important actions necessary to strengthen the implementation environment is to allocate the necessary counterpart funds and allow for the timely drawdown of loan funds. The overall coordination function must therefore be brought upstream and the development budget must be prepared on the basis of the objectives and priorities of the country's development program. The development agenda is and cannot be sustainable as long as it is the 'residual' budget i.e. meaning that the allocation to the development program is made after budget resources have been allocated to recurrent costs, debt servicing and other 'fixed' costs. This is unsustainable and counterproductive given that it leads to a resource planning framework that starves development projects from Bank funding which the Government of PNG has borrowed from the Bank. Yes this is correct. The present budget system limits the amount of money that can be drawn down from loans which the government has negotiated with the Bank. This perpetuates the view that these projects are not important priorities for PNG, that implementation performance is unlikely to improve, it affects morale of project implementation units and uses up a significant amount of management time within the Department of Treasury, Department of Planning and in the Bank as well. These constraints on drawdowns have absolutely no impact on the government's cash flow other than to make the use of counterpart funding almost impossible to use in its entirety, hence perpetuating the view that counterpart funding is provided but not used. The remedial action is simple with instantaneous results: remove constraints immediately on project's capacity to draw-down loan funds. The impact on the growth of national debt is minimal, particularly in the context of a borrowing program for FY2000 of as much as US$300 million. Based on the initial allocation which has been made to non-cash drawdown made to Bank projects would likely lead us to: i) not be able to extend two projects which are closing next month; ii) maintain a suspension on a nonperforrning leading to the potential cancellation; iii) defer one or two pipeline projects for another year. In my view, this is not a way for us to conduct the important business of development in this country. Luckily, the solution is within our reach and I look forward to resolving this matter over the next few days.
Finally, I would like to share with you a proposal which has been recently tabled by the Bank' Operations Evaluation Division regarding donor coordination. In its report to the Bank's Board of Directors, to which it reports and is accountable to, OED will be recommending that the Bank consider transferring the formal aid coordination function, over time, to the countries and that the CG process be managed by the country as an integral part of its aid coordination work. This has yet to be discussed by the Board, but regardless of what the Board decides, the writing is on the wall: donor coordination will increasingly be the purview of countries. It would therefore be appropriate for this CG meeting to recognize the changing nature of the roles and responsibilities in aid coordination and that a new framework be developed over the next few months and, possibly, discussed early next year in the context of a strategic planning forum on development. - 101 - Annex XXI
Another test of this leadership, from the Bank's perspective at least, would be the degree to which the Government would participate in preparing the next Country Assistance Strategy. Again, we invite the Government to take an important role in this exercise.
Thank you very much.
Bill H. Rahill
- 103 - Annex XXII
PNG ConsuitativeGroup Meeting8-9 November1999 ImprovingDevelopment Effectiveness ADB Statement
Papua New Guinea has received substantial development assistance over a number of years, from both bilateral and multilateral sources. In fact, on a per capita basis, PNG has outdone every Asian country in terms of receipt of aid. Yet, there remains very little to show for such huge transfers of aid over the last two decades. Now that PNG has in place a government which appears committed to development effectiveness, it is important that the government and we donors ask ourselves the obvious question - what has gone wrong? And address it with all seriousness.
Perhaps we should start with the donors first. What have we been doing wrong? Or is the fault all on the part of the PNG government? Is there something wrong with how much we provide? Or with the way in which it is provided? Or for what we provide it? I cannot speak for the other donors. However, let me share with you a quick summary of some soul searching that we have undertaken in the Asian Development Bank with respect to the effectiveness of our aid to PNG.
The ADB provides some 530 to $90 million a year to PNG in development loans, and about S4 million in technical assistance grants each year. It is clear that substantial resources are devoted to the technical preparatory studies which precede the approval of these loans and grants each year. In our view, perhaps such preparatory assistance is disproportionately more than what is devoted to supervising the implementation of such investments once approved. This is an important conclusion we have arrived at and the bias of our emphasis is already being balanced in favor of project implementation. The ADB has recently opened a small office in Port Moresby, solely focused on facilitating project implementation. We hope you will see continuing evidence of our change of emphasis, all targeted to ensuring that the assistance we offer PNG does indeed result in envisaged impacts. .
The ADB is also seriously reviewing the process of project design in PNG. It is increasingly apparent that there is need to have greater participation and involvement, not only of the government but also of the private sector, the NGOs and churches, and of local community groups. In some sectors such as health, this is already the case. In other cases, much needs to be done here. Further, technical experts fielded to prepare feasibility studies have to be better vetted for their understanding of PNG's economic and cultural environment, and their ability to develop solutions and designs appropriate to the local environment. The use of more local experts for project design will not only ensure better local acceptability, but will also encourage growth of the local consulting industry. And finally, performance milestones must be developed with the government and other stakeholders, the non-achievement of which should trigger joint reviews for problem solving and improvement in the implementation of projects. - 104 - Annex XXII
Much is being said these days about performance-based aid. We welcome this development. Since the rigors of the market place are not applied to the provision of monies for development, at least clearly spelt out performance measures, mutually agreed to between the aid donor and the government, can ensure greater discipline and effectiveness in the use of development aid.
We would also like to share with the government, the more important of our concerns with regard to its performance, with the objective of making ADB assistance to PNG more effective. The most serious concern and constraint to development effectiveness noted by us is the continuing weaknesses in the planning, management and technical capacity at the provincial and local government level. The Organic Law has rightly required that development projects dealing with basic services such as health, education, agriculture and transport be implemented in collaboration with provincial governments. It is the provinces and local governments that are closest to the people and therefore can best respond to needs and priorities. However, the capacities of provincial and local government agencies continue to leave much to be desired. The support they receive from national line agencies and coordinating departments is also far from adequate. If development aid is going to be used effectively, the inescapable conclusion is that substantial resources must now be devoted to strengthening provincial and local government level administration urgently. This will hopefully be a key area of emphasis in the Government's public sector reforms.
A second area for government action is the need for a strong, accountable and stable national administration. Frequent policy changes, turnover of senior public sector managers, weak professional accountability systems, and the absence of sanctions for poor performance, do not help in improving the effective utilization of aid. A related area is the need for more efficient and transparent budget and financial management. The unpredictable availability of budget resources for project implementation substantially compromises project implementation. The government's Financial Management Improvement Program, being assisted by AusAID, UNDP and ADB, will assist in this area. The forthcoming Public Sector Reform Program will go further to address much needed policy and institutional reforms in the public administration.
I would like to end with raising an issue I have already referred to in my previous statement. There is an increasing need for the government to take a more central and managerial role in coordinating donor inputs. It is the government that should know best its capacities for managing development investments; it is the government that should understand most clearly its development priorities and the availability of counterpart funds; it is the government that should be the one most committed to ensuring the equitable distribution of development impact; and it is the government that is in the best position to ensure donor complementarily not only in the assistance provided, but also in the development approaches and administrative requirements of various donor. I therefore encourage this reformist-orientated government to more aggressively assume the mantle of donor coordination setting for itself clear and achievable goals which should be shared with all donors. This CG Meeting is a first step in this direction. - 105 - Annex XXIII
Statement by the Australian Delegation (from transcription)
Thanks, Mr. Chairman. Just a few very brief comments.
Given the degree of our engagement here, I think the first comment I'd make is that we do have very good and very productive working relationships between ourselves and the Papua New Guinean Government, and that's allowed us to, over the course of this decade, add something like $35 million to our program and project portfolio each year. If we didn't have good, strong relationships, that just would not have been a tenable thing to have done.
I reinforce the point that others have made about the importance of leadership and ownership of the process by the Papua New Guinea Government, and I'm very hopeful that the new arrangements with the Department of Planning, as a central agency, will help facilitate that further.
But equally important is ensuring that we can maintain very effective engagement and involvement of line agencies. I think one of the great challenges is to get the balances right between the links with the central agencies, but also when you're heavily engaged in areas like Health and Education, the effectiveness of your line agency contact, as well.
The point made about training I think is a very critical one. And, of course, we remain willing to find ways to support that. I think another critical issue that we see is the importance of ongoing presence in the country. I think one of the difficulties at times for some others might be the extent to which there is sort of a presence here at times and that having a stronger ongoing engagement is something that we certainly urge on other key players.
As I mentioned yesterday, we've just been through the signing of a new treaty agreement with the Papua New Guinea Government that was done after an extensive review of the existing arrangements. And I hope out of that process we've been able to identify some very important ways to improve the way we do business in future, not least through a much more strengthened approach to benchmarking and other initiatives such as that.
We also, I think, do need to keep working on some specific areas. One that I'd highlight is the transparency of tender processes. I think that's something where it's very important that we all do continue to talk and work through.
I'll leave it at that, Mr. Chairman. I'd just like to highlight the importance we certainly place on ensuring that we've got very strong understandings of the priorities being pursued by the Government and we'll do what we can to continue to back their efforts.
- 107 - Annex XXIV
Statement by the European Commission Delegation (from transcription)
Thank you, Mr. Chairman. I would like to support the comments from our colleague from the Asian Development Bank. In fact, Papua New Guinea had received, for many years, a substantial contribution from the donors bilaterally and multilaterally. In the specific case of the European Union, our cooperation with Papua New Guinea started 22 years ago, but it is not only the cooperation established by the European Union itself, we need to consider the support from the European Investment Bank and also, don't forget, the bilateral programs established by the member states. It's very important.
