Sydney, 7 November 1967
At meetings of our New Guinea Advisory Committee on Central Banking, members have shown considerable interest in the Territory’s balance of payments. They have been concerned particularly with the movements of private capital and with the growing trade gap caused by the greater rise in imports than in exports. During the past five years, the value of Territory imports has risen by 150% whereas exports have gone up by less than 70%. The deficit on trade has moved from $19m. in 1961/62 to an estimated $77m. in 1966/67. Barring major mineral developments, a further widening of this gap may be expected over the next few years.
As part of the problem of establishing in the long run a viable independent economy in the Territory, I know that your Department is well aware of this problem of the balance of payments. As [the] central bank, we also must have special concern for this matter. Technical discussions are continuing between our Papua and New Guinea Division and officers of your Department on methods of estimating specific items. Further discussions on trends in some of these items and on their implications for the Territory’s long-term development should also be advantageous.
A case in point is the continuing growth in imports of foodstuffs and the extent that this indicates a shift in indigenous consumption from local to imported foodstuffs. Imports of white rice have almost trebled over the last four years while imports of meat, largely canned meat, have almost doubled. Food imports currently represent almost one fifth of the total import bill.
If imported foodstuffs were consumed mainly by expatriates the balance might be expected to correct itself as Papuans and New Guineans replaced expatriates in the Public Service and private industry. However, imported foodstuffs seem to have attractions for the indigenous people and many Papuans and New Guineans are developing similar tastes to the expatriates. People with European food habits may be of the order of tens of thousands at present; the figure could well rise to upwards of a million over the next ten years or so and the food habits themselves may be further europeanised.
The balance of payments problem is, of course, far-ranging. The food industry is only one example of tendencies which bear examination. It may be worth considering whether something more cannot be done to slow down, if not reverse some of the tendencies at work in the balance of payments or, at least, to ensure that they are taken fully into account in the planning of economic development. No one expects Papua and New Guinea to become self-supporting or to approach balance in its international payments for some years; but it would be unwise to disregard unsatisfactory features in the balance of payments on that account. Even at the moment, capital movements and consumption expenditure on imports have an effect on capital formation both in the government and private sectors. In the longer term, it must remain an object of policy to identify and, where possible, avoid situations likely to render the task of achieving future external balance more difficult.
If you feel that it would be useful, I should be happy to have senior officers in our Papua and New Guinea Division confer with your people and, as required, with the Administration. You will recall that the Bank has collaborated directly in some previous enquiries with your Department and the Administration, including the Sugar Enquiry which had an import substitution aspect.
I have sent a copy of this letter to the Administrator.2
[NAA: A452, 1967/7336]
1 H.C. Coombs, Governor, Reserve Bank of Australia.
2 In a minute to Warwick Smith of 27 November, Ahrens suggested the formation of a study group comprising representatives of DOT, the Reserve Bank, the Administration and the New Guinea Research group of the Australian National University for the purpose of examining the issues raised by Coombs ‘and to formulate recommendations for remedial policies’ (NAA: A452, 1967/7336). In a note for file of the same day, Ahrens recorded that the matter had been discussed with Warwick Smith: ‘The Secretary felt that the balance of payments problem was too large to be tackled at this stage. We had enough on our hands trying to complete a development programme which in itself would go some way toward meeting the problems raised by Dr Coombs. After the development programme had been completed, priorities could be determined for examination of the various issues involved in the over-all balance of payments problem. He was not averse to having a study group examine particular aspects but wanted the whole matter deferred for consideration next year’ (ibid.) On 29 November, Warwick Smith replied to Coombs that he agreed ‘entirely … with the emphasis you put upon the importance of identifying and avoiding situations likely to inhibit the development of a more satisfactory position for [PNG] with respect to its balance of payments problems’—and he appreciated ‘very much’ the offer for Coombs’ senior officers to talk to DOT. However, he could not suggest a particular date for discussion ‘as we are awaiting a first draft of the complete economic development programme for the Territory’, expected to be received in mid-December. Warwick Smith suggested that once this had occurred, he might propose a time (ibid.).