This book is a wonderful piece of work. There has been nothing so comprehensive and thorough on the economic history of Papua New Guinea. It fills a gap that supports effective teaching of economics about Papua New Guinea. It is also a foundation for understanding economic policy in that country. One simple and important innovation is to break the last 50 years into four periods—the Eighties, the Nineties, the Noughties and the Teens. The book associates various periods of development and policy with each of those periods. The first period starts with Independence, and continues until 1989. 1989 saw a convulsion in Papua New Guinea—the start of the Bougainville civil war. This marked the end of a period of uneven but reasonably stable and disciplined economic policy, with effective public economic institutions playing central roles. The Bougainville catastrophe is a natural end-point. The Nineties was a period of massive instability in policy and the economy. While the Bougainville rebellion and civil war was a decisive turning point, it did not see an immediate lurch into something new in economic policy and institutions. Rabbie Namaliu was prime minister during the breakdown over Bougainville to 1992. The government's economic policy response to that crisis was to double down on the policies that, as the book says, had been mostly successful in the period from Independence. The mine on Bougainville was by far the main source of government revenue and exports in Papua New Guinea at the time. It did not just contribute to resource revenue as this is described in the book. The Bougainville mine was also a large contributor to personal income tax, import duties and other sources of revenue. Overnight, the government lost all of that. The Namaliu government continued the framework of economic stability that had been established at and immediately after Independence. It made a huge adjustment to the immensely unfavourable new circumstances. Public expenditure was reduced, despite increased military outlays. The urban minimum wage was abolished after 14 years of managed slow decline following Independence. It was a heroic and reasonably successful effort, but harder than the polity could sustain. Over the next few years, things fell apart. Budget discipline had been a feature of the period from 1975 through to 1989. It was eroded. When an army feels that it is fighting a life and death struggle for the future of the nation, it does not care about budget discipline. If it needs more money, it just spends it. That contributed to a more general breakdown of budget discipline, and to the weakening of the authority of the Department of Treasury and Finance and other public institutions contributing to budget discipline. The disintegration of authority in the central agencies and the diminution of the role of the budget in public administration was reinforced by the Australian Government's shift from untied cash grants to project-focused support over this period. The civil war was devastating for national morale. Papua New Guineans fighting Papua New Guineans was deeply painful. In 1997, in an effort to bring the war to an end, Prime Minister Julius Chan sought to bring in the foreign mercenary group, Sandline. This was itself deeply divisive and corrosive of national morale. The Nineties, the second period, was characterized by economic instability but also, as the book faithfully records, a period of quite strong economic growth. After the adjustment to Bougainville had taken place, several new mines were developed- the Porgera gold mine, the Lihir gold mine and then the beginning of oil production in Papua. So, it was a period where measured economic growth was at times quite rapid, but coherence in economic policy fell apart. The Mekere Morauta Prime Ministership commencing 1999–2022 is the tail of the Nineties and the head of the Noughties. The book describes the Nineties accurately as a period of boom and instability but also quite a lot of reform. The successful reforms were mostly at the beginning with Namaliu's response to the Bouganville crisis and, much more comprehensively, in the few years at the turn of the millenium when Morauta was prime minister. Just as Rabbie Namaliu as prime minister had gone back to basics after the huge shock of Bougainville, and had made a huge effort to re-establish some of the foundations for ordered economic policy, so too did Mekere Morauta after the economic policy chaos of the late nineties. The economic policy framework fell apart completely between the 1992 election and the late nineties, reaching its nadir with the extraordinary budgetary ill-discipline and corruption of public institutions of the Skate regime elected in 1997. The Morauta government restored the integrity of the national superannuation industry, which had been deeply corrupted. That important source of national savings has continued in reasonable shape until today. It privatized the deeply problematic Papua New Guinea Banking Corporation, which has operated reasonably well as a nationally owned private bank since then. It restored the integrity of the central bank, The Bank of Papua New Guinea, under new legislation. Many things that helped to re-establish a foundation for policy order under the Morauta Government are included in the book as part of the second period of instability. These included new political party and electoral laws that are an important reason why no Government formed after any of the five-yearly elections in the first quarter century after Independence ran its full term, but three out of five did so in the second quarter century. I