Sydney, 28 March 1967
Mr. Goodman began by saying that the Mission had not yet had time to digest all the material it had been given or all the points thrown up in discussion and any opinions it expressed should be regarded as tentative. The Mission’s report would be prepared in Washington during the next few weeks.
Mr. Goodman said the Mission was impressed by the rapid rate of growth of the Territory economy as measured by figures of GNP, i.e. about 13% in recent years. The Mission had, however, a confused impression of the rate of development in the various sectors. Some key sectors, especially agriculture, appeared to be lagging and in a number of directions plans were far from developed. Part of the rapid rate of overall growth could explained by activities not foreseen by the previous Mission, e.g. tea.
Development programme
Mr. Goodman described the ‘economic set up’ in the Territory as ‘extremely weak’. His team had an impression of a lack of enthusiasm and experience in economic fields within the Administration but there were some good people in some of the economic areas. There seemed to be little central thinking on relationships between the various sectors and the impact of particular sectors on other sectors. The 1964 Report had been regarded wrongly as a development plan. The previous Mission only suggested the broad lines of a detailed development programme that should be drawn up. If the present rate of overall growth continued without an integrated development programme misinvestments could result.
Mr. Goodman said that there appeared to be little or no thinking in the Administration about the role of private investment in the Territory’s development programme. Thinking and planning was limited almost exclusively to public investment in uncorrelated programmes. A major task ahead was to bring private investment into the development picture. It was important to know where growth was going to come from, i.e. from what sectors and whether from public sector or private enterprise. With the exception of forestry and tea and possibly some other activities, the Administration appeared to have little idea of what it expected the private sector to do and the private sector seemed to have little knowledge of what public investments were being planned.
Mr. Warwick Smith said the overall growth consisted of three major elements:
(i) extension of the cash economy, namely, transition from subsistence to monetary activities;
(ii) expansion of public expenditure (not necessarily in economic fields) and;
(iii) real economic growth.
The statistical coverage of Territory development was far from complete and decisions had to be made on economic and budgetary matters without adequate data. Budgetary decisions could not be delayed until all desirable information was available.
Mr. Goodman thought that the statistical organisation was functioning well and he was impressed with the efficiency of the staff of the Statistical Bureau. The statistics on national income seemed to be quite satisfactory and the Mission was pleased to receive new data on national income by industrial origin (sector accounts) while in the Territory. He thought that the main deficiency was in the economic planning area and that we would not get a properly integrated programme with ‘the present set up’ in the Territory. There was a need for considerable strengthening in the general economic staff in the Administration. (He appeared to be referring to quality as well as numbers.) Aspects of the overall development program had not been developed simply because information had not been sought. The Territory did not need a sophisticated development programme such as those prepared in India and Pakistan but it was essential that the series of separate programmes now in existence should be welded into a co-ordinated whole.
Mr. Warwick Smith said that a lot of work was being done on a detailed operational development programme. It was hoped that it would be ready by October this year. The Department of Territories had been able to give limited help but this was spasmodic and desultory in relation to the total task. He asked Mr. Goodman what he thought were the major difficulties in the preparation of an integrated development program.
While stressing that the Mission had yet to clarify its thoughts and had not had time to digest all the information and points thrown at it in the Territory. Mr. Goodman said there appeared to be three main problems:
(i) organisational structure:
The economic planning organisation needed strengthening.
(ii) people:
It was necessary to have high calibre staff with the knowledge and capacity to put the various threads of a programme together. The Mission was impressed with the quality of people in individual sectors such as agriculture and transport and communications.
(iii) psychological problems:
Thinking in the Administration seemed to be dominated too much by the size of the annual Commonwealth grant. Many officers thought there was no point in detailed planning before the size of the grant was known. This tended to inhibit independent thinking in the Administration. People in the Territory could be given greater freedom to frame plans based on realistic assessments of needs.
Mr. Warwick Smith commented that the physical resources available and not finance were in practice the main limiting factors. Mr. Goodman said the Administrator considered manpower was the chief bottleneck. The Secretary thought that this view was based on political and local circumstances including opinions expressed by sections of the native population that expatriate recruitment should be limited.
Mr. Goodman said he could foresee a distinct ‘hump’ in investment required over the next few years. The main ‘humps’ would be in capital expenditure in the transport and communications sectors and in requirements for skilled expatriates. Mr. Goodman again referred to the need for a co-ordinated overall development programme. It was vital for the preparation of an integrated transport investment programme.
Mr. Warwick smith asked Mr. Goodman to give examples of areas which he thought co-ordinated planning was needed. Mr. Goodman said the most important field was transport. It was vital that the transport programme be properly integrated with the overall development programme. It was necessary to know what production was coming from different areas in the Territory and by what mode of transport and to translate the physical requirements into financial terms. The planning of the Harbours Board had to be carefully co-ordinated with road planning and the development of civil aviation had to be closely co-ordinated with programmes for road development (the airlift of cargo from the Highlands decreased by 50% last year due to improvements in the road between Lae and Goroka) and so on.
The Mission fully supported the proposed U.N.D.P. Transport Study. It would help to bring things up to a new level in the transport sector. The terms of reference should include not only a study of road, air and sea transport required but also the need for changes within the Public Works Department to strengthen its road organisation. The Secretary mentioned that discussions would be held shortly on the amalgamation of the two Works Departments in the Territory.
Mr. Goodman thought that the overall development plan might in the first instance be for three years only. It could cover the basic economic magnitudes, balance of payments and growth rates in the various sectors. The central planning unit in the Territory would need strengthening for a period of time (part of the ‘hump’ effect). Mr. Goodman said there appeared to be a need for some ‘regional development’ officers who could assist the central planning unit in dovetailing plans for major regions of common interest and watching over local developments. The Highlands could be one region.
