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Thursday, 20 April 1972
Page: 1909


Mr CREAN (Melbourne Ports) - This measure, as the Minister assisting the Treasurer indicated, seeks the approval of the Parliament to the provision of a guarantee by the Commonwealth of a $US4.5m, or the Australian equivalent of S3. 8m, borrowing by the Administration of Papua New Guinea from the Asian Development Bank. The proceeds of the loan are for relending by the Administration to the Papua New Guinea Development Bank, and will meet the foreign currency component of a number of development projects financed by that Bank in Papua New Guinea over the next 3 years. The Opposition supports the measure, particularly because the loan is in what are described as soft loan terms rather than hard; that is, the money is to be available to the Administration of Papua New Guinea at a rate of only 3 per cent, which is very low by today's standards.

I think that some time ago when we were contemplating a loan from the International Bank to the Development Bank, in somewhat similar circumstances, the rate that was quoted for the loan was somewhere between 7 per cent and 8 per cent. I pointed out then the difficulty of a relatively undeveloped country such as Papua New Guinea being able to finance development when there was an interest component of somewhere in excess of 7 per cent.

The Minister, in introducing the measure, said that the loan is the first that the Asian Development Bank has made to the Administration since the admission of Papua New Guinea to membership of the Asian Development Bank in April 1971. My colleague, the Leader of the Opposition, as far back as 1966 put on notice a question to the then Minister for External Affairs and when he received a reply it was from the then Acting Minister, now Sir John McEwen. Mr Whitlam had asked:

1.   Is it necessary to amend the terms of reference of the Economic Commission for Asia and the Far East to include the Territory of Papua and New Guinea before the Asian Development Bank can assist the Territory?

2.   Why did Australia agree to the terms of reference being amended in 1963 to include only continental Australia?

3.   What steps has Australia taken to have the Territory now included in the terms of reference?

The reply to his question was:

1.   Yes.

2.   When Australia became a regional member of E.C.A.F.E. in 1963, Australia's external territories were not brought within the geographical scope of E.C.A.F.E. The decision to seek membership for continental Australia only was taken in the light of the political and economic progress of Australia's external territories at that time.

3.   The matter is currently under consideration.

That merely serves to indicate that as recently as September 1966 there seemed to be no indication that what might be called self-government for Papua New Guinea was likely in the foreseeable future. When a further question was put on notice as recently as 1970 there still had not been much action taken. Mr Whitlam asked Mr McMahon, then Minister for External

Affairs, question No. 155 reported on page 1019 of Hansard on 9th April 1970. He asked:

What steps have been taken since his predecessor's answer to me on 28 May 1969 (Hansard, page 2440) to effectuate the wish expressed by the Minister for External Territories that the Territory of Papua and New Guinea become an associate member of the Economic Commission for Asia and the Far East. . . .

The answer given was:

Following further consideration of this question by the Government and consultations with the Administrator's Executive Council, in which it expressed agreement, steps have been initiated to bring before the 26th Session of the Economic Commission for Asia and the Far East, meeting in Bangkok 14th-27th April, a request for the inclusion of the Territory as an Associate Member of the Commission. When this is achieved, application will be made on behalf of the Territory for membership of the Asian Development Bank.

It was a comparatively long process before Papua New Guinea became a separate member and, therefore, it is not surprising that this should be the first loan when Papua New Guinea has been so recently a member of the Bank. However, I would like to say one or two things about the potential for development and what appears to be the relatively slow rate of economic development in Papua New Guinea and the fact that to some extent the economy of Papua New Guinea seems to be becoming afflicted with some of the problems flowing from Australia. I would like to refer to the quarterly statistical bulletin of the Reserve Bank of Australia issued in Port Moresby for the December 1971 quarter. Among other things it points to a comparatively rapid rate of inflation occurring in Papua New Guinea which in that year was running at something like 12 per cent. Of course, inflation at that rate can have very serious implications for the development of that economy. It is still an economy that is basically a subsistence economy although it runs the great danger of becoming what is sometimes described as a dual or triple economy, where there is a kind of European expatriate superstructure through which Papua New Guinea would tend to get somewhere in the middle a semi-industrial development. However, basically the totality of the economy is still mainly of a subsistence nature.

The bulletin does contain estimates of the national income for the whole economy of Papua New Guinea and to some extent they typify what I have been trying to describe. What we describe as the gross national product at factor cost in the case of Papua New Guinea is $545m. When one takes into account that this is the gross national product for a population of something like 3 million people it gives some indication of the relative or comparative poverty of this economy. When it is broken down it appears that something like onethird of the gross national product comes from the single item 'Wages, Salaries and Supplements', which presumably includes the European as well as the insipient or developing industrial economy. However, what is described as the subsistence sector, although it is the income for something over 95 per cent of the total population of Papua New Guinea, is only about onethird of the sum I have quoted. This raises some very difficult problems for the future development of Papua New Guinea. At least the problem in the future of raising the standards there will be concerned more with the development of the subsistence part than perhaps with the development of the industrial or other aspects of the economy.

