We have been in this situation before

In the mid-nineties the nation had a similar problem with the runway at Bauerfield airport. In the end the government corporatised the airport (it used to be a department) and created Airport Vanuatu Limited (AVL). The idea was that a corporatised AVL would not suffer the same political problems as the former government department. The Civil Aviation Authority (CAA) was also created to provide regulatory oversight of the industry.

The government also borrowed money from the European Investment Bank to fix the runway – in theory this loan was to be paid back by the new AVL, which (if run properly) should be profit-making. In reality, however, AVL remained political, was poorly run (in a financial sense) and never re-paid the loan. As a result the government had to reduce the available budget for critical services (e.g. health and education) and infrastructure maintenance to service this and other loans.

There have been sensible solutions on the table before

By about 2008 the developing problems with the management of the airport were well known to technical officials, and a series of solutions were discussed. The most relevant one being to look at combining three critical elements:

• Improve runway maintenance
• Look at a longer term solution for the runway and associated infrastructure required to meet ICAO standards
• Further privatise the AVL via some sort of PPP modality.

A lot of technical work and funding was organised for this via the Ministry of Public Works and by about 2010 funding was available through the IFC, AusAID and others for a combination of grants and, if necessary, a small loan for this program of works.

In the short term the problem is not financial – it is to do with maintenance of the airstrip

If the current airstrip can be shown to be properly maintained it should be enough for all of the current carriers to resume flights – however – for this to happen there will need to be evidence of a proper long term solution. This does not require any sort of a loan, fundamentally, it requires proof of better management. There are some small urgent repairs required on the more heavily used parts of the runway but it should be possible to quickly do this in the short term within existing resources.

A longer term solution does not need to bankrupt the country

There is plenty of evidence that clearly shows Vanuatu cannot expect to service even the current portfolio of external loans, let alone take on more borrowing. So there is little or no sense in borrowing enormous sums that cannot be paid back as all this means is that the future budgets for maintenance, health, education will be cut and so it will only mean the problem gets worse.

However, the most important works are remedial and can be done for a cost of under a few million dollars using concessional financing. More importantly, these funds can then be used to leverage grants (that don’t have to be paid back) to support the long-term management of the airport.

In the medium term a 150 meter buffer zone in the runway strip might also be cheaper than a brand new runway. This will cost some money and need landowner talks, however, it may be the cheapest option that allows for an “instrument approach” which will certainly alleviate many of the concerns of the airlines.

So given all of this is there any way forward?

The immediate priority must be to get a sensible runway maintenance program in place such that airlines can fly into Port Vila. Then the original IFC proposal for further privatisation of AVL should be re-looked at. This is likely to involve a financial restructure of AVL, and this is where the World Bank and others such as IFC could help within the scope of what they have already agreed to do with the government. Rather than lending impossibly large sums to the state they could provide targeted financial and managerial support to the new privately run AVL.

Today, it is easy to assume that it is a case of ‘the same old story.’ Simply replace Chan with Somare, and Skate with O’Neil. With falling oil prices, the government is short of liquidity and trying to mortgage the future of its people for cash today; the kina is in decline, and the Central Bank holding back foreign currency. High inflation and the effects of another El Nino event are ramping up food prices.

But some things are different now. For starters Port Moresby is a cosmopolitan city, so physically transformed it is barely recognisable from what was only twenty years ago. Despite all of the challenges, the economy has managed to absorb a population that has more than doubled since independence. There is a significant middle class of Papua New Guineans who are educated, vocal and more than capable of both demanding change, and also determining what that change should be. Even a casual glance at social media shows the depth of talent and debate.

Whilst it remains true that much of the development benefits have been focussed on Moresby, and too little outside of the capital, the country remains blessed with immense cultural and mineral wealth. It also remains a country where hope, courage and luck can always improve the situation. The question is whether these ingredients are enough to enable the country to overcome its current challenges?