Mr. Reif expressed the view that the overall programme should include an export promotion programme covering agricultural and forestry and other productive sectors and also an import substitution programme. He also mentioned that departments to suit their own purposes had adopted quite different regional groupings and boundaries. There seemed to be a need to frame the programme in such a way as to avoid overlapping regions.
[ matter omitted ]2
[NAA: A 1838, 936/28/1/1]
The World Bank mission report, 1967
The 1967 World Bank mission to PNG1 completed its report in August. Excerpts from its ‘summary and conclusions’ read:
The economy of the Territory still includes a large subsistence sector which supplies the majority of the indigenous population with all the basic necessities of life. The small but fast growing monetized economy is based predominantly on government operations, export oriented agriculture and services. It is virtually run by expatriates and heavily dependent on Australia.
… The average per capita income of the indigenes is estimated at roughly US$100, including the income derived from the subsistence economy. The average income of the 35,000 expatriates is about US$4,000, as high salaries, extensive fringe benefits and low taxes are offered to attract skilled manpower from Australia and elsewhere.
.. GNP in the monetized sec/or has been increasing by almost 13% annually since FY 1960/61
… as a result of expanded government expenditures and a significant rise in exports. But the base is small and some of the growth reflects the steady incursion of the monetized sector into the subsistence economy. Prices have in general been stable.
… Government operations have long played a very important part in the economy of the Territory. Public Sector investment has been the major element in domestic capital formation.
… Nearly all economic development in the Territory depends on large scale Australian assistance. Since World War II Australia has made commendable efforts in promoting the economic advancement of the country and achieved remarkable progress. This year Australian non-military assistance to the Territory, having increased by 15% a year during the past decade, will amount to $A82 million or US$43 per head of the indigenous population; this is among the highest rates of assistance received by developing countries.
… Public saving is negative, and the Territory’s current revenues covered only 50% of current expenditures in FY 1966/67. Tax revenues amount to 11% of GNP in the monetized sector and only 6% of total GNP At present, 60% of the Territory’s total budget has to be financed by Australia .
… Despite significant improvements in export performance, the Territory’s import gap is considerable, with export earnings covering only 46% of imports in FY 1965/66, the gap being financed by Australia. The deficit presents a difficult long-term problem for the Territory as any sizeable reduction of imports would necessarily result in slowing down economic development. Administration policy—having given priority to export promotion for primary produce in the past—will now have to put greater emphasis on import substitution.
… The balance of payments data, although incomplete as a result of the close monetary integration of the Territory with Australia, indicate some net capital outflow during FY’s. 1961/62–1964/65, due to the crisis of confidence caused by the Indonesian take-over of West Irian. Since then there is believed to have been a net inflow. The Territory House of Assembly, which has a majority of indigenous elected members, formally recognized the dependence of the Territory on the inflow of private capital by passing a Development Capital Guarantee Declaration in September 1966. So far the Territory has no public external debt; all Australian assistance has been in grant form.
… The [1964 World Bank} report was in general accepted by the Australian Government as a policy guideline, although in some instances the Mission’s recommendations have not been followed. Accomplishments include the establishment of the Papua and New Guinea Development Bank, a shift in emphasis in Government spending from social services to expenditures related to infrastructure and education, and measures to improve the manpower situation.
… However, little has been done to coordinate the various sector programs and to integrate them in an overall development program. The present mission recommended that the Administration seek the advice of a consultant for formulating a development program, and this has now been done.
… The mission feels that the policy for the agricultural sector needs particular attention, including a reorganization of the Department, better personnel policy, less emphasis on costly land settlement schemes, and stimulation of expatriate investment in certain fields…
… Transport conditions are extremely difficult and facilities most inadequate in the Territory. Substantial improvement is indispensable for any further economic development. Following the recommendation of the Bank Survey Mission, a transport coordinator has been appointed. In order to ascertain the present and future transport needs and to prepare a longer term transport development program, the Administration has now approached the U.N.D.P. for a grant to finance an overall transport survey …
… The present telecommunications system is not able to provide the services required by the rapidly growing market economy. The Administration has, therefore, prepared an ambitious five-year program for the expansion of local and long-distance telecommunication facilities. The Bank is assisting the Administration in preparing a project limited to essential services for possible financing.
… Creditworthiness–The Territory of Papua and New Guinea as a separate political entity moving towards political independence qualifies for IDA assistance on grounds of low per capita income and its unfavorable balance of payments situation and prospects. The performance of the Administration has in general been satisfactory despite some deficiencies and is improving along the lines recommended by both Bank missions. Although Australia will continue to bear the main burden of financial and technical assistance to the Territory, IDA credits, even in small amounts, would be of great value for the Territory’s development. In addition, the Bank Group could also play a modest role as a source of advice for Australia and the local Administration in their development efforts2.
1 In 1966, the Government asked the World Bank to consider a program of lending for the Territory after which the Bank visited PNG in March 1967 with the task of ‘updating the Bank’s information on the economy and identifying possible projects for Bank or [International Development Agency (IDA)] financing’. The IBRD officials were R.J. Goodman (chief of mission), G.H. Reif and E. Lamers (economists) (IBRD report, ‘Current economic position and prospects of the Territory of Papua and New Guinea’, vol. I, 9 August 1967, NAA: A1838, 846/2 part 3).
2 Matter omitted includes discussion of possible projects for IBRD or IDA financing—telecommunications, power, agriculture and livestock, and transport.
1 See Document 99.
2 IBRD report, ‘Current economic position and prospects of the Territory of Papua and New Guinea’, vol. I, 9 August 1967, NAA: A1838, 846/2 part 3.