What one finds disturbing in some of these figures is the slow rate at which growth is taking place in some aspects of the economy. Even in this area of the Development Bank the loans and advances in 1969- 70 were $12.2m. In 1971-72, 2i years later because the figures go right up until November 1972, the level of advances is only $15.7m. This indicates the slow rate of growth in the provision of infrastructure and other things so necessary for the development of that economy. From other statements in this document it can be seen that personal consumption expenditure in 1970-71 is estimated to have been about $21 6m compared with the previous year's level of about $180m, an increase of 20 per cent. However, one should take into account the fact that a large part of that is going to the non-subsistence part of the economy and that it has been affected by inflation of something like 12 per cent while as in some other statistics, what appears to be growth in essence is not really growth at all.

The other problem that faces Papua New Guinea is the large imbalance in trade. At the moment on an annual basis there is a deficiency of the order of $100m annually in the balance of trade, this difference being between exports and imports. The exports are comparatively static. I will say something in a moment to show why that is. But overall there was an adverse balance of trade on current account for 1969-70 of $159m. As with the Australian adverse balance of trade, to some extent that is offset by the inflow of foreign capital, but a large part of the foreign capital which flows into Papua New Guinea comes from Australia. This is a place in which Australia is an investor rather than a place that is only invested in, as overall Australia is, with the majority of capital investment coming from overseas.

But of course some serious implications are involved for the future. I still do not think that we in Australia realise sufficiently what our great obligations to this area are. We know that Papua New Guinea is striving for something that is described as self government. But when, as the statistics show, well over half of what is described as government revenue in Papua New Guinea does not come from taxes raised in the Territory but comes from the Treasury in Australia, in some respects self government has a peculiar meaning. I believe that in the foreseeable future Australia's contribution to this area will have to be more rather than less. One of the difficulties that Papua New Guinea faces with its exports is that for a considerable period of time it will have to rely for export income on such commodities as cocoa, coffee and tea. These are products which the rest of the world seems to have plenty of already. Unfortunately they are products in relation to which there are serious fluctuations in what are called the terms of trade. A Reserve Bank bulletin which I have provides some interesting information about both the world cocoa scene and the situation in Papua New Guinea in particular. Page 4 of the document states:

The price in London of Ghana cocoa has been falling steadily since mid August and it is now down to around £Stg190 per thousand kilos, £Stg90 less than a year ago. The outlook for prices during 1972 is pessimistic.

Of course we appreciate the difficulties that are experienced in Australia when the price of wool falls. At least we are no longer as dependent on that one commodity for export income as we were, although I do not by any means want to underestimate the significance that wool still has. But if we had faced a drop of about 50 per cent in the price of wool, which is what occurred with cocoa, we would be disturbed about our balance of trade if we were as dependent on wool exports as we were, say, 10 years ago. The same position as applies to cocoa applies to coffee. There have been falls in the price which the crop brings. Other commodities such as rubber and tea suffer from the same difficulty.

These circumstances highlight the need to evolve some better trade arrangements for the Territory's primary products. For a manufactured product it is easy enough to determine on an accounting basis what are the costs of production and thereby determine what is a reasonable price to charge for the product. The same sort of criteria do not apply to primary products, although there is no doubt that primary products have costs of production just as other products do, but their prices, particularly when they enter into the export field, are not subject to very much determination on the part of the country that produces them; the manipulation tends to be done by those who buy. It seems that the buyers are much more strongly organised than are those who sell. I would think that Australia, through its membership of deliberative bodies concerned with matters of trade, should try to assist in getting better terms for the sale of primary products, particularly the sale of what are called tropical products. Most of what Papua New Guinea is likely to produce in the future falls within the category of tropical products.

Fortunately no longer is there quite the exuberance that was once evident in people propounding the view that all developing countries should develop industrially rather than furthering agricultural and primary production. That countries need not necessarily develop in this way is one of the lessons that was learnt with difficulty some years ago. Nevertheless it seems sometimes that in Australia, at least in our attitude to New Guinea, we tend to fall into the error of thinking that the greatest assistance we can give to Papua New Guinea is in building up its industries. Of course, the most recent example of this thinking has been manifested in the Bougainville copper project. Again the Reserve Bank statistics indicate some quite serious dislocations that have taken place in the Papua New Guinea economy by reason of the rather rapid acceleration of the Bougainville development and subsequently the rapid decline in that development. These dislocations are reflected in some figures shown an page 3 of the Reserve Bank bulletin to which I have already referred. The value of new building approvals during the September 1971 quarter are shown as being $4.4m. Again I indicate how small that figure is for a country with a population of about 3 million. That figure of $4. 4m represented a decline of 8 per cent on the June 1971 quarter levels and was 37 per cent below the levels of the same period for the preceding year. Of course the preceding year was the year during which the acceleration of the Bougainville project . and the construction work associated with the development had taken place. When the decline in the rate of development came it dealt a rather serious backlash to the stability of the total economy.