Until now, just taking account the contribution of the European Union, we are talking about a level of 630 million euros. At the exchange rate today, we are talking about 1.9 billion kinas. I think this is important, and we need to remember not only the contribution of the European Union, but also the substantial amount from other bilateral and multilateral donors.
In this moment, I think this is clear that a necessity of dialogue, a necessity of cooperation has been identified and put on the table by this CG. We need to see more involvement of the Central Government in the development method. It is important in order to supply and to increase the indicator, social indicators, for Papua New Guinea.
Let me explain very clearly that since the new government is in place, our level of dialogue now is a fundamental improvement, but this is not enough. The question of coordination is important between the donors, but I think the Central Government must take an important role and take the initiative in order to establish this coordination and to assure the. complementarity of the development actions. This complementarity is very important in order to avoid duplication,overlapping. The donors we are not here in order to establish a competition. The donors are here in order to help the development necessities of the country, but we need, of course, to have a global vision, a picture, global picture, about the necessities, and the best position, the responsibility must be done by the Central Government.
We are pushing, and we would like a future development in this dialogue with the provincial, another level of Government. We would like to see an effective decentralization process. This is important--important to know the requirements and necessities requested by the beneficiaries, but this is not enough. This is also a question that the beneficiaries need to understand what are the consequences and the responsibilities in order to assure, and I repeat again, the sustainabilityof the action.
Believe me, Mr. Chairman, development is not to open one building. This is very nice for electoral purposes. This is very nice for the picture, but this is not enough. We don't like to supply buildings. We would like to supply services. The building is only a means to achieve this important thing, to deliver services to the population. But the coordination is not enough. The implementation is also important. And as was mentioned by our colleague the implementation requests and very attentive regard from the Central Government in order to avoid unnecessary bottlenecks....
-109- Annex XXV
EIGHTH MEETING OF THE CONSULTATIVE GROUP FOR PAPUA NEWGUINEA Port Moresby, 8-9 November, 1999
COMMONWEALTH SECRETARIAT STATEMENT
Mr. Chairman, Hon. Minister, your Excellencies,Ladies and Gentlemen.
On behalf of the Commonwealth Secretariat, I should like to thank you Mr. Chairman and the World Bank, and the Government of Papua New Guinea for inviting the Commonwealth Secretariat to be represented at this very important meeting.
I am aware, Mr. Chairman, that most of us present here today are quite familiar with the Commonwealth Secretariat and its development activities. However, Mr. Chairman, for the benefit of the few who are not familiar with our development activities, I should like to present a brief description of what we do and how we go about it.
The Commonwealth Secretariat is the principal inter-governmental organisation of the Commonwealth and is responsible since 1965 for supporting the process of Commonwealth inter-governmental consultation including agreed programmes of development co-operation which are implemented through the Commonwealth Fund for Technical Co-operation.
The Commonwealth Fund for Technical Co-operation, or better known to Commonwealth member countries in short as CFTC, is the principal means by which the Commonwealth promotes economic and social development in member countries. The CFTC is demand-driven, responding to requests from member governments for the provision of advice, technical expertise and training to assist development, and concentrates on the poorest, most isolated and small countries with fewest indigenous skills. It was establishment by the Commonwealth Heads of Government in 1971. All member countries subscribes voluntarily to CFTC and it has a current budget of around 23 million Pound Sterling.
The priorities of the CFTC are dictated from time to time by the remits and recommendations of Commonwealth Heads of Government and Senior Government officials. Over the last two years their directives have called for increased efforts in the areas of: trade and investment; alleviation of poverty, over-coming the vulnerability of small countries including small island states; protection of the environment; and promoting gender equality and youth development.
These guidelines, Mr. Chairman, recognise that the co-operation of the larger donor and international development agencies such as those represented at this meeting, should always be sought in order to derive maximum benefits, cost-effectiveness and greater co-ordination. - 110- Annex XXV
Therefore, Mr. Chairman, Commonwealth Secretariat development activities are guided principally by the requirements and priorities set by member Governments. At the same time, it is understood that Commonwealth development activities are not intended to, nor do they, match the resources of larger donor organisations. Rather, we seek to complement their work and to play a significant catalytic role in the interest of our member countries. And this, Mr. Chairman brings me to the very purpose of my being here - and that is - to find out how we, as donors, could co-operate to help Papua New Guinea.
Thank you again Mr. Chairman. - 1Il- Annex XXVI
The Government of Japan's Written Statement to the Papua New Guinea Consultative Group Meeting, Port Moresby, 8-9 November, 1999
3. Improving Development Effectiveness
(1) The government of Japan continues to assume its responsibility as a major donor country for implementing Official Development Assistance as has been committed to the international community, and in so doing, it attaches importance to the effectiveness and feasibility of development assistance.
Keeping this in mind, Japan would like to further promote coordination and cooperation with other donors with a view to avoiding project duplication and to enhancing the efficiency of aid implementation.
(2) The Government of Japan also is expecting that the authorities concerned in the Government of Papua New Guinea as a recipient of Official Development Assistance plays a function for more consistent coordination and prioritization of project proposals for assistance in such a way that those proposals are coordinated and prioritized according to the national development strategy and presented to the donor countries for implementation. In this regard, the Government of Japan is prepared, upon request, to examine the availability of technical assistance for aid coordination and prioritization.
(3) The Government of Japan welcomes the recent presentation of "the National Charter on Reconstruction and Development" as the Charter has been written on the basis of the Medium Term Development Strategy of 1996(MTDS), and in line with the realities in the country. As regards how to incorporate international assistance in this framework, more dialogue and coordination with international donor countries should be promoted.
- 113 - Annex XXVII
EIGHT CONSULTATIVEGROUP MEETING FOR PAPUA NEW GUINEA
Intervention by Elizabeth Reid, Resident Coordinator of the United Nations
Agenda Item D: Improving Development Effectiveness
At heart of the question of improving development effectiveness lies a number of issues that may be worthy of reflection.
The first is the question of what is understood in PNG by development, by all involved, from villagers through to bureaucrats and politicians. Very often, in discussions under trees or even in offices, development is conceived of as a return to a more idyllic past or a more pastoral village based life style.
At other times, development is conceived as hand-outs or as a means of accessing a public good for personal advancement. An example of the latter might be the high number of banana boats included in local level governmentbudgets.
I suspect that whatever concepts of development underlies the analysis or decision making of PNG's development partners, they are different from the predominant concept of many of their in,terlocutors.This is perhaps a discussion that could be brought out into the open: when we talk about cooperation in development what are we talking about? This is relevant, for example, to the statement of the European Commission that the beneficiaries of development need to understand the consequences and responsibilities of assistance in order to ensure sustainability.
The second question is that, if the primary relationship in development is seen as a partnership, who are the partners in development partnerships?
Traditionally development was seen as a partnership between a "donor" and a government. But the international development community (which is national governments) increasingly conceives of development as a four way partnership; with those sitting around the table being the government, the private sector, civil society and the development community.
When we discuss mechanisms for coordination, perhaps this question could be discussed. The government of PNG has already recognized at national level that the development dialogue must include not only all levels of government but also the private sector and the organizations of civil society. This they recognised with the establishment of the CIMC. Perhaps this could now be considered in discussion of proposals such as that of the World Bank for the establishment of a Strategic Development Forum.
This issue could also form part of the government's reflection on the role and responsibilities of the State and hence the nature of the reform process.
- 115 - Annex XXVIII
Statement by Mr. CamillusMidire Papua New Guinea Delegation (from transcription)
Thank you, Chairman, Ministers, distinguisheddelegates, ladies and gentlemen.
I don't propose to spend a long time on this one. I'm aware that a lot of the issues that I will be raising here have been touched upon by the various speakers. So forgive me if I'm running through things that have been raised previously.
Firstly, I would like to say that I'm quite honored to address this meeting, particularly as a new Secretary for the Department of National Planning and Monitoring. This morning I would like to complement the keynote addresses given by the Prime Minister yesterday, as well as the Minister for National Planning and Monitoring on the key issues relating to external assistance requirements.
As we are aware, there are two main types of assistance PNG receives from the donor community. The first one has been talked about, and I don't want to go through that in any detail, and this is the issue of the external assistance for the reform program that we have talked about over the last two days, primarily focused on recovering of the external debt of the country, as well as to finance one of the expenditures of Government.
What I would like to focus on is the other two forms of external assistance, which are closely linked to the activities of my department: Ongoing assistance for development projects, both informal grants and concession of loans, as well as technical assistance in areas where capacity is lacking in Government.
External assistance, for your information, comprise two-thirds of the development budget. So it is, by no means, an insignificant amount. And, as such, the disproportion is increasing as a consequence of the shift in Australian aid from budget to program aid. For that, I would like to, at this stage, express my sincere thanks to all of the donors and, in particular, AusAID for their continuing support in our endeavors. The creation of the Department of National Planning and Monitoring provides an important mechanism for coordination of external aid.
