Comments

Richard, excellent comments. On the first point, you are right, the tendency to underspend the development budget does keep the deficit down. It happened last year, and I'm sure it will happen this year again. As you say, the budget is simply too optimistic about the government's spending capacity. On the other hand, however, revenue projections also fell short last year, and will fall short again this year. (Treasury's Mid-Year Economic and Fiscal Outlook confirms this.) So, even with a shortfall in development spending, this year's deficit will still be high: somewhere around 6-7 per cent of GDP. On the second point, the LNG project will give a huge boost to GDP through its commencement of exports, but most of the revenue associated with the LNG exports will go to pay off debt (the cost of all the infrastructure built). So, most of it will flow off-shore. Taxes won't be paid for a few years. The PNG Government will get some dividends from its ownership share, but there are two problems. One, mineral revenues have been declining in recent years as commodity prices have fallen, Ok Tedi has done poorly, and oil production has fallen. So the LNG dividends will in part make up for these other declines. And, two, the LNG dividends have now been committed to repay the Oil Search loan, so they won't be available to fund budget spending.

$100K seems a little low if including all the direct costs? Sad to say in my own quite extensive experience in PNG, most recipients return and then request further study opportunities. There is also a big problem in selection with those in the know accessing the opportunities not always on merit - esp. within the public service recommendations. Appropriateness of education & training is also an issue with dentists etc. trained with equipment and methods they do not have access to in their own context. Another cost is to the department they leave behind. I have worked in three key departments where the one leading light in each in terms of a very skilled, upwardly mobile professional "doer" ... doing great things, was whisked away to study, never to be seen in the department again. Effectively kneecapping the initiatives in train by taking away one of the very few effective people. Talking to many scholarship awardees after they return to PNG, they generally describe feelings of depression and stress after being home for a while. Perhaps blessed with more technical skills and knowledge but back in the same environment where they began - i.e. no power, no medicine, poor management and leadership. You would think in these days of technology, if scholarships are to continue many courses (especially Masters) could at least be partly completed in an external mode with more bang for buck, less disruption to families and workplaces and more skin in the game for the participant who would have to demonstrate their capacity and desire to learn.

One thing that always confuses me about PNG budgets - and you highlight it in your article - the development spending seems hopelessly optimistic considering the public service's capacity to implement projects. Buying vehicles and "donations" to various causes seems to be the only way they can spend these funds sometimes. Given that view, will the budgeted deficit be such a problem? Perhaps the actual development spending will only be a fraction of what was planned/budgeted for. Or do these funds just get spent, somehow, or spirited away into trust accounts? And, if little income from LNG is expected in 2015, where is the forecast 20%+ growth for PNG coming from??

This report fails to seriously analyse the experience of past privatisations in the Pacific, such as UNELCO in Vanuatu or Shoreline in Tonga. Both cases clearly disprove the ideological assertion that privatization “results in more efficient public service provision than state ownership.” A decade ago, the provision of electricity by the private company Shoreline Power Ltd was a major scandal in Tonga. The investment by the King in Shoreline was a matter of public debate for some time, until the re-purchase of key assets from the company by the government in 2008. The period of Shoreline Power Ltd’s monopoly over the production of electricity saw significant increases in the cost of power, until the government decided to re-purchase the electricity generation and distribution systems owned by Shoreline. Referring to Tonga, the report diplomatically notes “The government appears reluctant to hold directors accountable for performance, which may be explained by family connections and the closeness of Tongan society.” Does the ADB mean Royal family connections? There is a danger that privatisation simply means a shift from public monopoly to private monopoly, but with many Pacific states lacking the accountability institutions that are needed to hold private companies to account..

While Julie Bishop seems certain about no game change for the aid budget, the Minister for Finance seems less committal. This was Mathias Cormann on Sky this weekend (<a href="http://www.financeminister.gov.au/transcripts/2014/1005-australian-agenda.html" rel="nofollow">transcript here</a>). "PAUL KELLY: Okay if we look at the foreign aid budget, to what extent do you think there’s capacity for more savings in foreign aid? MATHIAS CORMANN: Between now and the release of the Mid-Year Economic and Fiscal Outlook we will be looking right across Government for opportunities for additional savings in order to make up for the additional expenditure or the cost of the delayed savings. Our commitment is not to add to the deficit, not to add to debt and as such to the extent that there is new spending or lower savings then we will have to find ways across Government, across the whole of the Government, to make up that ground."

