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Tuesday, 19 November 2002
Page: 6785

Senator COOK (7:42 PM) —Last Friday, the Minister for Foreign Affairs, Alexander Downer, led an Australian delegation of ministers to talks in Papua New Guinea. It was a regular ministerial summit. One of the other members of the delegation was Senator Hill, the Minister for Defence. Among the key issues being discussed by the joint governments of PNG and Australia was the state of the Papua New Guinean economy and steps that needed to be taken to improve the economic outlook for that country.

Papua New Guinea is Australia's closest neighbour. We are joined across the Torres Strait by a chain of islands. Papua New Guinea is a developing country in which the per capita income is quite low. It is a mineral-rich economy in which the art of exploiting the mineral wealth of the country for the good and benefit of the citizens of the country is one of the major development challenges. It is a country with a standard of education which is good for a developing country, but all of the development economists agree that elementary education for boys and girls is a key building block for economic development in a developing country and Papua New Guinea needs to spend more money on education in order to achieve the types of skills and intellectual framework necessary for growth.

In Papua New Guinea the AIDS epidemic that is besetting Africa and parts of Asia has not yet broken out but is threatening to. Papua New Guinea is on the verge of having AIDS reach epidemic proportions. If things continue unabated, an epidemic is likely. Expenditure on health will be fundamental to stopping the epidemic. Also, lifting education standards generally will improve the health conditions of that country and remove a considerable drain in expenditure on health services generally.

Apart from resource development and timber and cellulose production, Papua New Guinea's economy is based on subsistence farming. There is a real need to put roads through the highlands and to improve other infrastructure so that remote farmers can bring their produce to the main markets at Port Moresby and elsewhere in that country to create the fundamentals of an economy.

Papua New Guinea's economic outlook in the present circumstances is not bright, because the revenue stream that supports government expenditure is drying up; it is falling. The budget of Papua New Guinea is in deficit to the tune of six to seven per cent of GDP, which is quite high. The IMF and the Australian government are pressing the Papua New Guinean government to bring its budget back into surplus and to start making provision against any decline in the general economy as a budgetary outlay.

The PNG government wants an agreement from Australia whereby we provide a holiday from repayments of debt that has been incurred between Papua New Guinea and Australia. Alexander Downer, on behalf of this country, said to the camera on ABC news on Friday night that Australia had declined to agree to the Papua New Guinean proposition. He made it sound as if we had done them a good turn. He said that, if Papua New Guinea does not have to service its foreign debt, the international investment community will mark down Papua New Guinea and international investment will not flow to that country. That sounds like we did them a good turn! In fact, we did them a very bad turn. International investment in Papua New Guinea is related to the mineral wealth and hydrocarbon resources of that nation. International investment flows according to the market for those commodities and is otherwise in support, infrastructure and other services. The amount of international investment that primarily flows to that country is dependent on the world market for PNG's exports.

With a collapse in revenue to the budget, we are looking at this situation: the budget deficit is growing; the level and proportion of outlays from that budget to retire debt and pay off foreign debt is growing; the interest burden of the foreign debt is increasing; and the ability of that budget in a contracting economy to meet heath, education infrastructure and other payments is being reduced at the very time when just about every economist who ever looks at this classic set of circumstances would argue that the economy needs to be stimulated. The stimulus is unlikely to come from the private sector; the stimulus has to come from the public sector. If it is to come from the public sector, you cannot be reducing your deficit and retiring debt at that level and you cannot be making provision for any further deterioration in your exchange rate—you cannot be doing all those things necessary to build an economy.

For Australia, the real question is: how do we play a role in helping Papua New Guinea to get a sustainable growth economy? We put big bucks of Australian aid into PNG, and it keeps going to PNG. The key question is: how can PNG be put on a path where its growth is sustainable and self-generating so that the foreign aid we supply them with will not be necessary? As is well known in development and economic circles, the answer to that question is: you put into place the education building blocks and the infrastructure necessary, you keep the economy moving along, you remove the debt burdens from the economy and you go for growth. That is what you do. You hit a level of growth which becomes self-sustaining and the economy takes off, and when ignition occurs it usually takes off at very high growth rates. But what we are doing is asking the reverse to occur. We are smothering the economy. Australia should have said that we would examine and support the debt relief proposals from PNG in order to enable their economy to grow.

The other thing that needs to be said is that Papua New Guinea is a democracy, and it is a relatively stable democracy, irrespective of the fact that governments in that country do come and go. Recently, Michael Somare was re-elected as the Prime Minister of Papua New Guinea. One of the platforms on which he stood, which the voters in that constituency endorsed, was that he was against privatisation. It was a `no privatisation' platform. The Australian government has now asked—

Senator Ian Macdonald —It would be no good for you after Qantas and the Commonwealth Bank.

Senator COOK —That is the democratic decision of the voters of PNG, Senator Ian Macdonald. All I am saying is that we should respect the democratic right of those voters to make a decision. The Australian government is now saying to PNG: `You've got to reverse your anti-privatisation stance. You've got to sell off your electricity authority. That is what you've got to do. And you've got to generate a capital gain from that sale to retire debt'—not to stimulate the economy, not to invest in infrastructure, not to fight the growing incipient problem of AIDS, not to invest in education but to simply retire debt at a time when the revenue from power generation can add to the declining revenue going to the budget.

We are telling them, a democratic government with a mandate, to reverse their mandate. We are saying, `Don't do what the voters asked you to do; just change your role.' Then we talk about democracy in developing countries being fragile while we stand over them with a big stick and an aid bucket, which we are not helping them with, saying, `If you do as we tell you, we'll provide a bit of aid.' Australia ought to respect the democratic decision that put the Somare government in office and protect the political stability of the country by not undermining a democratically elected government and by helping the economy to expand.

The economy of Papua New Guinea is in a parlous state. We will have a Biafra of the Pacific on our doorstep if we do not do something about it. Watching this economy in decline is not an option; we need to take positive steps. Insisting on a strict monetarist approach in a developing economy does not face up to the realities of the needs of a developing economy. By applying this harsh economic medicine to PNG, we may well bring about the demise of the economy and therefore a greater debt that Australia will have to meet in the future. If we do that, it will be a tragedy for them and a tragedy for us.