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| Global Financial Crisis and Papua New Guinea Economy |
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| Written by Dr. Ravinder Rena |
| Tuesday, 07 April 2009 10:40 |
Global Financial Crisis and Economy of Papua New GuineaRecently, there have been many debates about the effects of the global financial crisis and how this would affect many developing countries like Papua New Guinea, largely dependent on foreign aid. These debates are important for the perspective they provide on global economic history since the Great Depression 1929-34. Apart from the establishment of institutions that would foster global cooperation in regulating global supply and demand, capital markets, international trade and the global monetary system, the aftermath of the World War - II also witnessed the proliferation of development aid. The government of Papua New Guinea has to play well with the foreign aid entails to the economic development and nation building. There is a need to ensure that the development projects in the country (mostly, if not all), must be self-contained and internally driven. It is anecdotal evidence from many Asia-Pacific and African countries that the externally driven development agendas are doomed to failure, moreover, the string attached by the donors work to the detriment of the recipient countries. And the aid addicted countries are vicariously affected by decision made in the other end of the world and are left stranded seeking mercy of their masters. PNG government should therefore immunize itself from the susceptibility of aid addiction by mobilizing the people as a center of its developmental goal by initiating rural employment programmes. To curb the problem of financial crisis; Papua New Guinea government devised viable strategy that discourage extravagance and unproductive expenditure and thus encourage saving. Even in the developed countries the custom of high consumption is the chief cause of the economic difficulty.
The monetary policy followed by the government seems to be judicious. Every convertible currency acquired from different quarters must be invested in capital goods that enhance development projects. The prodigality that would deplete foreign currency reserve is averted by making the people conscious of what the consequences of depleting of foreign currency is. Economists strongly believe that having adequate foreign exchange reserves of any country can prevent the financial capability from trembling at best and make it bearable at worst, in times of crisis. For example, China possesses substantial amount of foreign currency reserves (trade surplus) which can be sufficient to meet its foreign trade (imports) for more than 6 months. With the industrialized world now in disruption from the tremors of the global financial crisis, the main question facing in the Third World and millions of its destitute and poverty stricken people is whether in the face of a crisis that is predicted to worsen before it gets better that developed countries such as the USA, UK, France, Japan and Australia would be able to continue to donate and feed countries like Solomon Islands, Vanuatu, Fiji which are largely addicted to aid. The World Food Program estimates that currently millions of people have been affected by drought and famines. East Asian countries are experiencing plunging global trade. Demand for cheap manufactured goods has declined in the United States. That slump has hit many Asian countries both directly and indirectly, through falling demand by China for raw materials and components. Lower commodity prices have caused great problems in many African, Asia-Pacific and Latin American countries. Even before the collapse of the global financial system in October 2008, developed countries have been faltering on their promises to help developing countries. Under the “vulnerability fund” proposal, when rich countries set stimulus financing for their own countries, they would set aside an additional 0.7 per cent to help stabilise poorer countries. The World Bank president Mr. Zoellick recently said that the new fund could then make the money available to countries through the World Bank, the United Nations or other international financial institutions like the IMF. The current financial crisis coupled with the failure by the developed countries to honor their promises signals that development aid is likely to decelerate rather than increase. Moreover, if history could be of any lesson in such circumstances, it shows that most countries affected by such financial crisis tend to cut providing aid simply because they need to fix their financial problems at home. And with this crisis the writing is on the wall that it is time for Asia-Pacific and African leaders to take development seriously and find creative, effective and indigenous solutions to the many problems facing them. Wake up siren is wailing reminding that, these harsh economic and financial crises should be taken as opportunity by countries such as Papua New Guinea, Vanuatu, and Solomon Islands etc., who largely depend on foreign aid to devise strategies for the long run. The main challenge of most of Third World countries is fortifying one’s independence by self-reliant economic development. The remotely controlled economic plans are destined to shake as the other end, controller, economy trembles. Papua New Guinea as a biggest Island country in the Pacific, should become a trendsetter in strategy of self-reliance that can be taken as a model by other countries in South Pacific that are genuinely interested in avoiding their dependence on foreign aid. After all, it is the main reasonability of the people and government to feed themselves and devise long-sighted strategies to pull out themselves of their current underprivileged position. Self-reliance doesn’t mean total denunciation of foreign assistance; rather it appreciates the advantages obtained by bilateral arrangement. However, it gives rise to master-servant relationship when the engagement becomes one sided. Partnership is alternative way to observe the shock inflicted by financial instability. In partnership, you share the loses and benefits as well. In one sided engagement the poor or aid addicted countries bear all the cost of financial turbulence. Now is the time for the governments of Third World to embark and heed the policy of self-reliance, and rectify erroneous assumption they had with regards to aid as means of economic development strategy. Although, PNG economy is doing fine, but it has a very long way to go. According to latest figures UNDP Human Development Report (2008), Papua New Guinea ranks #149 in the UN human development index (out of a total of 179 countries). It was interesting to note that PNG ranks behind the, Nepal (145), Sudan (146), Bangladesh (147) and Haiti(148) which were suffering with economic crises and devastated by an ongoing civil wars.
Ravinder Rena is currently working as Head of Economics, Department of Business Studies at the Papua New Guinea University of Technology. Earlier he served in Eritrea for more than a decade. Author can be contacted for feedback comments via: This e-mail address is being protected from spambots. You need JavaScript enabled to view it |