Credit rating a dark cloud for PNG, policy corrections a possible silver lining 28 May 2015

One Response

  1. Richard

    Richard May 28, 2015 at 10:43 am

    Thanks again for your insights, Paul. It seems the writing is on the wall.

    You have focussed on the macro-economic imperatives, could you perhaps provide some comment on the micro-economic impacts of the changes around the corner?

    The business community is rife at the moment with rumours of an impending and significant depreciation of the kina in response to these issues. I’ve heard as low as US$0.15 which is pretty scary stuff for a bloke trying to run a business. What would be the impacts of this? The inflation rate you mention in your analysis would obviously go through the roof as so many goods and services we rely on are imported.

    I guess the coffee, oil palm and other primary producers will be better off in some ways but their costs in terms of fuel, fertilizer, spare parts, machinery and what not would increase substantially.

    Could also be a boon for tourism – if other policies such as no visa on arrival for Australians did not get in the way. Of course, Indonesians can now get visa on arrival but I wonder how many of them come here for a holiday.

    But what about construction companies? All the “projects” the government boasts about. Would they suddenly become unaffordable or twice as expensive? What if I wanted to build a house, would it now cost twice as much for everything from iron roofing to solar panels and suchlike.

    I’m also wondering about the Oil Search, Exim and other off-shore loans. I guess the repayments would rise significantly in kina terms – how would that impact? Would it also mean if the government decided to sell the Oil Search shares they would have a huge windfall of kina as the kina value of the shares would increase substantially? And then tell everyone what smart economic managers they are.

    The big boys would not have the same issues they are experiencing currently in sending money out of the country so would that suddenly mean huge amounts of cash leaving the county? Especially in the early stages as they try to get in early? How would this impact?
    And what about the small girls and boys, all the thousands of urbanites struggling on the minimum wage when suddenly the pmv fares go up significantly along with the price of rice and tinned fish. Are we looking at the possibility of conditions leading to social unrest?

    Will already exorbitant rents go up even further?

    What will happen to interest rates? Will my current bank loan at 15% interest (in good times!) suddenly be even more of a burden, or will rates go down?

    Gee, when Australia had the GFC it seemed a good time for the little person – low interest rates, government handouts and stimulus, low fuel costs, high dollar.

    I know I’m no economist but I’m worried and can’t help thinking if there are other solutions to current issues rather than the blunt instruments proposed.

    Such as …
    1. Education savings: re-introduce project fees. Amend free tuition to 25% tuition fee subsidies to urban schools (where parents are wage earners), 50% to rural schools and full subsidy to remote schools (where there are few wages earners). Might also help reverse the urban drift.
    2. A freeze on govt. spending in general. Much of it is wasted anyway.
    3. Outlaw personnel emoluments using the govt PGas system. This may be where the huge unbudgeted increase in this area has come from over recent years. People getting around the Alesco system.
    4. 50% reduction in DSIP & PSIP for a year or two.
    5. Fast track some big projects and bring on another construction phase
    6. Look at the tax being paid by some of the largest companies. Introduce a resource tax or suchlike.
    7. Sell the shares!

    Politically impossible, I know, but it seems a shame when the populous pays the price for the mistakes at the top end of town. Some of your readers may have other thoughts.

    Thanks again for the ongoing comment.

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