The National, Wednesday 4th January 2012
By YEHIURA HRIEHWAZI
WITH moves afoot to set up the Sovereign Wealth Fund, a senior minister in the government says the real challenge is to “keep sticky fingers out of the revenues pot”.
This was an area where Papua New Guinea had become “horribly unstuck in the past”, Sir Mekere Morauta said in an article he wrote for the Australian National University’s EastAsiaForum.org website published on Tuesday.
“Navigating a small economy through the choppy waters of the global economy is never easy. But it is even harder when facing the peaks and troughs of resource booms and the unpredictable undercurrents of a complex polity,” he said.
The Public Enterprises Minister should know what he is talking about.
After independence in 1975, as Finance Secretary, he set up the Mineral Resources Stabilisation Fund (MRSF) to ride through the “peaks and troughs” of a resources boom (Panguna and Ok Tedi mines).
“Initially, the fund worked well. The Bank of PNG invested the mineral revenues and allowed a predictable flow of funds into the national budget,” he said.
“Australia supplemented this with a steady stream of budget support, and the national budget was well managed.
“We were optimistic that the mining sector would help lift the economy.
“In hindsight, problems started appearing in the 1980s, with the increasing politicisation of public expenditure and the structural problems of a ‘two-speed’ economy.
“And in the 1990s, PNG’s donors began phasing out budget support due to concerns about corruption; fiscal policy fell out of sync with the stabilisation funds; and commodity prices crashed,” he said.
“Governments had been borrowing heavily against the MRSF and future revenues from the resource sector, notably the big oil development at Kutubu.
“While investments in the MRSF were safe, they were not earning good rates of return, and the sharp rise in debt in the late 1990s meant that the state’s net assets were falling fast.
“When I became prime minister in 1999 my government moved quickly to stabilise public finances by drawing down the MRSF – against which governments had been borrowing heavily – to pay off PNG’s crippling debts.
“We then initiated a short-term measure to stabilise mineral revenues, whereby Treasury would forecast revenues for the year ahead and any surplus was used to retire debt.
“Had I won the 2002 election, we would have developed this into a more substantial sovereign wealth fund backed by disciplined fiscal policy and effective spending,” he said.
He said the Somare Government had ridden PNG’s biggest resource boom during the past nine years.
“The economy and government revenues have grown strongly, but this has impacted little on basic services and living standards.”