Our primary concern, and it's going to be our prime concern over the medium to longer term, is to ensure that external aid fully supports, not duplicates, the Government's development objectives and priorities, and that aid is fully integrated into the planning and budgetary processes of Government. The main role of external assistance is to support Government in its endeavors to promote sustainable social and economic development for our population.
Over the years, of course, as has been said, we've been facing a number of challenges and obstacles in the implementation of our programs and projects. And I must say that despite our best efforts so far, our implementation capacity remains low. Other implementation problems include: processes of Government, which clearly needs to be reviewed. They continue to constrain implementation; slow draw-downs of donor funds; -116- Annex XXVIII our problem in Government of the insufficient and untimely release of counterpart funds; we have problems with loan issues; we have ongoing problems with compliance of Government to donor requirements. These are some of the issues that continue to constrain our implementation, and the list is, by no means, exhaustive, but at least it gives us some idea of the kind of issues that we have talked about, we all know about, but as I said, despite our best efforts, continue to constrain our efforts to implement the programs that we have with the donors.
These issues are new to all of us, and the question is, and it remains a question for all of us, is how do we effectively address these problems and just where do we start? In my view, the reform and the proposed reform to the public sector and the other reforms are critical steps in addressing implementation concerns over the medium to longer term. In the proposed reform program outlined for 2000, it is expected that the core functions of Government will be identified, and wherever feasible streamlined. There will be issues of efficiency and effectiveness of Government functions will be addressed as part of this work, as well as a review of the procedures and systems of Government.
The other ongoing problem that continue to haunt us in our efforts is the problems of adequate funding, which I am sure that a lot of donors will be an issue for, for next year and over the medium term.
I believe that the problem lies in the fact, and this is something that comes back to Government, lies in the fact that the budgeting and the financing procedures tend to consider the development budget as a residual entity, and I'm glad that Mr. Rahill from the Bank has raised this, and this is something that we really need to look at this. It's a systems problem, and we think as long as we continue to treat the development budget as a residual and not as a part of the attention by Government, that will continue to be a problem. We expect that these are issues that will be addressed as part of the reform that we are talking about.
Almost inevitably, such an approach leads to searches for domestic funds available for counterpart contributions, as the fixed and limited amount of resources determined to fit the macroeconomic framework is split among a large number of projects.
The way out of this situation is restructuring or budgeting financial practices so that the development expenditure is seen as a part of the item, while at the same time meeting the need for overall consistency within a macroeconomic framework.
Capacity problems have been in the past and will be with us for some time. I believe we all have to be innovative in seeking appropriate solutions. I would like to underline that because, as I said, these issues, the problems are not new. It's the problems that we talk about every time we meet, it's a problem that Government has had all of this time. The task for us and the challenge for us is how do we address this? Is there an alternative way of doing it?
In this respect, I would like to point out some initiatives we are looking at that could help in addressing these issues: One of the issues that we will address as part of the -117- Annex XXVIII new aid treaty with the Australians is this idea of going for a sector-wide approach rather than a project or program approach.
The situation that we find ourselves in, and this comes back to the question of donor coordination, is the fact that a lot of departments are overburdened. They are handling a lot of donors. That is putting a tremendous strain on the capacity because they are to attend to a number of numerous projects that are under their responsibility. What we are saying is that perhaps the way out is to look at a sectorwide program; that capacity, that we'll make sure that we are targeting--we are implementing a program that has clearly-defined outputs, clearly defined milestones.
So that's just one of the mechanisms that we are exploring. It's being tried in the Health Department. If that works, that certainly is I think, in our view, the way to go. And I would like just to say here that perhaps other donors might like to consider that as a way out of assisting us. Our objectives and the objectives of the donors are common. We all want, at the end of the day, to make sure that whatever we do, whatever money we spend, results in some tangible change in the lives of people. That's ultimately the aim of development. And if we are not achieving that and we continue to go the way we have gone over the last 20 years, then, I'm sorry, we have failed miserably.
Capacity problems also arise as a consequence of, as I said, the very large number of projects, often very small in size, that currently make up the development budget. Borrowing a phrase from the Prime Minister yesterday, that forces us to spread our resources too thinly instead of focusing on a few programs that may have a big development impact. I believe, as I said, that we should now move towards a sector-wide approach rather than a large amount of resources being used to support a small number of projects in agencies.
Another initiative that we are looking at, which also is aimed at addressing capacity constraints and in the overall spirit of the reform program presented by the Government, is that of increasing private-sector participation in maintenance function, for instance. At the moment, a large proportion of the funds are made available by the Government for all maintenance. And certainly the impact of expenditure on road maintenance is quite minimal, if I can say the least. So where do we go? What is the way out?
Now, quite apart from the lack of funding, one of the biggest problems that we have uncovered is the effectiveness with which these programs are being managed. So one of the issues we are looking at in terms of maintenance is how can we effectively manage a program of this magnitude? Now, clearly, Government has shown that it hasn't got the capacity to continue to run these big programs effectively. Through the CIMC, a proposal has been noted that perhaps a way out of this is for the management of this program to be contracted out and run as a private-sector undertaking. That proposal is attracting quite a keen interest from all sectors of the community, Government, as well as the private sector. And that is not restricted to maintenance. I have often maintained that for a large number of loan projects that we have, perhaps that is the way to go. We should look at contracting out the management of these projects. There is absolutely no point in us dragging this out and paying commitments in some loans that are not drawn - 118- Annex XXVIII down because the Government bureaucracy cannot manage them. I think it makes economic sense to look at alternative ways of speeding up the implementation of these projects. So, thereby, we are saying let's look beyond Government, let's look at who can do them better. It doesn't have to be the private sector. If the NGOs and somebody else outside Government can do it better, then perhaps that's the way to go.
Let me just say one or two things about the District Development Program. I don't wish to continue the detailed discussion because I think we discussed this to death yesterday. So I don't wish to go into it in detail, but perhaps just to say that the concept of a District Development Program or the rationale for it was really on the basis that, despite all our best efforts so far over the last 23 years or so, it is sad to say that most of our districts are largely underdeveloped. You will go to a district, particularly the remote ones, and there's virtually no sign of development. The question is what can be done, what can be done to push at least some development and to kick-start some development in those areas?
The rationale for a District Development Program was the idea that the provincial Government must intervene somehow. We are not saying that it is going to be driven by the National Government, but it is must take the initiative help the local people identify what is priority for sectors, what is the priority action, priority intervention that we need to take and, perhaps, help them leave it alone.
So that's, without going into detail, that is the rationale for the District Development Program, and we believe that in the millennium this is really the focus of Government. This is where we want to go as a Government. We want to be able to go with a big-push approach to the District, taking into account, of course, the capacity constraints, the sustainability issues and so forth. But as a concept, that's really what we are talking about.
The other rationale for it was really that they are already in the districts, under the grant or the various sources, a pool of funds that can be used to support a program of this kind, where there were some concerns yesterday from some presenters of the donor community that this could mean that, in the short run, quite a substantial inflow of resources from the donors.
We like to think that this is a long-term program, a program that is worthy, a program that we have to clearly define so that, in the long run, it meets the priorities of the districts and the people in the districts and is something that we can implement and really get some development impact at that level. So all I'm going to say is that, yes, it is a concept that is being talked about, we are working on it, we are defining the scope, we are defining the priorities before we go onto the financing. There are some things that can start next year, but from a political point of view, we would like to see it as a longer term program rather than a short-term intervention.
And I must also say that we, as part of the dialogue process, we'll set up teams of people in the Department who are working with relevant agencies to refine and define the program more clearly, and I am sure that you will be hearing from us once we have completed that task. I would just like to also ask that this could be an area that the donors -119 - Annex XXVIII could assist with in helping us refine this program, devising and formulating a set of guidelines and so forth.
Chairman, I know one of the major issues that we have talked about over the past day is the issue of accountability, transparency, and I want to assure the donors that these issues are issues for Government, and Government is--we will address them as part of the process. The programs that we are talking about they are by no means intended to bypass those major issues, those important issues that are at the center of our development efforts.
In conclusion, Chairman, I would just like to say that we are all excited, particularly I, as the head of the new Department of National Planning Monitoring. I am excited about the enormous challenge that lies before us. The task is so enormous that it has to be done, and I can only plea to the understanding of the donors for their continued support in providing support for the reform program that we are embarking on. I would like to make a special plea, I guess, in my effort to get the department up and running. Because of the critical position that it plays in terms of overall donor coordination, I have discussed with a number of donors, and I will be talking to some more within the next day or so, on the need to give specific technical assistance to my department. But that's just one of those reforms that we are undertaking, and I will appreciate an assistance that you may render towards the setting up of the department and this very critical role that it plays.
Chairman, I will stop here. I thank the ladies and gentlemen for your attendance.
Thank you.
- 121 - Annex XXIX
EIGHTH CONSULTATIVE MEETINGFOR PAPUA NEW GUINEA Port Moresby, October 8-9, 1999 Papua New Guinea's External Assistance Requirements
Daniel Weise Resident Coordinator World Bank
Mr. Chairman, members of Cabinet, distinguished delegates and invited guests:
1. Papua New Guinea's medium term prospects will depend critically on the Government's resolve to restore macroeconomic stability over 2000. It will also depend on the Government's commitment to implementation of a comprehensive structural reform agenda within a much improved governance structure. While the attainment of substantial extraordinary financing over the near term should deliver macroeconomic stability, it will not be sustainable without a substantial improvement in the performance of the Government's balance sheet. This will be necessary to cover the financing costs of the external support, and set the stage for a much improved level of confidence by the private sector that will enable economic growth rates to be accelerated.