I draw attention also to some remarks contained in a publication entitled 'Quarterly Economic Review' published by the Economist Intelligence Unit. The issue to which I refer is entitled 'Australia, Papua, New Guinea No. 4 - 1971'. It was published in December 1971 so its statistics are quite recent. On page 17 under the heading The Political Scene' some reflections are made upon what might happen at the House of Assembly election. Of course, since the document was written the election has taken place. The document goes on to state:

As the country prepares to go to the polls in February-March it is clear that the result of the election is an extremely hazardous forecasting exercise. The great unknown is the electorate's reoction to the new phenomenon of party politics, since it is new to the polls.

The only party which could conceivably gain a working majority unaided is the United party, which holds 45 seats in the old 94-member house and is seeking 60 in the new 107-seat version. A United party victory would see the retention in parliament of the creeping gradualism approach to political change and solid support for the Australian administering power. Economically, the United party encourages maximum growth through unrestrained capital inflow tempered by a small degree of selective economic nationalism in the transport field.

It goes on to note:

The opposition radical Pangu Pati, although unable to gain a majority, may gather enough supporters to be the senior partner in a governing coalition. Pangu's policy, highly nationalistic, directs itself more at the distribution of income than at growth, and could be a strong deterrent to continuing foreign investment.

I do not quite know what is meant by that. But I hope that the Australian Government wil not withdraw any of the succour that it gives to Papua New Guinea because, like the authors of the publication which I have just read, it may not like the Pangu Pati as the government. From what was said on today's news I understand that a Pangu dominated combination has finally emerged as the government of Papua New Guinea and that it is to be sworn in today. The article goes on to state:

The outcome of the election is of vital importance to the economy, since the confidence of both existing and potential businessmen is dependent upon it. The capital-hungry economy can ill afford severe jolts to the confidence of any sources of capital in its present embryonic, yet highly expansionary, stage.

One of the risks that one runs in encouraging self-government is that one might not always get the kind of result that one would like. Business or foreign investment should not go into Papua New Guinea on the basis of liking certain kinds of political groups because considerable fluctuations can take place.

I know that there was a lot of controversy around the Bougainville development in Papua New Guinea. This development certainly brings a substantially new industry to that area. But it seems to me that in many cases it is hard to know how much benefit really goes to what are called the indigenes and how much really is return on investment and paid to those who have invested. I do not know what kind of regulatory processes exist to ensure that there is a fair balance in that development. I have merely pointed out that there is no doubt that largescale development causes some kinds of problems in regard to growth and an unevenness of economic development.

It has been said also that this type of development causes problems while it is taking place and dislocations when the growth begins to run down. For all these reasons I think that Australia and Aus.talians ought to be much more aware than they are of the very serious problems that face us in assisting an area which in many respects is almost still the most primitive country in the world. 1 think that the area geographically is about twice the size of Victoria and has a population which is greater than that of any State of Australia, with the exception of New South Wales and Victoria. That is the magnitude of the problem.

The figures indicate that the per capita standard is less than $Ausl00. We have a problem of this magnitude very close to us and I think that this behoves us perhaps to take more seriously the question of economic development in Papua New Guinea. Recently I obtained from that very useful service in the Library a list of articles which one can obtain if one is interested. One of the articles is an extract taken recently from the State Department's Bulletin on 'Institutional Problems in the Developing Countries'. The article contains an address delivered by Mr John A. Hannah, the Administrator of the Agency for International Development. In view of the debate that concluded a few minutes ago in this House I think that the words contained in the article at least are salutary for Australia as well as for the Americans to whom the speech was primarily addressed. Mr Hannah said:

There can be no assured peace for Americans unless we join the other developed nations of the world in a continuing effort to develop a stable world order. We cannot ask ourselves where the United States will be in the next few decades without asking where the world will be.

I submit that the same kind of thing applies as far as Australia is concerned, that we cannot be concerned only with our own internal growth in the next 10 or 15 years without paying some consideration also to what the growth of Papua New Guinea is going to be in the years ahead. I think it is a pity that more attention is not devoted in this House to debates on Papua New Guinea. Debates on this matter generally come on at all sorts of odd hours, to fill in when nothing else is about and when no-one is particularly enthusiastic about participating in them. This is quite a serious omission. I hope that at least we will get a greater sense of responsibility in the future to this area which, after all, is our nearest neighbour and which we are assisting to what is sometimes rather loosely described as self-determination.







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