Papua New Guinea’s Treasurer Charles Abel says Papua New Guinea needs to take a staged approach to integration with the global economy in order to avoid being taken advantage of. Speaking at an APEC discussion forum at the University of PNG, he said recent experience suggests the nation’s foreign exchange markets may be too open.

PNG’s Treasurer Charles Abel. Source: APEC

‘Papua New Guinea is a baby learning rapidly to crawl and walk,’ he said.

‘It needs time to grow its muscle and intellect before facing the big boys.

‘We want economic integration, but not economic exploitation.

‘If the integration is too rapid, the risk is that the political and government institutions will be taken advantage of.’

‘Why do we export everything cheaply and import almost everything?’

Abel said that ‘sophisticated financial and political capital’ will systematically dispossess the country’s natural resources and put them into the hands of foreigners.

‘Papua New Guinea must make sure that integration takes place at a pace that allows local institutions, industry and local businesses to develop.’

Sustainability

Abel said that exploitation of PNG’s natural resources must primarily benefit the country and be done sustainably.

He pointed to the nation’s failure to ‘energise ourselves from our own oil and gas and feed’ internally.

‘Why do we export everything cheaply and import almost everything?

‘We risk losing our land and our economy.’

‘We have to blame ourselves, of course.’

Integration

Abel said while there is an acceptance that economic and financial integration is desirable, it is necessary to take into account the country’s stage of economic development.

‘For some countries, it needs to be staged,’ he said.

‘If it isn’t staged, we will continue to experience what we have since independence where we don’t develop that broad-based economy and where a lot of the economy is owned by foreigners.

‘We risk losing our land and our economy.’

‘The effects of integration will be realised in different ways.’

Abel added that it is imperative to learn from previous experience when negotiating the ‘massive resource projects that are coming up.’

‘If we open up on a wholesale basis I don’t think many of the benefits that (would) be realised in a broad-based, deep sophisticated economy will translate in Papua New Guinea.’

Exchange rate

A ‘classical example’ of the failure to understand PNG’s specific needs, said Abel, is persistent calls for a significant depreciation of the kina.

He said this would not necessarily bring ‘some of the supply-side responses’ (increased output from PNG producers because they are more price-competitive internationally) that might be expected to occur in a more advanced economy.

‘The effects of integration will be realised in different ways depending on the type of economy you are talking about.

‘It is so important for multi-lateralists to understand this.

‘My fear is that if we subscribe to it in a wholesale fashion because of the state of development we are at, PNG won’t realise all those benefits.’

Current account

Abel told the APEC discussion forum that PNG has a high current account surplus yet has a foreign exchange problem.

‘(We) are exporting billions of dollar-denominated goods. Why do we experience foreign exchange issues?

‘Perhaps our regime is too open. It allows too much discretion with where you put your capital.

‘You need some restraints, otherwise a little country will get taken advantage of by big investors and bigger countries.’

Abel said another example of the misunderstanding of PNG’s situation is the claim that the level of the kina is managed by the central bank.

He said the kina is freely floated and the foreign exchange rate is set by the commercial banks.

‘They look at the market, they talk among themselves, and they publish and set an interbank rate.

‘The trading band is simply …  to restrict the highs and lows for selling around that interbank rate.

‘The stickiness of the exchange rate is because the market is small. You only have a limited number of players; the market is not deep.’

Protection

Abel called for industry protection for some PNG industries that can achieve a competitive advantage.

‘We can continue to improve the ease of doing business where Papua New Guinea slowly is improving its World Bank [ease of doing business] rankings.

‘We have introduced dual citizenship and have opened up to visa-on-arrival.’