2. If the Government can implement a substantial reform program, a recovery in 2000 is expected to result in an increase in real GDP of over 4 per cent and a reduction in inflation to single digits by year end. After reserve levels declined to under 1 month cover by July 1999 due to capital flight and a further decline in the terms of trade, there has been a modest improvement in the balance of payments over recent months. This reflects an improvement in the current account due to higher commodity prices over the second half of 1999 and the bringing forward of the Australian budget support grant. On current estimates of budget outturns and balance of payments projections, reserve levels should reach between 1.5 and 2 months import cover by year end (US$170 million). This includes the expected USS80 million Australian conmmitment.
3. Given the Government's commitment to an underlying balanced budget in 2000, its request for additional structural adjustment financing of K100 million and financing for arrears of K100 million, its estimated foreign debt service commitments, and balance of payments projections showing only a modest improvement, little change in reserve levels is anticipated. Given this precarious position, the Government has requested external financing in the form of an MF SBA and CCFF (Compensatory and Contingency Financing Facility), a roll over of the Australian US$80 million facility, and structural adjustment funds amounting to US$200 million from the donor community. This would allow the K1 00 million structural reform program to be funded and facilitate a substantial domestic debt swap, while allowing for moderate growth in private sector credit. It should also allow for some easing in monetary conditions with commensurate falls in interest rates. - 122 - Annex XXIX
4. Within the 2000 budget, the development budget has been set at about K900 million, a substantial increase on expected outcomes in 1999. However, if the transfer of district support grants, supplemental support grants under mining agreements and the increase in Australian project grants are excluded, then the development budget is little changed on 1999 estimated outturns (although well below the 1999 budgeted amount). If the transfers from the recurrent budget are excluded from domestic funds in the development budget, then domestic funds decline by 7 per cent. Concessional loan funds are substantially lower than in 1999 and well below the nominal averages of the 1990s. This same pattern occurred in 1993-95 following the fiscal tightening over these years. Importantly, the lift in domestic counterpart funding is unlikely to be utilized in full given the low associated loan drawdowns. This raises concerns about the efficiency of development budget management in times of tight macroeconomic ceilings.
5. Based on existing project and program commitments, the development budget requirements should easily be met, although changes in funding structures may result in some difficulties due to the sharp reductions to loan funded projects which could prevent scheduled project implementation. The Government request for extraordinary financial assistance from Australia in 1999 in the form of a US$80 million swap facility is yet to materialize and is tied to a letter of intent from the IMF which is still under discussion. The Government request for extraordinary financial assistance for the 2000 budget is currently being discussed with the World Bank and IMF. In this respect, extraordinary assistance from donors is being sought and an amount of USS200 million has been targeted. This level of assistance would appear to be warranted, given the costs of the reform program and debt restructuring aims. - 123 - Annex XXX
EIGHT CONSULTATIVEGROUP MEETING FOR PAPUA NEW GUINEA
Intervention by Elizabeth Reid, Resident Coordinator of the United Nations
Agenda Item E: External Assistance Requirements
The focus of the work of the United Nations system in PNG is primarily on advocacy and capacity building.
The government of PNG and the UN system have agreed that the UN system will focus their support in six broad areas:
Governance Sustainable rural livelihoods Health Education Environment and natural resource management An integrated programme for peace and development in Bougainville
The financial resources available to the nation from the US system are relatively limited and, due to the shrinking voluntary support to the core budget of at least two of the UN agencies in PNG, it is now both limited and significantly less than foreseen when our partnership with the nation was formalised in the Country Strategy Note.
Thus, as a dramatic example because of UNDP's serious financial situation, the fmancial resources foreseen for the year 2000 were halved in June of this year and the remaining 50 per cent was reduced by 30 per cent in September.This has made not only programme planning and implementation problematic but also reduces our flexibility to respond to new requests and emerging issues. Our sister agency, UNFPA, has also been seriously constrained by shrinking core resources at headquarters' level.
For the year 2000, the existing commitments of the UN system amount to US$6,455,723, with planned total disbursements being US$5,785,473. To understand the fmancial situation of the UN system, this figure can be compared with the total expenditure in 1995 by the UN system in PNG of US$ 14.2 million. Of this figure US$4.3 million was Government cost-sharing.
For fiscal year 2001, we anticipate a level of assistance of US$6,366,250.
The UN system has neither the resources nor the mandate to help resolve all of the development issues facing the country. Thus, by necessity, but also by choice, our programme and our presence here are designed to complement and provide synergy to the energy and commitment of others.
- 125 - Annex XXXI
ConsultativeGroup. 8-9, 11/1999 Agenda Item F - External Assistance Requirements European Commission - Speaking Points
The programme of co-operation between the EU and PNG is substantial. It consists of the bilateral programmes of the Member States of the KU, the operations of the European Investment Bank on its own resources and the programmes funded through European Development Fund under successive Financial Protocols of the Lome Convention as well as various budget-lines. These latter programmes are managed by the European Commission and by the European Investment Bank as regards risk capital. The funds being contributed by the Member States of the EU.
I speak on behalf of the European Commission, but I think it is important to recall the full extent of EU support to PNG. I also recall that the Lome Convention is not only an aid agreement but also a trade instrument. The advantages which PNG enjoys from the trade provisions of the Convention are at least as great as those arising from aidflows.
Since Lome I was signed in 1975, the funding allocation to PNG from all resources managed by the Commission and the EIB has totaled nearly Euro 630 million (PGK 1.9 billion at today's exchange rate. PNG has benefited from virtually every financial instrument in the Lome Convention:
* Programmable funding (provided on a five-yearly basis under so-call National Indicative Programmes (NIP) and Regional Indicative Programmes (RIP)) * The System of Stabilisation of Export Earnings (Stabex) in the agricultural sector (coffee, copra, cocoa, coconut oil, oil palm products) * The Special Financing Facility for Mining Products (Sysmin) * The Structural Adjustment Facility * Risk Capital (EIB managed) * Interest rate subsidies (EIB managed) * Refugee Aid * Emergency Aid * Humanitarian Aid
It has also benefited from various budget-lines outside the Convention (NGO's, Forestry, rehabilitation) and own resource lending from the European Investrnent Bank.
In 1999, - excluding the substantial commitments of the EIB - the programme counts approx Euro 105 mn (PGK 315) commitments on programmable and nonprogrammable funding. These projects concern the following sectors:
* Education (infrastructure, high school maintenance, in-country training, scholarships) * Transport (Rarnu Highway, Rural Roads and Bridges) * Agriculture - 126 - Annex XXXI
* Environmental protection (monitoring of the environmental impact of mining, export logging surveillance) * Eco-forestry * TA, including support to the National Authorising Officer, the Department of Education and the department of Works
Several of these actions are financed from the 7th EDF and 8th EDF NIP under the First and Second Financial Protocols of Lome IV. Interventions in agriculture are mainly financed from Stabex.
The current 8'h EDF NIP identifies 2 focal areas for the utilisation of Euro 50 mn of programmable resources: Human Resource Development and Development of the Rural Environment. Outside these focal areas, smaller actions are foreseen to combat AIDS and to assist the police in dealing with crimes of violence against women and children.
Next year, additional projects will be appraised in the fisheries and rural development sector and a programme to assist the resettlement of communities in the Gazelle Peninsula will be launched. Most importantly a major intervention (Euro 5 mn - PGK 25 nmn)of integrated agricultural rehabilitation on Bougainvillewill begin. It is expected that substantial funds will become available from the Sysmin facility for the mining sector and possible diversification activities. Altogether, taking account of project closures and new programmes we anticipate an increased commitment next year. Indicatively, the total commitment should reach approx Euro 130 mn (PGK 390 mn).
Disbursements should exceed Euro 10mn this year (PGK 30 mn) and Euro 16 mn (PGK 48 mn) next year.
The NIP also refers specifically to the possibility of structural adjustment support for PNG. I emphasise that in the event of an agreement with the IMF/WB BWI, funding in addition to the present commitments could be made available. I cannot quantify the sum at this stage, but an agreement with the Bretton Woods Institutions is a basic condition.
The present programme specifies four strategic bases for EC/PNG co-operation. These are:, * The development and consolidation of democracy and of the rule of law as well as respect for human rights and fundamental freedoms * The campaign against poverty * Sustainable economic and social development with particular stress given to the development of human resources with special emphasis on the gender issue and environmental protection * Integration into the world economy, in particular through the promotion of the private sector and the development of trade.
When the Lome IV Convention was modified in Mauritius in 1995, it was agreed that funding under the present NIP for PNG would be released in two tranches; the first (Euro 35 mn) at the time of signature and the second (Euro I S min) following a mid-term review. This review will tale place in January of next year for PNG. The Commission and the Member States will examine progress in the areas mentioned above, and the specific - 127 - Annex XXXI sectoral commitments entered into by Government at the time of signature in 1997. The result of the review will determine release of the second tranche.