could add some other big economic reforms that have had a lasting impact. But Morauta was not in office long enough to complete his reform programme, and large weaknesses in policy and institutions remained at the end. The Morauta period bridges the instability of the Nineties and the boom of the Noughties. That doesn't come out as clearly as it could in the book. I found the book's discussion of the Noughties boom really interesting. It is a period where measured economic outcomes—measured by the standard national accounts—are very good by comparison with other periods. This was helped significantly by this being a period of rapid economic growth in the world as a whole, which raised commodity prices of all kinds. In Australia, we call this the China Resources Boom. Papua New Guinea also had a China Resources Boom. The data in the book ends in 2022. The Teens was also a period when aggregate growth should have been strong compared with the earlier periods. The actual outcomes were disappointing. In the earlier periods, resource projects had contributed a great deal to government revenue when commodity prices and export volumes were strong. In the Teens, the LNG project generated a huge amount of export value, but not government revenue. The book quite rightly puts a big question mark over why that should be so. Right through the book, there is a very interesting weaving of discussion of some major political issues and policy issues as they have emerged and been dealt with through the different periods. The essential point above all is that exchange rate policy, budget policy, minimum wages policy and many other things were in there together. Newcomers to Papua New Guinea often have difficulty in understanding one or other aspect of our policies, particularly in regard to the exchange rate. The beginning of wisdom for them is to grasp that the policies must be seen as a whole. Monetary policy at the time of independence was called the hard currency policy. What it was about, first of all, was making sure that the currency was always convertible: that the government run a set of policies that kept expenditure and costs in domestic currency at levels that kept demand for foreign currency within the economy's capacity to earn foreign currency. The first goal of the hard currency policy was ensuring that residents with domestic currency could always convert it freely into international currency. And this was done in a way that maintained reasonable stability in growth in public expenditure, a reasonable balance between rural and urban incomes, and low inflation conditions. This was a special challenge in the 1970s and early 1980s because these were highly inflationary times for the world. Australia's inflation was double-digit on average for a decade from 1975. Papua New Guinea policy achieved the goals of the hard currency policy reasonably well from Independence until the Bougainville crisis. Inflation was significantly lower than in Australia through the first decade of Independence. The kina was always convertible. As the book observes, there was reasonable stability in public expenditure and economic activity through the Eighties. The imbalance between urban and rural incomes was unnecessarily large following the big urban minimum wage increases immediately preceding Independence, but was gradually reduced—and the unnecessary element associated with wages policy removed in the Namaliu Government's response to the Bougainville crisis. The egregious mismanagement of monetary policy through the mid-nineties until 1999 and through the Teens and other departures from that balanced set of policies that Chan said “must be seen as a whole”, led to the breakdown of currency convertibility which has been a heavy drag on development over the past decade in Papua New Guinea. A second point that runs through the book is the discussion of the different approaches to Australian aid. It is worth recalling the aid arrangements put in place at Independence and immediately post Independence. These are often described as simply being “budget support” from Australia to Papua New Guinea. Untied cash grants were given for use in the budget, but in the early years after Independence they were not handed out in a vacuum. There was a well-considered system of economic management run by Papua New Guineans, in which Papua New Guinean leaders invited Australia to play an integrated role in talking about planning and policy and what would work best. The Australian Government was not making decisions about particular projects and particular programs. But there was welcome Australian involvement more generally in supporting the central institutions that are necessary for making economic policy work. After a period of tension affected by the Australian constitutional and budget crisis of 1975, the Australian (Fraser) and Papua New Guinea (Somare) governments agreed on the real value of total Australian aid falling at an agreed and predictable rate. That allowed Papua New Guinea to plan, and its public financial authorities to accept responsibility and exercise authority. That worked pretty well. It was very different from the budget loans that have become prominent in the recent period of Australian aid to Papua New Guinea. We are all deeply indebted to the authors for putting the book together. I certainly feel the debt. It is a very careful piece of work. It is also a symbol of the effectiveness of cooperation between the Australian National University and the University of Papua New Guinea.
Ross Garnaut (Sun,) studied this question.
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