Australian loan aims to keep Marape happy

By Phillip Coorey and Andrew Tillett - Financial Review

The Morrison government is set to extend a short-term loan to help Papua New Guinea refinance its debt, as the Pacific neighbour threatens to go to China or elsewhere for assistance.

A delegation of six ministers, including Finance Minister Mathias Cormann and Foreign Minister Marise Payne, visited Port Moresby on Monday for talks, less than a week after PNG said publicly it wanted $1.5 billion from Australia.

It is understood PNG Prime Minister James Marape has walked back that number to about $300 million.

A senior government source said that while normally such countries would go to the World Bank or IMF looking for loan assistance, there was "a time issue'' involved, meaning PNG was in a hurry and would go to another country for the money.

Mr Marape confirmed this, telling the ABC: "Whether it is China, India or Australia – the cheapest help that we can get and the best help that we can get in terms of the loan – I'm in the business of refinancing my entire loan portfolio."

A government source said helping PNG via a loan was preferable because there would be no impact on the budget bottom line.

Canberra is open to considering PNG's request, with officials noting that Mr Marape, who became Prime Minister in late May, has emphasised making PNG more economically independent and improving trade relationships.

However, any loans would likely be offered on the proviso of PNG undertaking economic reforms, while long-term financing options also include the Asian Development Bank as well as the World Bank and IMF.

Lowy Institute Pacific Islands program director Jonathan Pryke said PNG's economy had been struggling since 2014 when a collapse in oil and gas prices meant resources projects did not deliver revenue, forcing the government to borrow to plug the budget hole.

The government owes 27 billion kina, or $11.8 million, with public debt making up about 30 per cent of its gross domestic product.

With PNG emerging as a battleground between Australia and China for influence, Mr Marape's office earlier this month said the government had asked Beijing for assistance with its debt but he later back-pedalled and gave assurances that other partners had been asked to help.

"It's been a slow-moving crisis for PNG. They've found it very heavy going to rein in expenditure and implement austerity over the last couple of years," Mr Pryke said.

He said PNG had borrowed at high interest rates from domestic banks and refinancing its loans would ease the strain of debt repayments, which now made up 15 per cent of government expenditure.

Interest on domestic treasury bills is 1.97 per cent for 63 days and 5.3 per cent for 364 days, while bonds are 8.1 per cent for two years and 11.98 per cent for 10 years.

But a stumbling block had been Port Moresby's unwillingness to undertake reforms, Mr Pryke said.

The World Bank had provided $US150 million ($222 million) but PNG's inadequate performance had led the bank to hold back on the second tranche.

The delegation of ministers, which also included Defence Minister Linda Reynolds, Pacific Minister Alex Hawke, Immigration Minister David Coleman and Assistant Trade and Investment Minister Mark Coulton, is the biggest Australian contingent in more than a decade to visit PNG.

Talks also progressed on elevating the relationship between PNG and Canberra to the status of a Comprehensive Strategic and Economic Partnership, with an agreement expected to be signed later this year.

Go to this link for more: https://www.afr.com/politics/federal/australian-loan-aims-to-keep-marape-happy-20190826-p52kp8