Canberra, 15 December 1966
We had some useful talks with Mr. McCasker and Dr. Parker1 recently on the work under way on the development programme and I am writing to mention the main points that emerged during the talks and to look at them in the context of our overall objectives.
The first point is that the development programme must be based on the World Bank Mission Report.2 We have no mandate to prepare a programme on any other basis. Our only authority is the Government’s decision on the Report. It accepted the Mission’s production programmes as a working basis for planning and its proposals and suggestions for the development of manufacturing industry, tourism, mining, power supplies, transport and communications were accepted as guides for policy and action. The Government decided that additional expenditures should be concentrated on increasing production from agriculture, livestock and forestry and on accelerating the advancement of the native people through training and education. It recognised along with the Bank Mission that the rate of expansion of activities such as curative health services, primary education, public utilities and general government services should be related to the capacity of the Territory’s population to contribute towards them …
Mr. McCasker is in effect required to translate the Mission’s proposals into a draft practical programme of action for the Minister’s approval, and for presentation to the House of Assembly and the public of Papua and New Guinea. This is a substantial task, particularly in view of developments since the Report was written and because of gaps in the Report itself, but where revisions in the Mission’s targets and programmes are considered necessary the reasons for departures from the Report must be fully substantiated. The Minister will need to consider each proposed change closely in the light of the Government’s decision on the Report.
[ matter omitted ]
In translating the Mission’s programmes into specific programmes and projects and in assessing their implications I would not want Mr. McCasker to be put off by fears about likely costs. The programmes for the productive sectors should at this stage be prepared with an eye to achieving the development envisaged by the Bank Mission. The cost of these programmes can be examined closely at a later stage. On the other hand programmes for the non-productive areas including general administration services should be kept under restraint as suggested by the Mission and each proposed increase in expenditure will need to be carefully considered.
We have discussed with Mr. McCasker the two stages in the preparation of the development programme which are considered appropriate. The first stage is the preparation of a general paper for the House of Assembly by February, 1967. This would discuss broad objectives and targets as well as the background to the Government’s policies for development. The second stage is the preparation of a more detailed and comprehensive programme along the lines of Mr. McCasker’s ‘basic’ development programme which could be published in time for the 1967 budget session.
[ matter omitted ]3
Attachment
NOTES OF DISCUSSIONS BETWEEN McCASKER AND DOT
Canberra, 21–24 November 1966
Papua and New Guinea development programme
Approach to programme
The principal aim is to prepare a development programme based on the I.B.R.D. Mission Report extending to 1969/70 which will achieve a quantum of development approximately equal to that recommended by the I.B.R.D. This programme would be in some detail, spelling out departmental requirements in physical and financial terms, and the estimates for 1967/68 would be directly related to it. The approach adopted in the budget paper ‘expenditure and physical performance’ in 1966/674 was intended as a first step towards the preparation of such a programme, and all departments of the Administration have been instructed to set down targets and produce estimates in this form up to and including 1969/70.
This basic programme should be completed by mid–1967 in time for consideration in conjunction with the estimates. If approved, it would be published in advance of the budget.
In the meantime, it is considered essential to produce a summarized programme, based on such detail as is available, before the end of February, 1967. This document would also be published.
It was recognised that the basic programme would, for the most part, be expressed in global terms. It would be necessary as a matter of urgency to translate the programme into specific projects, which would need to be planned in detail and submitted for approval. The programme should be revised each year. The Secretary suggested that each issue should contain a section exploring some particular aspect in detail. He expressed the view that the publications should show the significance of the Commonwealth grant to the economy.
[ matter omitted ]
Critical areas for policy consideration
• Cost of programme
- Estimated costs will not be known until departments have completed their projections. These are due by the end of November.
- However, it appears likely that quantum of development required will cost substantially more than estimated by I.B.R.D. Mission and probably more than would be suggested by projection of recent expenditure trends (the latter would amount to about $194M. by 1969/70).
- On the revenue side, the recent rate of increase of 22.5% per annum may not be maintained. Even if it is, internal revenue by 1970 would not be more than about $71M.
