Forex not managed too well: Barker

National

OPTIONS taken by the Bank of PNG to manage foreign exchange has not been “working too well”, says Paul Barker, the director of the Institute of National Affairs.
He told The National in an email that although the bank rationed available funds, it also severely undermined business activity, confidence, jobs, and to some extent, exports and revenue.
He said although favourable treatment was being provided for critical sectors such as fuel, food and debt-servicing, there were clear concerns that the allocation process had not been as transparent.
“The market itself would administer the process more rationally, and bring about earlier stabilisation and confidence to the market,” he said.
“It should be noted that there were public concern over some major capital outflows during this period, including by politically-exposed figures, seemingly shifting large sums into real estate abroad.
“The Papua New Guinea currency is not a freely traded currency, which could be described as having a partially managed or guided exchange rate, as transactions are undertaken through the central bank.
“It is managed through a mechanism that restricts the manner and composition of the trade.
“This has restrained the level of market influence in determining the exchange rate, which is effectively set by the Central bank.
“This in turns influences the level of transactions being made, and the availability of foreign exchange to businesses, households and the government for their intended transactions.”
He said the economy would benefit from letting the market “find the suitable exchange rate, rather than the central bank continuing to intervene in the market and filter the level of trading”.
“This would enable the market to level out quicker and help restore confidence,” he said.
“Market confidence is also dependent upon a range of other factors, which influence the readiness of businesses to bring money into the economy and invest, both in major projects, and diverse smaller business activities.”