THE O’Neill government has made a very unpopular decision to borrow K3 billion from the USB bank to finance the government’s 10% equity stake in Oil Search Limited. The prime minister sacked Finance Minister Don Polye who refused to sign the loan and signed the loan himself the next day.
The prime minister justified his action by saying Dubai-based company, IPIC, refused to sell its shares to the government as previously agreed.
“The government said the advice sought from financial experts regarding this loan is that this deal is being structured similar to the IPIC loan but on better terms. It is saying PNG has achieved what many thought was impossible.”
When the news of the loan and the sacking of the finance minister who refused to sign the loan reached the masses, public reaction against it was immediate. Two top academics from the National Research Institute (NRI) think tank made a media statement that the loan was not good for the country.
They said it would severely increase the nation’s debt level to K6 billion and affect the proposed sovereign wealth fund. Many other people wrote comments in the two daily newspapers expressing views against the loan. Bloggers posted similar comments on the internet.
The Ombudsman Commission responded by ordering the government not to proceed with the loan until the Commission undertook its own investigation to determine whether the government followed correct procedures in obtaining the loan.
Is the concept of borrowing money to finance national development economically sound? Is it feasible for a developing nation like Papua New Guinea to continually borrow money from foreign donors to fund its national development agenda?
The government thinks that it makes economic sense to borrow since the nation is now exporting eagerly sought after liquefied natural gas. The revenue from the LNG is predicted to triple our GDP and will bring in a huge inflow of revenue.
So the government believes it can borrow this money and quickly repay it when the nation’s economic situation improves. The Finance Department deputy secretary told students at a UPNG forum that it was ‘normal practice’ for governments to borrow.
However, the implications for the nation of this huge amount may not be good. First, borrowing based on rosy projections and sweet political rhetoric may sound fine but it may create a debt the country will find it very difficult to repay.
Second, continued reckless borrowing will push the nation into a fiscal nightmare in which PNG will become a slave to her economic masters - the lending institutions. Economic mismanagement can cause economic disaster and revolution.
There are already some pockets of resistance in some parts of the country in reaction to the way the country is governed and managed. Calls for political autonomy by different regions is a sign of this political discontent.
The Bougainville crisis was precipitated by the perceived lack of development among the landowners in spite of massive mineral wealth inflows into the nation. This country has experienced a high level of cash inflow since the discovery of oil in Kutubu. Yet today there is little to show for this on the ground.
A responsible government will learn to live within its means. It will design responsible fiscal policies to prevent the country running into deficit and continuously borrowing. To borrow endlessly and put the nation at sovereign risk is a sure sign of weak leadership.
Our prime minister seems to have lost the plot. Hence he was irritated when his blunder was exposed. He threatened to deport Paul Barker, executive director of the Institute of National Affairs, and sack Dr. Thomas Webster, respected chairman of Independent Public Business Corporation (IPBC) for comments he made.
Third, continued borrowing will greatly affect the creation of the much anticipated sovereign wealth fund. Much of the revenue that will be earned from the sale of the LNG will be used to pay off the huge loan. Less will flow in the sovereign wealth fund.
In the end, it may be that little or nothing will be left for future generations. When the National Alliance government was in power, it created many trust accounts to save the revenue from Kutubu oil. But that money disappeared without a trace.
Fourth, the government created Vision 2050 as a strategic plan for national development. It envisages that by 2050 “Papua New Guinea will be smart, wise, fair, healthy and happy society.” But this may not be possible if the government borrows large amounts of money.
The government needs to adopt strong fiscal discipline to patch holes in the nation’s coffers and avoid unnecessary overspending. It should avoid the Father Christmas syndrome - no free lollies, no extravagant commitments, no donations to others nation when our own people are suffering.
How on earth can a responsible government squander the people’s money and give it to other nations like Fiji and the Solomon Island government when its own citizens live in poverty? How can the government continue to spend endlessly on lavish ministerial overseas tours with large entourages when the people lack basic needs like medicine? It should stop this profligate behaviour and learn to live within it means.
The government should also restructure the bureaucratic machinery to create a lean and effective public service. The current machinery is cumbersome, weak, ineffective, unproductive and costly. Much money that should be spent on national development is spent on underperforming public servants.
And the government must deal with corruption which has become a significant factor hindering national development. Corrupt practices are eating away funds earmarked for development as funds disappear without a trace.
There appears to be a black hole in the corridors of power at Waigani that sucks all the money and nothing tangible is seen in the land.
When the government addresses these critical issues and learns to live within its means, and spend money on planned projects, it will move up the path of economic prosperity.
Now should be our time of opportunity. This should be our time in the sun. The leaders of this nation must make wise decisions for the future good of the nation and its people. They should make intelligent, visionary and bold decision to lead the country towards prosperity.
A time like this may never come again. Today’s decisions will determine tomorrow’s national prosperity.
Simon Davidson is a lecturer at the School of Theology at Sonoma Adventist College in East New Britain. He is from Wabag in the Enga Province.