- On this basis, the gap between expenditure and revenue in 1969/70 might be about $123M. (The Economic Adviser advanced this as a probably conservative estimate on present indications.)
The Secretary felt that emphasis would have to be placed on raising additional revenue for which he could see considerable scope.
He did not accept that, if the estimates of costs were as expected, the programmes for the productive sectors should at this stage be modified on that account. However it was imperative to restrain expenditure in non-productive fields as suggested by the Bank Mission.
• Balance of Payments
Many difficulties were being experienced in producing balance of payments projections. However, it appeared inevitable that the unfavourable balance on current account would continue to increase throughout the programme and for many years beyond it. Tentative projections suggested an unfavourable balance of$139M. by 1970. This deficit has to be financed by the Commonwealth’ grant, other Commonwealth expenditure and capital inflow. On the same basis, the deficit could be about $260M. by 1974. (N.B. These figures are tentative in the extreme and suggest a continuing difficult balance of payments position.)
• Indigenization
It was recognised that the rate of indigenization will have an important bearing on the cost of the programme. The Public Service is major employer and should set the pattern for others. Therefore there is urgent need of analysis of Public Service manpower statistics and consideration of target rates of indigenization.
• Education programme
Need for careful consideration of implications of present policies. Could be problem of absorption of secondary school graduates within relatively few years. Necessary to examine now the need for rationing of secondary and tertiary education numbers that can be employed. This implies linking of education policies with policies on manpower and indigenization. (N.B. Noted that Administration’s Education Review Committee is considering this problem.)
• Policy for development of secondary industries
Need to consider carefully attitude to development of industries which may, on the surface, suggest some import replacement but which may have other less favourable implications, e.g., stimulation of consumption and demand for imported materials (cigarette production is a good example). Employment giving aspects of secondary industry recognised, but cannot be considered in isolation from other factors. Also need for care in considering applications for protection, particularly in view of the effect on costs of works programmes and export industries.
• Implications of agricultural, etc., targets
- Noted that high expenditure of plantings and infrastructure, etc., up to 1969/70 will not have significant effect on production until early or mid-1970’s. This has obvious implications for exports and taxable capacity in the short run. Real benefits will not be felt until later. The heavy costs and relatively small immediate returns from programme should be viewed with this in mind.
- Noted that the major contribution from mineral industry cannot be expected before mid-1970’s.
- Rubber programme
Department considers some expansion of export rubber programme should be considered. Possibility of development of large estates, e.g., in Madang area, was considered.
- Cattle industry
Department thinks that limitation of programme because of non-availability of sufficient breeders might not be justified to extent suggested. Feels that more breeders could be obtained from Australia. (Economic Adviser felt that development of meat production, while important, was of lower order of priority than development of export crops. Main result of increased beef production would be to improve native living standards and to replace some imports. Net contribution to the balance of payments should not be exaggerated.)
- Noted that realisation of targets will require, in particular, much larger expenditure than envisaged by I.B.R.D. Mission. I.B.R.D. Mission did not consider this subject at length and apparently had much lower standards in mind than would now appear practicable.
- Accelerated programme for mineral exploration
Urgent need for consideration of measures to intensify mineral exploration. (Department is examining this.)
- Coffee
Problem of controlling level of production has arisen and could become serious in near future. Native production, in particular, was increasing and might not be controllable.
- Tea
Question of achieving greater native participation in the industry was raised.
[NAA: A452, 1966/6372]
1 Dr M.L. Parker, Office of the Economic Adviser, PNG.
2 For background, see introduction and Document 72.
3 Matter omitted included the comment that draft documents would have to be cleared through the normal channels, with approval of the Minister being of particular importance ‘because of the political implications of [the papers] and because he will have to take full responsibility for them’. It was also remarked that drafts might be passed to recognised experts and other Commonwealth departments such as Treasury. McCasker responded on 21 December that ‘unless a good deal more in the way of revised programmes and detailed policy implications can be taken on trust (which, I admit, is a tall order), I do not think it will be practicable to produce a very meaningful document in February’ (minute, McCasker to Warwick Smith; 21 December 1966, NAA: A452, 1966/6372).
4 Not printed.