From my view, IDA is just an excuse for the PM to use as a money transferring passage for selfish politicians. Look at other SOE's such as NHEL and NHC; these two organizations operate separately and all takings from NHEL from the sale of Government properties are not known by NHC. All land titles as well as Tenant Agreement Documents from NHC have gone missing. NHEL calls itself as the business arm of NHC but there's a very big corruption taking effect within NHEL. In our case, we have the Department of Works, The Department of Transport, National Roads Authority, upcoming Road Traffic Authority and most profoundly the new IDA (Infrastructure Development Authority). What's the use of creating more SOE's when we have DOW and NRA already in place? Is it for the benefit of all Papua New Guineans or for some individuals? We have enough organizations and SOE's for road infrastructures Developments already. All we need to do is make funding available through these organisations such as NRA and DOW and come up with good policies and techniques of how to limit expenditure costs for road maintenance and bring tangible solutions as to how we should build quality long-lasting infrastructure. The government should try introducing railway construction and send more engineers abroad instead of creating IDA. There’s no need for IDA. We have DOW and NRA already.

Great article Ben, I was reading <a href="http://www.nytimes.com/2014/10/02/opinion/nicholas-kristof-what-isis-could-teach-the-west.html?_r=2" rel="nofollow">this article</a> the other day which highlights the need for education as a crucial part of any 'arsenal'. I think our governments need to seriously consider the central role of aid in this area. Books are cheaper than bombs and tend to have better effect. I for one pray and hope they realise that aid is not even just strategically important but central important as part of our responsibility globally.

It would be wise to take a closer look at the KANI program. The costs could be greatly reduced if the students didn't have to complete two courses. Firstly they complete a diploma then a degree. This adds a greater amount of stress, exams and time for the students. Many of the students had the capabilities of undertaking a degree but were not permitted for various reasons. As I supported them through the first years there were many issues that contributed to their failure rates. Many related to the institutional processes. I'm sure that an exit point at a diploma level would decrease the costs and would better suit some students however this option does not allow them permanent residence. Their stipend was excessive in the first instance allowing many students to live in one place pooling money that at one point exceeded my wage. So there are many hidden costs to this program and benefits for those involved who enjoyed frequent trips to the Coral Atolls. Needless to say it should not continue under the same format, it definitely needs some changes.

As someone who oversaw the production of this report, I feel compelled to respond to this blog entry. However, I do so in my independent capacity as a scholar, and not on behalf of Jubilee Australia, who will prepare their own response I am sure in the days to come. I appreciate that Dr Wallis has taken the time to read the report and respond to its findings. Moreover, we should all welcome scholarly critique, it enriches the conversation no end. However, for the conversation to be enriched, in my view, certain basic principles of fairness must be observed. Most critically it is not fair to invent a ‘straw man’, and it strikes me that this is what the author has done here. Wallis has fundamentally misrepresented the report’s methods and findings, so it appears to contain brash, unsupported statements, when its aims and methods are much more modest. In order to support this contention I will attempt to faithfully reproduce the author’s criticisms and respond to them in turn. 1. ‘Despite the fact that research for the report only involved interviews with 65 Bougainvilleans and one focus group of 17 individuals residing near the mine site – a fraction of Bougainville’s 300,000 people – their responses are presented as broadly representative’. This is incorrect. The research did not use randomised sampling and so never claims to be representative of a broader population. Its objective was to explore a range of deeply perceptual issues relating to history, heritage, and future. It was a phenomenological study, and there was no base from which to begin. So we selected an exploratory case study method, using a combination of purposive and snowball sampling. This is clearly stated in the methods section, so I struggle to see how there could be any confusion. 2. ‘The report claims that researchers uncovered “near universal” Bougainvillean opposition to reopening of the mine’. Once again this is incorrect. What the report actually says is that those interviewed expressed near universal opposition. This is a very different assertion indeed, and bares no relation whatsoever to the much grander claims being imputed by Wallis. 3. ‘Unusually, the specific interview questions are not provided, so there is no way to verify whether they were leading or whether the potential bias of the researchers was influential’. First, I would question the premise of this critique. Is this unusual? Many NGO reports, and studies published in scholarly journals, exclude interview questions for a range of good reasons. I can cite many such reports, and would be happy to if needed. This flawed premise aside, the Jubilee study employed semi-structured interviews. The advantage is that this type of interview method allows key themes to be discussed, but in a way where the conversation can assume an organic form. Key research questions/themes were included on p.50. However, inevitably, as it says on the tin, every semi-structured interview contains its own nuance that will depart from the other interviews. So invariably no one interview will conform exactly to the transcript of questions. 4. 'The report is critical of the ABG, yet there appears to have been little attempt to interview or obtain relevant documents from the ABG’. The report relays views from the 82 participants, some of these accounts are critical in part of the ABG. However, it must be noted that that the study’s objective was to inquire into the perception and experience of participants ; it did not attempt to adjudicate on fact. It is unfair, therefore, to judge the report’s content by a yard stick that is entirely inappropriate. The same critique might be levelled at the following observation by Wallis: ‘the report claims that respondents identified that “there exist many other promising economic activities that could represent a solid source of revenue”. There is no detailed attempt to examine the potential and limitations of these alternatives’. Once again the report explored experience and perception; it was simply outside the terms of reference to deliberate on important issues like alternative development models. It is hardly fair to critique a report, for not being able to resolve all the questions under the sun in one sitting. 5. ‘The achievements of the Bougainville parties and the Papua New Guinea government in negotiating a comprehensive peace agreement, creating the Autonomous Bougainville Government (ABG) and avoiding a large-scale resumption of conflict should be acknowledged. Important to this has been the sophistication and restraint of Bougainvillean leaders, and the strength and resilience of the Bougainville people. Bougainvilleans’ strong tradition of reconciliation has also resolved many (but not all) tensions and done much to bridge societal divisions. Yet this is not a picture presented by the report’. Actually, the report explicitly acknowledges these praiseworthy efforts. It also points to areas still in need of redress. See p.12 ‘The innovative synthesis of top-down and bottom up measures has been widely praised in the peacebuilding literature. However, the latter research suggests some caution still needs to be exercised when gauging the effectiveness of the peace process on Bougainville’. 6. ‘The report highlights the dangers of development NGOs sacrificing accuracy for advocacy. It appears that Jubilee Australia has uncritically accepted that the anti-mining voices of a small number of interview respondents represent those of all Bougainvilleans, perhaps because its mandate is premised on the assumption that mining activities will have an adverse impact’. First, this criticism might be inverted, and instead it could be argued that the author has uncritically accepted the critique of President Momis, without examining the report to see whether indeed this very public criticism actually has any basis in fact. I struggle to find any other explanation, given how explicit the report was on its methods, objective, and limitations. Second, the accusation that the research team had a prior mandate which it subsequently attempted to achieve through massaging its findings, is arguably one of the most serious accusations to make. It is startling the author has made such a red-button criticism without forwarding any evidence. To conclude. The issues raised in this report about trauma, marginalisation, heritage, land transition and future, are important. I found the data confronting, and fascinating. Bougainville is a wonderfully rich place with many conversations going on. This report captures one window into this frenetic, complex conversation, many others exist and should be explored using a range of methods. And I would genuinely like to see dialogue with the ABG on the report's findings, take a less polarising form. I have a deep admiration for the achievements of Bougainville, they have a remarkable story to tell. And sometimes some of these stories will have critical edges to them, but if we can accept that there is a place for critical thought, then this can only create a more diverse conversation in the long run which will enrich the future. I also appreciate the time taken by Wallis to critique the report. However, while scholarly critique is absolutely vital, it strikes me as equally vital that research is judged according to its stated objectives, methods and limits, and not against imagined methods or limits imputed on it by critics.