In brief, the review will concentrate on:
* Sector reforms in education and rural development (sustainableuse of natural resources and improved services to rural areas) * Macro-economic management and governance,particularly the quality of management of public finance and the structure of budgetary expenditure * The state of preparation of projects for the use of the second tranche.
These reflect many of the issues discussed yesterday.
In the education sector, we are reasonably comfortable with the reforms which are being implemented.
The concentration of the programme on rural development means that clarity concerning the use of the rural development funds will be an important factor in the review.
In the present circumstances, an agreement with the WB and IMF will facilitate a positive conclusion to this review.
-129 - Annex XXXII
Statement by the Asian Development Bank Delegation (from transcription)
Thank you, Mr. Chairman.
We have had an active program in PNG since its membership in ADB in 1971. There was a hiatus in lending between 1994 and 1997, except for a small emergency loan relating to the Rabaul volcano.
The lending resumed in 1997. However, because of the hiatus in lending, the overall resources transferred to PNG from the ADB has been negative since 1995. We are working with the Government to deal with this situation. Our current country operational strategy for PNG was finalized earlier this year. ADB's central concern is to help reduce poverty. In PNG, poverty manifests itself in low social indicators, despite relatively high average levels of income.
Direct action is required to improve the delivery of quality social services to the poor who are largely rural. Poverty itself can only be alleviated through private sector development to build long-term income earning opportunities.
We emphasize a major thrust of ADB's assistance over the medium term would be to assist the Government's reform program. Clearly, this needs to be closely coordinated with other donors, in particular, with the World Bank and its structural assistance, and the AusAID and Australia has programs in these areas.
We emphasize support in particular for improving public sector management by focusing on performance. We also emphasize providing assistance for providing assistance for improving management at the provincial- and local-level Governments. We note that AusAID is active in this area. We will coordinate. The Government is taking leadership here, which is a very good development from our perspective.
In addition to the governance and public-sector management areas, the ADB aims to support projects in sectors where we can be a catalyst for the sector development. We are in sectors where we have traditionally been active, and we like to maintain this presence. I'd like to mention here that we are currently involved in the health sector, in skills development, in agriculture and fisheries, in water supply and in transport. We emphasize continuing support in these sectors, as well as in support of small-scale and informal income economic activities and income-generation activities. We'll continue to support the road and maritime transport sectors. To complement our activities in fisheries and sea transport, we emphasize some effort in coastal environmental issues. We will be working closely with the Government in deciding on our involvement in these various areas.
Our commitments to PNG for 1999 will total U.S. dollar 108.8 million in loans, plus about $4 million in grants. Our indicative program for the next three years emphasizes ADB assistance of about U.S. dollars 75 million per year of new loans and -130 - Annex XXXII about U.S. dollars 4 million per year of grant-financed technical assistance.. The focus of this is on performance and performance will be a factor in determining the structure and volume of our assistance.
As expressed earlier, we are impressed by the Government's commitment and resolve in addressing the serious structural difficulties. We look forward to working with the Government and other donors to help overcome these difficulties and improve the quality of life of the people of Papua New Guinea.
Thank you, Mr. Chairman. - 131 - Annex XXXIII
Statement by the Australian Delegation (from transcription)
Thanks very much, Mr. Chairman. I'll limit my comments to ongoing development programs, perhaps Friends, with a capital F, might be a more appropriate venue to talk about the extraordinary financing requirements.
As mentioned yesterday, our two Prime Ministers signed a new aid treaty in October, and this is a clear demonstration of our continuing close relationship with Papua New Guinea, and the support that we show for the Government's policies of economic reform and reengagement with the internationalfinancial institutions.
Our country assistance strategy for the Australian Aid program with Papua New Guinea has four pillars, and this has recently been agreed with the Papua New Guinea Government. These are strengthening governance, improving social indicators, building prospects for sustainable economic growth and consolidating the peace process for Bougainville. In '99-2000, our total aid flows will be somewhat over 300 million dollars Australian. This will have a particular focus on infrastructure, health, education and a growing proportion into governance-related activities. The year '99-2000 is a very historic year for our aid relationship with Papua New Guinea in that it does see the final chapter in our budget support grants. The remaining 35 million grant which was part of the overall aid budget has now been fully disbursed. So that concluded that chapter of our aid relationship.
In terms of our next fiscal year and the two fiscal years beyond that, we have already announced that our program will be maintained at 300 million dollars as a maximum indicative planning allocation. Within that, I'd highlight one particular new funding mechanism, and that's what we've described as the incentive fund. This will be a jointly programmed fund to provide direct funding for development activities implemented by both private and public organizations in Papua New Guinea. It's intention is to increase the contestability of Australian-financed aid by increasing the level of involvement of Papua New Guinea organizations and rewarding those organizations that deliver priority development outcomes while demonstrating the efficiency, effectiveness and accountability requirements. We are anticipating that this fund will commence in July 2000 with an initial allocation of 15 million dollars in subsequent annual increases.
Australian aid in support of the peace process for Bougainville is something else that I'd just like to briefly mention. Further to peacemaking and restoration, we continue to work closely with relevant Papua New Guinea agencies, other donors and the Bougainville community representatives to implement quite a broad range of development activities in that province.
In conclusion, can I just highlight a few examples of what our joint program, Australia-Papua New Guinea program, has been able to achieve in the last few years. In the last few years, we've been able to help immunize over 600,000 children against polio, which we believe has just about seen the eradication of that disease in Papua New - 132 - Annex XXXIII
Guinea. We've been able to ensure that over 100,000 more children can now go to primary school. We've been able to help upgrade thousands of kilometers of road throughout the country. So I think it is important for us to remember not so much the big-dollar figures, but what those figures might actually do in terms of contribution to the individuals of the country, and that's certainly where our focus will continue to be. -133 - Annex XXXIV
The Government of Japan's Written Statement to the Papua New Guinea Consultative Group Meeting, Port Moresby, 8-9 November, 1999
4 External Assistance Requirements - Japan's Policy
A. Policy Guidelines
(1) In view of Japan's long-standing friendly relations with Papua New Guinea which is the largest leader in the South Pacific region and in recognition of Papua New Guinea as a key country in her diplomatic relations with the South Pacific nations, Japan has provided broad-based development assistance to meet the needs of Papua New Guinea, and will continue to do so within its capability for the support of their development efforts.
(2) Under these policy guidelines, Japan started development study for Papua New Guinea before its independence. Since its independence, Japan has extended its development cooperation to Papua New Guinea includes grant assistance and technical cooperation such as acceptance of trainees and dispatch of experts and volunteers. Yen credit loan has also been extended to the improvement of infrastructure such as roads, airports and in the energy sector, and the development in agricultural and forestry. The total of Japan's bilateral assistance to Papua New Guinea up to the Japan's Fiscal Year 1998, are totally 24.3 billion (US$220 million based on V110 to US$ 1.00) in grants, Y56.8 billion (US$520million)in credits and V14.6 billion (US$130 million) in technical assistance.
B. Support for stabilizing the financial management
(1) As regards Papua New Guinea's request for financial support for stabilizing the current budgetary situation, the Government of Japan highly values the efforts the Morauta Government has been making in earnest for economic and financial reforms in cooperation with the IMF and the World Bank, and expects that the Government of Papua New Guinea will reach agreement with the IMF and the World Bank on new programs to be implemented for reforms. Taking that agreement into consideration, the Government of Japan continues to examine what it can do to support the efforts by the Government of Papua New Guinea.
(2) Japan still remains as the largest donor country in the world in terms of bilateral assistance, while its total budgets for Official Development Assistance is on decrease under the current budgetary constraints. In view of this, Japan thinks it vital to review thoroughly and confirm its effectiveness and efficiency, and also assurances of transparency in a recipient country in extending its Official Development Assistance. Applying this position to support Papua New Guinea, the Government of Japan is strenuously examining what assistance is effective and efficient for the country. -134 - Annex XXXIV
(3) In addition, if the Government of Papua New Guinea wishes to have technical assistance in the field of financial stabilization and administration, the Government of Japan is prepared to examine possibility of the extension of such assistance, taking those needs fully into consideration.
C. Sector Wide Support
From October 28, 1999, a JICA programme designing survey mission held a series of discussions with the authorities of Papua New Guinea about priority areas of assistance of Japan. Taking the results of these discussions into consideration, the Government of Japan intends to provide assistance to support development efforts of the Government of Papua New Guinea as follows:
(1) Expansion and Improvement in Basic Education In order to support the efforts for curriculum reform as part of Educational Reform carried out by the Government of Papua New Guinea, the Government of Japan decided on 29 October 1999 to provide grant aid in the amount of JPY 431 million (US$4.3 million) for "the Project for the Development of the Facilities for Education Media Programmes."
In view of the importance of basic education, the Government of Japan also intends to provide support for expansion and improvement of basic education through dispatching Japan Overseas Cooperation Volunteers and extending grass-roots grant aid.
(2) Improvement for Rural Health In order to find out needs in the health sector, the Government of Japan sent a JICA project formulation study team to Papua New Guinea in October 1999, which was engaged in reviewing the needs and collecting information in the health sector. The Government of Japan intends to examine possible assistance, taking its review and analysis into consideration.