As always, there is a core group of observers who seem to view the current economic and political malaise as a hopeless situation. Today’s story – whispered in private or told via social media, but never quite openly discussed – is that through the egregious use of the nation’s wealth in order to benefit the few in Waigani, Prime Minister Peter O’Neil has managed to establish the sort of ‘de-facto’ dictatorship nobody thought possible in a Melanesian state. With next to no political opposition at home, the Manus detention centre has been a brilliant mute on Canberra. As has been the notion, held by some in the Australian capital, that a stable semi-authoritarian regime in Port Moresby is preferable to a government that changes often – albeit democratically. No matter how hard the prime minister may prod DFAT, they are simply unable to respond. With such a free hand, O’Neill has managed to enhance his reputation with his regional neighbours. His international standing will continue to be bolstered as PNG prepares to host the APEC summit in 2018.

O’Neill has managed to keep a hold on power by raiding the numerous cash pots available to the government and by mortgaging the country’s future resource base. This strategy has so far enabled the government to run debt defying budget deficits. The plan to fill the current hole is a combination of a half billion dollar foreign currency loan, the sale of shares to landowners in the National Petroleum Company PNG (NPCP) and potential revenue from the sale of Oil Search to Woodside. Any money raised through the takeover over of Sustainable Development Program (SDP) will be a bonus. These funds are necessary to continue the superficial building (and rebuilding) of roads and other infrastructure in the capital and also funding the K10 million district funds overseen by MPs; thereby keeping the crony capitalists and political elite satisfied.

However, in the same way that much of the analysis twenty years ago was overly simplistic and lacking in context so too is this story. For starters it is hard to place the entire blame for the current state of the economy purely on the current government. Many previous administrations pursued similar strategies, just perhaps not as effectively. Also very few economist predicted the rapid decline in commodity prices or the drastic impact of El Nino on agricultural production. Were it not for these factors, some of the current economic constraints, especially in terms of limited liquidity, would not be as severe.

The private sector and the donors, smelling loans, have been falling over themselves to be the lender of choice and have therefore deliberately not been up front with the government for fear of losing business. Australia has been almost totally silent in terms of the underlying economic situation, with the exception of a few advisers within government. The government itself, meanwhile, simply points to recent GDP growth rates as a sign that things will get better. It has been left to a few independent thinkers to point out that ‘you cannot eat GDP growth’ and that current levels of borrowing has a price that the people of Papua New Guinea just cannot afford – inflation.

There is a phrase used amongst Pacific civil servants – policy moonwalking – which, like the famous dance by Michael Jackson, refers to when the policy of government appears to be moving forward, but in fact is actually going backwards. It appears as if O’Neill’s policy moonwalkers have failed to accept and adapt to the radical change in circumstances. Rather they continue to pursue the strategy of relying on short term financing in the vein hope that things will get better. These analysts are correct in that the country still has many long-term assets that can be mortgaged, but they have missed the fact that with oil prices falling so sharply this strategy can actually be a trap – in that the more you borrow now, the more desperately you have to borrow in the future. The price is inflation, which is fuelling the looming crisis. By printing money to finance the massive deficits, the government has reduced the value of the kina, and this is what has made imports such as rice more expensive. While the economists and academics can argue all day, the reality is that what people can afford to eat has drastically decreased. You don’t need to be an economist to forecast the situation – simply ask any Papua New Guinean. The drought and frost in the highlands has made the situation worse, and while the foreign owners of the hydroponic farms might be benefiting, the population are suffering and this will eventually lead to frustration, anger and potentially violence.

It is unlikely the ‘foreign bond’ of half a billion dollars can be issued unless, like the UBS loan, it is secured against a national asset. At this stage it is not clear what that asset would be. In the same way the government’s financial expectations of the sums of money they would receive from the landowners taking an increased equity in NPCP seems far removed from the financial reality, and all indicators are that the landowners are receiving rational private advice in this regard. So with the state owned enterprises seemingly in debt, and the Central Bank and government building up short term liabilities, the most likely outcome is that – despite the long term outlook for the country being sound – in the short term the government will have no money and inflation will get worse. The potential debt burden is made even worse by the hidden liabilities in terms of debts owed by government entities that don’t yet have audited accounts, but which could still be a drain on future budgets.

There will ultimately have to be some sort of political ramification. What the trigger will be nobody knows, but the tension amongst the rural and urban poor is noticeable. The prime minister might have control over the heads of the army and the police, but if civil servants and people are seriously poor – as seems evident now – the people of Papua New Guinea can and will effect democratic change. Whether it be a motion of no confidence, based on the fact that O’Neill can no longer deliver the financing necessary to keep political stability, or a result of the numerous court actions against him, or a massive turnover at the polls – something will have to give.

