Amendments to bank act puts nation at risk


FISCAL policy and monetary policy are the key to economic management tools of any country.
Maintaining independence to ensure arms-length dealings between the institutions of government that are responsible for implementing the two policies is critical for sound economic management.
The Central Banking Act 2000 is a central tenant of the institutional arrangement under which the Bank of Papua New Guinea independently formulates and implements monetary policy in Papua New Guinea.
There has been media publicity in recent times that amendments were made to the Act to fund the national budget by printing money and for the National Executive Council to appoint the Central Bank board members.
Essentially, the independence of the Central Bank has been removed and now our politicians will control and direct the bank to accommodate whatever they want, whether it is good or bad for PNG and its people.
There are three main risks the country is now facing with the amendments to the Act.
Firstly, printing of money to fund the national budget will fuel inflation through an increase in the prices of goods and services.
Over 80 per cent of the population in PNG lives in rural areas.
The people will lose the value of their kina overnight and will suffer adversely from spiralling disparity in poverty and incomes.
Secondly, investors will not be willing to invest because it will be too expensive to do business in PNG as the cost of goods and services will rise with inflation.
This means economic activity will collapse, incomes will fall and unemployment will increase further. Consequently, Government revenues to fund the national budget will be adversely affected as tax revenues will fall.
Finally, PNG is heavily dependent on imports of goods and services for production and consumption.
Printing of money will simply spillover and fuel the demand for imports.
This will mean that a sudden increase in import demand will deplete the limited foreign exchange reserves of PNG.
It will bankrupt the economy as has happened in October 1994 when the kina was devalued and floated.
These are the three main risks that the printing of money by the Central Bank will destroy our economy.
Papua New Guineans, please think wisely and cast your vote in the coming general elections because you will feel and live with the full consequences of the amendments to the Central Banking Act 2000.

Concerned Citizen