The Government of Japan, in view of the critical condition of maternal and children's health care, also plans to dispatch a survey team at the end of November for "the Project for Improvement of Children's & Women's Health."
(3) Expansion and Improvement of Infrastructure In view of the importance of the Highlands Highway, the Government of Japan has provided assistance for the construction of Umi bridge that is to be completed by March 2000.
Also, in view of the importance of road development, "Bereina-Malalaua Road Construction Project" and "Mumeng-Bulolo Road Improvement Project" funded by Yen Loans are under way and are expected to complete in March and January 2000 respectively. Furthermore, the improvement project of Jacksons Airport Phase Two is also under way. -135 - Annex XXXIV
(4) Poverty Alleviation Since the improvement of life conditions in settlements of migrants is vital to poverty alleviation, the Government of Japan intends to actively extend assistance to that effect under the grass-roots grant aid assistance.
(5) Support for Agriculture The Government of Japan will send a JICA project formulation advisor to Papua New Guinea in order to find out what assistance can be effective in agriculture sector. The Government of Japan has already sent a JICA financial planning expert form October 1999 to assist improvement of loan management efficiency of Rural Development Bank which is financed by Yen Loans.
(6) Environmental Conservation The Government of Japan has been providing research cooperation assistance to Forest Research Institute in Lae for about 10 years now since 1990.
In order to promote sustainable forest management, the Government of Japan continues to provide necessary support for the Forest Research Institute.
Thank you.
-137 - Annex XXXV
Statement by the Chinese Delegation Mr. Shi Longzhaung, the Chinese Charge d'Affairs
China and PNG enjoy friendly cooperative relations. Both are developing countries facing the same central task of developing our national economies. We share the same desire to rapidly change the state of poverty and backwardness, and strongly hope to strengthen our economic and technological cooperation.
As a developing country, China faces many difficulties and challenges, but we view the difficult situation that PNG is having now with sympathy and provide assistance within our capacity.
The economic and technical cooperation programs we have in PNG are in line with its development plan and objectives. Over the years, we have accomplished a number of projects and these projects have obtained good social and economic results, and directly served the local people. Currently the two sides are working on a highland experimental farm project in Kandep, Enga Province, the Markham national high school in Morobe Province, and a mushroom project in East Highland. We hope that these projects will contribute to the PNG's effort to accelerate economic development and social progress.
Our recent commitment to PNG including an Economic and Technical cooperation Agreement signed last December, by which China committed 30 million Chinese yuan to PNG for project assistance. In May this year, China committed 5 million USD to PNG government as budgetary support to help it overcome the financial difficulties. And recently we have again committed 10 million USD, 5 million as budgetary support and 5 million for project assistance. In the future, we will continue to give assistance within our capacity.
- 139 - Annex XXXVI
Papua New Guinea Consultative Group Meeting
8-9 November 1999: Port Moresby
Statement of New Zealand
1 New Zealand as a friend of Papua New Guinea in the Pacific region is honoured to be involved with this current meeting of the Consultative Group for Papua New Guinea. The meeting is a valuable forum for the exchange of information related to development in Papua New Guinea. Before outlining NZ's development assistance programme I wish to make some general remarks on issues raised during this meeting.
2 The economic crisis earlier this year was the culmination of a number of factors, among them external shocks and natural disasters, but also including problems at both a political and official level with the management of the national economy. This has had serious ramifications for the level of confidence of foreign investors, as well as domestic business and consumers.
3 Extremely difficult budget decisions will continue to be required to make ends meet, not only in 2000, but for some years ahead. It is vital for the future that PNG meet basic needs in health and education, and embark on a programme of structural adjustment.
4 We agree there is a need to re-examine the role of government. With limited resources, hard choices have to be made about the size of government. New Zealand's own experience shows clearly that enterprises operate more effectively when political involvement is minimised and professional managers are required to manage in the best interests of an institution and its shareholders.
5 In this respect, we approve the priority being given by the government to a programme of privatisation, including in the financial sector. We understand that some essential legislative amendments to clarify the roles and responsibilities of office holders of the Privatisation Commission will be made as part of the budget process. New Zealand itself has experience with privatisation and public sector reform over the past fifteen years, and we are prepared to assist Papua New Guinea with appropriate technical assistance to assist with the reform process within the scope of our bilateral Official Development Assistance (ODA) programme.
6 We also welcome Papua New Guinea's support for international efforts to liberalise global trade. Through its membership of the WTO and APEC, Papua New Guinea is signaling its acceptance of the importance of free international trade as a way of improving its economic efficiency and building its domestic economy.
7 New Zealand, like others present, has concerns regarding the Rural Development Fund. We attach importance to Papua New Guinea reaching agreement with the IMF and the World Bank over the future of this fund. - 140 - Annex XXXVI
8 We are also supportive of measures proposed to improve the political system and standards of governance in Papua New Guinea. The public service must be given the chance to develop the skills to administer the government effectively, and it must be given appropriate delegated authority to do so.
9 We also wish to observe that sustainable development needs to be underpinned by a sound policy and regulatory framework for expanding sustainable economic activity and promoting sustainable development goals; in a context where government and the public sector provide accountability, transparency, and effective use of resources. Papua New Guinea's commitment in these areas, including the provision of counterpart funding, will be important to its success.
10 New Zealand is currently providing NZS11 million in project funding in Official Development Assistance to Papua New Guinea each year. It is intended to maintain this figure at least through 2000 and 2001. Of the NZ$11 million, NZ$5 million is specifically for reconstruction and development activities on Bougainville. The composition of the NZODA progranme is agreed each year in talks between the governments of New Zealand and Papua New Guinea. The focus of the programme is on Education and Training, Agricultural Development, Gender and Development, NGO support, and Technical Assistance.
11 To conclude, New Zealand welcomes the courageous measures taken by the new government, under the leadership of Sir Mekere Morauta, to bring expenditure under control, and to reform the economy. The speed of the government's reaction has slowed the deterioration of economic performance. No one would deny the size of the task which still lies ahead and the level of political courage and skill that will be required to see it through. The coordinated support of the World Bank, IMF, ADB and donors will be essential. We know that there are important issues still to be resolved, but we are confident that the government, under Sir Mekere Morauta, will make the best decisions in the long term interests of the people of Papua New Guinea.
T - 141 - Annex XXXVII
Statement by French Delegation (from transcription)
Thank you, Mr. Chairman, Mr. Chairman, Excellencies, distinguished delegates.
First of all, on behalf of the French Government, I would like to thank the World Bank and the Government of Papua New Guinea for convening this Consultative Group Meeting here in Port Moresby yesterday and today. As usual, the working papers which have been drafted for that meeting have been accurate and relevant, and we share the views that are expressed in these papers. I would like to express my congratulations to all of the parties involved.
Papua New Guinea is facing very severe economic, financial and social difficulties. Through the last couple of years, the country has also been facing adverse natural conditions which have aggravated the situation, and it has been severely impacted by the degradation of the international environment, particularly by the financial and economic crisis in Asia and by the downward trends of commodity prices.
The new Government has recognized the severity of the issues now facing the country and has indicated its commitments to begin the necessary reforms. I would like to mention, among others, the supplementary budget targeting a fiscal surplus for the second half of this year, which signals a significant change in direction. I would like also to mention the initiation of privatization programs. These are steps in the right direction.
I would also like to mention the implementationof the VAT starting from July the 1st, 1999, which is an important element to know that we improve the fiscal position of PNG. We share the views expressed during this meeting by the World Bank and other delegations, in terms of reforms of the public sector, strengthening the independence of the Central Bank or improving governance,transparency and accountability. All of those elements are key elements for a sustained development. All that we have heard during these two days from the Government is very encouraging, and we think the country is heading in the right directions.
Since 1998, France has committed more than 3.2 million French francs through ten projects, mainly in the field of social capital and humanitarian assistance. This is on a bilateral basis. But our action is not only a bilateral one. It must be also operating on a multilateral basis through the International Financial Institution and through the programs of the European Union to which France contributes to more than 20 percent.
For the coming years, on a bilateral basis, we intend to go on with our assistance in the field of training and higher education, culture, and humanitarian assistance and with our technical assistance. This will have to be discussed on a bilateral basis with the Government of Papua New Guinea case-by-case, and we are ready to examine all of the needs, projects and proposals that could be formulated by PNG's authorities and will remain ready to help them and to assist them.
Thank you for your attention.
-143 - Annex XXXVIII
Statement by the United Kingdom Delegation (from transcription)
Mr. Chairman, although we have no bilateral aid program with Papua New Guinea, the United Kingdom does provide development assistance to the country through multilateral agencies such as the European Union, to which we contribute about 12 percent of the budget. In addition, there is a regional development assistance program administered by our Department for International Development, a small proportion of which comes into PNG in the form of discretionary funds for quick disbursal in funding grassroots projects at the discretion of the High Commissioner. The High Commissioner is also able to tap into fairly substantial foreign ministry budgets aimed at human rights agenda issues and environmental protection.