As the poor increase in numbers and go ever more hungry, while the political elite continue to flaunt their wealth on the streets of Moresby, the real concern is whether this change will be brought about civil or political unrest.

The major powers will often tell you before hand what is ‘off the agenda’. The donors will have pre-written a ‘zero draft’ of the outcome document days before the meeting. Countries will attend and pretend that they either take the subject matter seriously or are meeting targets that they neither track nor worry about in terms of domestic concerns.

As one wise commentator put it, when it comes to the targets that invariably flow from these meetings ‘we set it to forget it’.

A senior politician once remarked that if an alien ever visited earth and was to attend an international donor conference they would think there were no problems on our planet as country after country made boring speeches on how well they were progressing and everybody agreed on some broad consensus on the way forward.

The reality of development has of late been so far removed from what you hear in these meetings that it is depressing, frustrating and maddening… until now.

Finally, in Timor-Leste there was a meeting where the leaders were not afraid to confront the reality of development: It is hard, messy and downright difficult. But only by facing these concerns honestly and collectively can we hope to improve the lives of our poorest citizens.

Credit has to be given to the Prime Minister of Timor-Leste and to finance minister Her Excellency Emilia Pires, by ensuring that the conference on the post-MDG development goals was truly consultative. From the opening speech, they made it clear that we were all there to share our difficulties and to speak openly. It was indeed refreshing to attend a genuine dialogue, rather than a monologue as is so often the case. The major powers did indeed try to take some issues off the agenda. Many donors were bemused by the fact that there was no ‘zero draft’ outcome, and that the final document would actually reflect what was discussed (what a radical concept – having an outcome document actually reflect the outcomes). But it worked.

Starting with the Pacific Round Table, discussion quickly moved away from generic statements about how well each country was doing in terms of MDG’s and into serious issues, acknowledging the fact that it is almost impossible to measure progress in large Melanesian states, that the challenges of smaller atolls are mainly climate change related, and asking why is there only one indicator for the developed world (aid should be 0.7% of GNI)? Why is there no mention of disability, or climate change, or trade?

As with all genuinely Pacific discussions, good humour was suffused with deep understanding. This is shown in the excellent outcome document. [Read it here in English or French]

The Pacific Round Table set the stage for what was to be a genuinely unique event. The main High Level Dialogue the next day was attended by just under fifty countries – about one quarter of the United Nations. Moving and genuinely informative sentiments were heard from countries from the g7+, PALOP (the group of Portuguese-speaking African countries) and Pacific island countries. The honesty of the dialogue was inspiring to say the least. At last here were countries –many of whom were the poorest as measured by the MDG’s – speaking honestly and openly about the challenges they face. Maintaining a sense of domestic peace and stability whilst trying to build the organs of an efficient state were challenges that everybody seemed to face.

But perhaps the most interesting sentiment came from prime minister Xanana Gusmao, who pointed out that whilst many of the countries present were poor in terms of GDP, between them they held vast resources, whether marine, mineral or land, and that this group of countries together represented significant political and economic wealth. Between the g7+ countries, the PALOP and Pacific they jointly held significant political and economic power – certainly enough to help each other solve their own problems if the will was there.

This was the type of speech that for many older Pacific observers was reminiscent of the old times – shortly after independence, when leaders like Father Walter Lini dared to make bold global statements in order to make the world a better place. A time when Pacific islands were not so focused on their own internal domestic squabbles that they were incapable of working together to get a better outcome for all.

And here was Timor-Leste, the youngest nation in our region, reminding the older nations of the region exactly what the struggle for independence was about – the sense that by acting together on a global scale we can achieve significant results that are also of benefit domestically. We need not always be exploited by outside powers who use our internal and regional divisions to extract our wealth. We can, by thinking and acting together, hope for a better future.

If nothing else, the Dili meeting will stand out for being that one rare moment when hope and honesty were genuinely placed on the table. And maybe, just maybe, some of the Pacific islands will be reminded of what we as a region can achieve if the political leadership and will is there.