APTC has been in competition with local education institutes in Fiji, Samoa and PNG with fee paying students at Ok Tedi Mining, in open competition with other institutes in Australia with same qualification standards. In some instances, building new resources and training being offered to scholarship students having better standards of accommodation and equipment in close proximity and competing with local fee-paying apprentices. Australian licensing requirements for most apprentices/tradespeople require a level of Australian experience. The money would be better spent helping local training colleges or institutes. People are taken away from their jobs to undertake training, learning new systems and then trying to reintegrate in to their old life that is still using old systems. This is destroying long relationships with family and promoting unrealistic goals.

Thanks for this post Robin. It would be interesting to know what the implications are for Nauru in this, given the economic impact that the Regional Processing Centre has had in recent times. And in that vein, I would argue that the lack of leverage was (and is) indeed significant in the case of Nauru - as discussed <a href="https://devpolicy.org/the-pacific-solution-and-naurus-coup-by-stealth-20140123/" rel="nofollow">here</a> and <a href="http://www.lowyinterpreter.org/post/2014/03/21/Deafening-silence-on-rule-of-law-in-Nauru.aspx" rel="nofollow">here</a>, Australia declined to make any meaningful comment when David Adeang decided to do away with the rule of law.

Hi Mark Appreciate the comments. Agree that the central bank limited the chance for arbitrage by constraining the amount of foreign exchange reserves available at the official rate to around K60 million every fortnight- otherwise PNG's foreign reserves would have dropped much more quickly. The comment about the arbitrage possibility was aimed at highlighting the gap was unsustainable. As you mention, the better option would have been to tender the intervention. Your last para mentions the possible budgetary impacts of these changes. I considered including some reference to these in the article - but my sense was that they were unknown and possibly largely offsetting. So as you point out, the cost of the Government's intended infrastructure spend would have been considerably more at the pre-June 4 rates. Likewise, the appreciation lowers the Kina cost of repaying international loans - including the loan to purchase the Government's share in Oil Search. On the other side of the coin, tax revenues could fall because exporter incomes are lower and hence mineral tax and company tax collections are lower in Kina terms (many of the larger miners operate their accounts in US dollars). My sense was that there were a range of positive and negative effects on the budget from the change and it was hard to determine the overall impact. At the same time, there may be other budgetary risks if the change in policy has discouraged foreign investment (and hence future tax revenues or the price of any asset sales) or increased the size of the sovereign risk (and hence costs) associated with any possible future external borrowings. Once again, appreciate the comments.