In addition, the British Government provides a grant in aid to fund the activities of our Voluntary Service Overseas Organization, which is expanding its activities here and in 2000 will have 58 volunteers operating around Papua New Guinea.
The High Commission also administers a small program of scholarships for Papua New Guinea graduates to follow post-graduate studies at United Kingdom universities. Broadly, that's the extent of our contribution to development in PNG, and we intend to continue with that for the year 2000 and beyond.
Thank you.
- 145 - Annex XXXIX
Statement by the United States Delegation Ambassador Arma Jane Karaer
As most of you know, the United States has had no bilateral economic assistance programs in the South Pacific region since 1994.
However, I assure you that the United States Government strongly supports economic reform and structural adjustment in Papua New Guinea. We agree with the prime minister, the Bank and the Fund that reform is absolutely necessary to raise living standards for all Papua New Guineans.
The United States Government also welcomes the re-engagement of the Government of Papua New Guinea with the World Bank and the IMF. It is heartening to se the real spirit of cooperation expressed at this conference. We look forward to seeing the details of the agreements between you.
The United States will continue to provide the Services of approximately 80 Peace Corps volunteers as high school teachers and rural development coordinators. We will also continue training assistance to the security forces and other government entities which share national security responsibilities with them. Our support to regional organizations from which Papua New Guinea benefits, like the Forum Fisheries Agency, will also continue, as will our willingness to provide disaster assistance when it is necessary.
-147- Annex XL
Statement by Hon. Moi Avei, MP. Papua New Guinea Delegation (from transcription)
I am simply staggered by the overwhelming pledges that I hear from our development partners. Thank you. Thank you very much. The 2000 budget will set into motion our economic reform program. In the budget, the Prime Minister's opening statement said we will honor our commitment to IMF, we will not be printing money, we will respect and restore the integrity of the Central Bank, we will also be presenting a balanced budget. The budget will also provide a new road forward, a new development strategy, because we realize that Government intervention has a very limited impact. If Papua New Guinea has to grow, then it's the citizens who must share part of the responsibility and carry the weight of development. Through our policy on elementary education, we have made it very clear that although with the support of AusAID, we will train a number of elementary teachers, we will provide kits for elementary schools. But the people of Papua New Guinea have to fulfill their part of the bargain by giving land free of charge. Regions who will not provide land free of charge will simply not get elementary schools. Whether we lift the performance of the economy, does not depend on Government providing right policy matrix. And this is where the private sector has an important role to play in development. One of the important initiatives which comes on the development landscape is the CIMC, the Consultative Implementation and Monitoring Committee. It's an attempt to integrate the voice of private sector in policy making and in trying to get the Government to focus on areas that it ought to focus. We now realize that private sector has better capacity to deliver some of the services which have been traditionally given to Government. And I think it is true the role of CIMC playing the advocacy role that private sector will have a better and fairer hearing, not only in the ears of politicians, but more importantly, through the budget process. We have come here with a great deal of confidence to this consultative meeting because we have done some of the work that should have been done a long time ago through a process of consultation with the provincial Governments. We have made reference to the national dialogue, a dialogue which was partly funded by the taxpayers of Australia through AusAID and to which I, as a Minister responsible, would like to thank AusAID, in particular, Bruce, for that timely assistance that was given to the Government of Papua New Guinea. Through our bilateral and multilateral relationship, Papua New Guinea has been given the stewardship of taxpayers' money; taxpayers in the European Union, taxpayers in Australia, taxpayers in Japan, China, New Zealand, France, United Kingdom, United States, for all of the countries who are represented today. As a steward, we have a responsibility to explain why we have failed to provide counterpart funding for a number of important projects. One of the common explanations is because of resource constraints. The real reason is because we have taken on too much. The cost of Government in Papua New Guinea is far too big for us to carry. It is for this very reason that the second part of the reform process has to target the public - 148- Annex XL sector reforms. We have hit the intervention from New Zealand, and we will be looking forward to borrowing some models from New Zealand. But more specifically, I just want to say thank you to each of the individual donors, UNDP, for the advocacy role that you have played. We are mindful that we have been constantly reminded by Elizabeth that economic growth does not automatically transfer to human development. And I would like to ask my officers to pass you our first home- grown human development report. If public policy is left to politicians alone, then you can rest assured we will get it wrong. And it is for this reason that we have to take public policy out of the domain of parliament, out into a public forum, where important discussions have to be provoked by objective reports such as this. And we thank UNDP for that. And one of the important things that we are doing together with UNDP is the training for planners that will go to districts and provincial Government. And it is important that we talk less about bottom-up planning, but at least have capacity and manpower to actually turn bottom-up planning into a functional process. One of the issues that amazes us is why taxpayers in European Union would want to contribute to the development process in Papua New Guinea. And we would like to thank the European Union, to Dr. Carlos Rey for the tremendous assistance the European Union has given to Papua New Guinea through the National Indicative Program, Stabex and Sysmin. The people who travel the Ramu Valley now enjoy an access to markets. And for that we thank you very much. The action challenge for Planning and UNDP is in the area of the development of the fishery sector, that we lose sight of the fact that Papua New Guinea is a maritime country blessed with so many resources, yet fisheries sector remains totally underdeveloped. Washington is a bit far for us to call World Bank our bank, but at least ADB, Manila, is closer, and we always enjoyed a very cordial relationship with the officials of the ADB. Through ADB, we have received assistance in the area of infrastructure development. We also have received loans for higher education. And the most exciting thing, as far as the District Development Program is concerned, is the new program for the five Highlands provinces. As a Planning Minister, it is my responsibility to provide the counterpart funds for that. I have no area in which I can dip into the development budget, hence the need for us to translate the Rural Development Program into a District Development Program so that the much-needed counterpart funding can be provided from that source. But the fact that Prime Minister Howard came up especially to sign this development treaty is a true indication of the special relationship that Papua New Guinea has with Australia. Yes, we have been very critical about some aspects of the development treaty, but I see that there will be greater participation by Papua New Guineans under a new program. As mates, we have the right to brawl, as mates, we have the right to drink afterwards, to celebrate the common purpose from which Australia's taxpayers' money is being spent on our country. It is our duty to spend that money wisely. Ambassador, I think you have explained the special relationship between Papua New Guinea and Japan better than I can. But thank you so much. What strikes - 149- Annex XL everybody when they come to Papua New Guinea is the new international airport. This has been funded by the Japanese people and, again, the Tokwa Airport. We have all given a glowing report about GRA, but much has to do with donor support and, in particular, the Japanese Government. Going back across to China, we have made some policy slips by recognizing a certain island. But I think we can assure you the Prime Minister and the Foreign Minister assure you that our relationship is back on track, and the support that you have given in terms of budgetary support, and more importantly, of the focused attempts of developing the social capital by building the Markham National High School, we thank you for that. I am very embarrassed to talk to the Korean Ambassador because of the water project. Those funds, Mr. Chairman, have been there for a long time, but because of one of the critical issues that we have to address is the integrity of the tendering procedures. Ambassador, I can assure you that, under the Prime Minister's direction, that project will get off the ground next year, and we intend to provide counterpart funding in the 2000 budget. But thank you very much for all of the support leadership you have provided in Bougainville, and thank you very much for the offer of technical support in the area of public sector reforms. I think, although you are small, but you are certainly a pioneer in this area, and we like to be able to pick your brains on this. One of the new countries that we welcome on our shores is France. And I would like to state that one of the programs that we have agreed to is the Rural Electrification program both in Eastern Highlands and Simbu And I would like to give an example of the right sort of things that should be funded in our Rural Development Program. Under this program, Papua New Guinea Government is expected to provide counterpart funding of 1.8 million. Most of that will come from the Rural Development Action Plan, where Member of Parliament and Eastern Highlands and Simbu Provincial Government will provide the counterpart funding for this. It will not come from National Planning. And we would like to thank you for that. The United Kingdom is a very, very important partner because in some areas where there are no Government offices, they have volunteers from the United Kingdom, and we thank you, and we thank you for the active role that the High Commission has played. Sometimes I don't know who our ombudsman is, but he has certainly been very forthright, and we appreciate the forthrightness of his comments. You know, ants should not address the elephants, but it is very difficult for Papua New Guinea to address United States. But, Ambassador, thank you so much for the volunteers that serve in the rural parts of Papua New Guinea. All that we ask of you is for more U.S. investors to come on. We have a lot of gold, we have a lot of oil. We need investors to come in. And, finally, what am I going to say about the coordinating team, the World Bank? I had the experience of working on one Structural Adjustment Program in 1995. And there I can tell you, Klaus, has been a fundamental difference between working with this team and the other team. Another program we were expected to cross 110 T's and God knows how many I's. Instead of us focusing on a common strategy, there was so much nitpicking that was expected from the World Bank. We are indeed very delighted that the World Bank has been able to provide the intellectual leadership in bringing all of us together. We are, indeed, very encouraged by -150- Annex XL the statements that you have made that the reforms can only be led from within. We are indeed encouraged by the fact that you have provided technical support on the ground here. And the fact that you have an office here, the fact that ADB has an office here, simply gives us more confidence that we will be able to fulfill part of our bargain. But in summary, I would just like to thank all of you for coming on shore here for the first CG in Papua New Guinea. I would like to ask that next time we have a CG, it is for us to leave Port Moresby because Port Moresby does not represent Papua New Guinea. We may have got things wrong, but there are still a lot of positive signs out in the country, where people of Papua New Guinea are doing things with or without Government support. Of course, in conclusion, in every game there has to be a referee, and this particular case it's IMF. And I would like to thank you. You've given us a very tough challenge, but I think that we will rise to the occasion when we present the 2000 budget. As I stated earlier, we will not be printing money. We will be giving a balanced budget. The budget, as I stated earlier, will give us a road map. And it is because it will restore the confidence of a nation, where the people will start believing in themselves, it is because of that this speculation about blocking the budget should be put aside. On behalf of our Prime Minister Sir Mekere Morauta, the Government of Papua New Guinea, the 19 provinces, the 89 districts of Papua New Guinea, I thank you, World Bank. I thank the donor community for the overwhelming pledges that you have given. As stewards of taxpayers' money, it is our duty to ensure that taxpayers' money is accounted for. It will be money well spent, that I look forward to the next CG, when I will give an account of how the taxpayers' money was spent in our country. Thank you. Thank you so much. -151 - Annex XLI
Eighth Meeting of the Consultative Group for
Papua New Guinea
November 8-9, 1999
Chairman's Summary and Closing Remarks
1. PNG's Government Embarks on a Reform Program Worthy of Donor Support. The Consultative Group (CG) for Papua New Guinea (PNG) has recognized that the Government's proposed economic and structural reform program provides a solid platform which PNG's development partners are happy to support. The CG congratulated PNG on its reform efforts and commitment to prompt implementation, particularly given the urgency of the situation. The CG recognized the August 1999 supplementary budget as an important first step. In its background paper for the CG Meeting titled "Structural Reform Program 2000", the Government articulated its main objectives for the next 2-3 years as follows: i) promoting good governance; ii) sustaining macroeconomic stability; iii) improving public sector performance, including the implementation of a comprehensive privatization program; iv) removing barriers to investment and economic development, and; v) continuing the Bougainville peace process. The initial policy matrix put forward by the government proposes a areas of emphasis that CG participants felt were of critical importance and worthy of donor support, including the strengthening of oversight agencies (Auditor General and Ombudsman Commission, among others), emphasis on service delivery in health and education, and fighting corruption and mismanagement. CG participants urged the Government to move quickly beyond short term measures and begin dealing with the numerous development issues facing the country in order to begin improving the quality of life of the average Papua New Guinean.
