Outlook for PNG remains bleak without reforms.

(From Canberra Times)

T HE INTERNATIONAL Monetary Fund has propped up many incompetent governments by sanguine reports. Amazingly, it always finds its clients on the verge of improvement.

When its hopes do not come about, it throws them a life-line loan. That, after all, is how it does business. And developing countries' debt grows.

It took only 10 days to persuade the International Monetary Fund that Papua New Guinea has markedly improved its economic management.

GDP grew miraculously from the 2 per cent announced by the Papua New Guinea Reserve Bank a short while ago to 2.5 per for 2003, so that per capita income growth was not negative (for the eighth successive year) but merely zero. Without sacking any of the 10 per cent ''ghost'' public servants (who do not show up for work) or any other reforms, the 2003-4 budget deficit fell from 6-8 per cent to 2 per cent of GDP. The Government could thus present a clean slate to the 20th Australia Papua New Guinea Business Forum that met from March 28-30 in Cairns. Papua New Guinea will be able to strengthen its aid negotiating position about aid accountability with the Australian government.

But Australian business and government cannot be taken in by facile judgments that ignore two years' research reported in the current special Papua New Guinea issue of the Pacific Economic Bulletin which argues that if Papua New Guinea does not radically reform its policies well beyond the cosmetics presented to the International Monetary Fund, standards of living will continue to fall. Without domestic reform, neither increasing foreign aid nor foreign business investment can save Papua New Guinea.

The International Monetary Fund apparently recognised that good weather and high export prices were responsible for drawing Papua New Guinea out of three years of depression. But with modestly decent economic management, growth would have been 6 to 7 per cent in 2003. The Somare Government's underlying strategy is to continue relying on mineral revenues, ripping out the forests and using aid for recurrent expenditures, although this has led to economic stagnation for nearly 30 years.