2. Financing Arrangements Proposed. The CG Meeting has confirmed donors' intention to pull together a financing package in support of the Government's economic recovery and reform efforts. The proposed assistance package is to be anchored in an IMF program and a World Bank structural reform program. The IMF and the Government of PNG have reached a broad agreement on the budget framework. The -152 - Annex XLI
meeting welcomed the fact that the reformnprogram will be coordinated from the Prime Minister's office by the Chief Secretary through the Committee of Central Agencies. Offers of assistance to support the work of the Committee were made by a number of delegations. The importance of effective coordination among donors and the government was emphasized. The total financial package relating to extraordinary financing in support of the government's reform program could be in excess of US$300 million subject to further bilateral and multilateral discussions. Key milestones that have been highlighted by the CG include: i) the initialing of a letter of intent to the IMF, which would lead to the release of Australia's US$80 million bridge financing; ii) Board presentation of the IMF program which is envisaged to include a Stand-By Arrangement and CCFF facility, and; iii) Board presentation of the World Bank's structural adjustment program loan. These milestones would facilitate consideration of additional assistance from Australia, Japan and European Union. Assistance from the Asian Development Bank would flow in the latter part of 2000 subject to progress on the public sector reform front. This special assistance would supplement donors' ongoing development programs.
3. From Vision to Action. Implementation of the financing arrangement rests on the Government's performance in meeting agreed macroeconomic framework targets and actions agreed to within the structural reform agenda. Early gains will be critical in supporting early disbursements. In this regard, efforts to restructure the Rural Development Fund were discussed in some detail. While expressing support for the government's renewed emphasis on rural development, PNG's development partners sought clarifications regarding the proposed design and operational framework of the new facility, called the District Development Program (DDP). Prime Minister Morauta requested the Bank's assistance in designing an accountability and transparency mechanism which would be implemented as part of the DDP. In agreeing to provide this support, the Bank requested that no disbursements be made in 2000 until a satisfactory accountability and transparency mechanism was in place. The Bank's program would be conditional to the adoption and good functioning of these measures.
4. Improving Development Effectiveness and Sustainability Are Core Long Term Objectives and Performance Indicators. Development success for PNG and its development partners will be assessed on the basis of on-the-ground results and -153 - Annex XLI sustainability of stabilization and reform efforts. This view was recognized and included in the Government's Development and Reform Program presented to the CG Meeting as part of the country's background documents. The establishment of the Department of Planning and Monitoring was to underpin renewed efforts to improve the overall framework for the planning, budgeting and implementation of the country's development program was strongly endorsed by the CG. The enhanced ownership of the development agenda and the increased focus on upstream strategic planning and program development were seen as critical steps in consolidating the development agenda and providing PNG's development partners with a clearer policy and strategic environment. This would set the stage for enhancing implementation performance.
5. Next Meeting. The Government of PNG and the CG agreed that there would be a need to take stock of developments on a regular basis and that the next CG be held in the same timeframe next year. The city of Madang, Capital of Madang Province on PNG's north coast, was proposed as the venue for the Ninth Meeting of the Consultative Group for PNG.
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The World Bank & Government of Papua New Guinea
News Release EAP Contacts: In Port Moresby: Lucy S. Oh (WB) 675-323-1500 Mark Davis (GoPNG) 675-323-3730 In Washington:Loty Salazar (WB) 202-458-2559
Donors Support Implementationof Reform Program by Government of Papua New Guinea
PORT MORESBY, November 9, 1999 -- Over 100 delegates from international agencies and countries gathered in Port Moresby on November 8-9, 1999 for the Eighth Meeting of the Consultative Group to focus on a reform program offered by the Government of Papua New Guinea (PNG) and to express their support for a proposed international assistance package led by the International Monetary Fund (IMF) and the World Bank. Consultative Group participants recognized the importance of the Government's proposed economic and structural reform program and fully supported its immediate implementation given the urgency of the situation.
"Now we must maintain a consistent pace of reform and look to the rest of the world for support," said PNG Prime Minister Sir Mekere Morauta. "I have been greatly heartened by the expressions of encouragement and confidence from the international community. This meeting is therefore very important and very timely in terms of stimulating immediate development implementation to improve the lives of the people of Papua New Guinea. It has been of invaluable assistance in the restoration of confidence in Papua New Guinea."
The first day, participants discussed the overall development needs of the country, focusing on promoting good governance, sustaining macroeconomic stability, improving public sector performance, and improving quality of life for the people. Donors expressed their support for revived development efforts - including a special emphasis on oversight agencies, fighting corruption, and service delivery in health and education. They also encouraged more active implementation of the Government's proposed reform program.
"Early gains will be critical in supporting early disbursements," said meeting Chairman, Klaus Rohland, World Bank Country Directorfor Papua New Guinea and Pacific - 156 - Annex XLII
Islands. Rohland noted that development success in PNG would be assessed based on achievement of results on the ground and the sustainability of stabilization and reform efforts.
During the second day of meetings, participants discussed more detailed aid assistance. Donors expressed their intention to pull together a financing package in support of the Government's economic recovery and reform efforts. The proposed assistance package would be anchored in an IMF program and a World Bank structural reform program.
Also discussed was the Rural Development Fund and the necessity to upgrade the accountability framework as well as the government's thrust to promote development at the district and village level through the proposed District Development Program (DDP). PNG official and Donors raised the need to the design an accountability and transparency regime for the DDP and Prime Minister Morauta requested the World Bank's assistance in this regard.
"We have delivered on the Supplementary Budget and we will deliver on the 2000 Budget, which will be a balanced budget. We have made the hard decisions and we will honor all our commitments, and this has been recognized at this meeting," said Honorable Moi Avei, Minister of Planning and Implementation.
The two-day donor meeting also included observers from the Institute of National Affairs, the Consultative Implementation and Monitoring Council, the National Council of Women, the Council of Churches, and the National Volunteer Services and National Association of NGOs.
All participants of the Consultative Group agreed that regular evaluations of development progress was needed and agreed to meet again next year around the same time.
"We are delighted to be working with the participants of the Eighth Meeting of the Consultative Group for Papua New Guinea. The Government of PNG can be assured of our enthusiastic support," said World Bank President James D. Wolfensohn.
The meeting was attended by representatives from Australia, China, France, Japan, Korea, New Zealand, Papua New Guinea, United Kingdom, and the United States. Also in attendance were representatives from the Asian Development Bank (ADB); Commonwealth Secretariat, Development Cooperation; European Commission;Forum Secretariat; International Monetary Fund (IMF); The World Bank; United Nations, United Nations Children's Fund (UNICEF); United Nations Family Planning Agency (UNFPA); United Nations Development Programme (UNDP); World Health Organization(WHO).
For more information on the Consultative Groupfor PNG please see: http://www.worldbank. org/eap