Weekly Commentaries

This is Sunday Chronicle's weekly commentaries on various issues of interest affecting the country. All individual commentators are done by elite Papua New Guineans from diverse educational backgrounds.

Monday, February 15, 2010

Inflation vs socio-economic growth


AS THE country gears up for the LNG Project, so many critics are having their say about it. Whether one likes it or not, the project is here to stay and all we need to do is to try to have a slice of the cake whether it be directly or indirectly.

The LNG project has big potential to change the landscape of our economy but it can also bring in disguise, numerous problems that would have serious repercussions on the economy and the lives of the citizens. It is like the case of a two edged sword. One such problem is the inflation rate that is predicted to increase significantly as income and consumption in general start to rise.

You don't have to be an economist to know the impact of inflation. A simple stroll into one of the big shopping centres will make you come to realise that prices have risen dramatically over the last few months. As previously mentioned, inflation can also be a good thing as it is a key indicator that signify that the economy is booming. However, lapse in government policies to control/address this problem immediately can result in all sorts of problems.

The recent increase in the number of breakouts from various jails may allude to the fact that everyone is feeling the pinch of the adverse effect that comes with a booming economy. Maybe the warders/prison guards became too complacent because of consistent setbacks in addressing their housing or pay conditions to keep up with the pace of the inflation. As a result, they may have had a hand in planning the breakouts. Or maybe the prisoners driven by that motive to seek new beginnings from the many candies expected to be generated by the LNG project and other major developments may have eventually forced them to break out of the prison camps.

Whatever the reasons, it is clear that inflation is a problem that needs serious attention. The problem of inflation is acute for a country like PNG given that only the minority of 15-20% who are engaged in the formal sector and to some extent the informal sector in most of the urban centers are the driving force behind any movements in the rate of inflation. Whether it be headline or underlying inflation that is having a an impact on Consumer Price Index (CPI), the scenarios look this way. While the 15-20% enjoy all the benefits that can be derived from the growth, their very conspicuous demand out of pride or luxury may widen the gap between the rich and the poor in terms of income disparity, the level of living standard, literacy rate and poverty.

The pace of Rural-Urban drift will accelerate as rural dwellers enticed by the prospect of employment opportunities and better lifestyle migrate to big cities leaving the rural areas with a problem of limited supply of labour to support the subsistence sector while the major urban centers become susceptive to increases in social disorder and symptoms of urban slums.

Look at the great cities of the world like Johanesburg, New York , Beijing , New Delhi , Rio De Jeneiro and the list goes on. The imbalance in the policy approach by their governments which resulted in a shift of available resources away from the lagging sector (e.g agriculture/tourism for PNG's case) to the booming sector (e.g Mining and Energy for PNG's case) forced people to migrate.

We are heading that way and if we are not careful, our problem could turn us into the next Baghdad or Pyong Yang. Our challenge as a nation has and will always be to do with our ability to empower and encourage our people to become active partners in the nation-building process. We can't do that under the guise of corruption or regionalism (wantokism), it needs  collaborate effort from every citizens to ensure this country progresses for the good of all today and in the future. I agree we need 100 Powes Parkop and even better 1000 John F Kennedys who famously said "ask not what your country can do for you but what you can do for your country".

The social disadvantage of having a major project like the LNG in a country like PNG has been demonstrated in the recent battle for land rights between the Porebada and the Boera villagers. The only conclusion we can draw from this is that bulldosing any project of this magnitude without proper consultation or social mapping can deliberately jeopardise the wellbeing of the project, the people and the economy.

The outstanding MOA funds that were promised to the various landowners could become a stumbling block if the government does not address it. Any economic growth that has little impact on improving the social wellbeing of the people (as reflected by various social indicators such as health, education and improvement in standard of living) needs no applause or commendation.

You can't preach about the increase in GDP when you have a serious problem in dealing with poor road networks, declining health status (low life expectancy, high HIV/AIDS infected cases, poor health facilities) and rundown education facilities (high level of drop-outs, inadequate or zero incentives to the teachers to allow them to perform to the best of their abilities).

The key point is that we want socio-economic growth not just economic growth. That means that economic growth must become the driver for social reforms through increasing the level of employment, income, reducing inflation, leading to a reduction in the level of income disparity between the rich and the poor, poverty and increase in standard of living.

Social decadence in light of economic growth is like having to decorate an office that is sick inside with poor ventilation system and lighting problem with flower boutiques. The government must focus its attention on both the agriculture and the tourism industry as a means to spread out the effects of inflation and achieve socio-economic growth.

The primary objective must be to eradicate this bottleneck that is allowing only few privilege individuals to play the role of lions while the rest of us like ants that gather the remaining scraps and burrow our way into our own little holes hoping that the rain will stop and the sun would shine again.

Anyone can see that commercialising the agriculture and giving the tourism industry an added touch of beauty is playing to the strength of PNG. If the government can support the agriculture and the tourism sector, the employment figures would rise by threefold or even more. An important outcome of this situation would be twofold:
  1. The spread in the level of income as tourists spend their money on attraction services like hotels, lodges and traditional crafts and ware like bilums, carvings, necklaces and so on. The government must ensure key infrastructure like airports, airstrips and roads are upgraded and maintained at all times. 
  2. By commercialising the agriculture sector with initiative like making funds available and removing impediments like poor infrastructure in terms of roads, bridges, wharfs and airports to allow better market access for farmers would increase the supply of fresh produce into towns and cities like Port Moresby which is constantly seeing ridiculous price markups for agricultural produce like veggies and other fresh produce.

With the LNG Project, urban centres and cities like Port Moresby and Lae are going to become lucrative markets for fresh produce. Nevertheless, the government must be mindful that if current scenario is not looked into, we could see a decline in nutrition intake in the diets of most Papua New Guineans in the cities.

This would come about given that the supply chain of fresh produce is going to be monopolised by the major shops who would put up hefty markups for their veggies and fruits. At the end of the day when you do your math, you may find that the fresh producers earn only about one-fifth of the profit generated by shops. If you want to take a guess, answer this question, what type of people in what category of the income level do you see in most of the big major shopping centres compared to those that go to markets like Grodons or Manu Auto Port? I think you already know the answer and that means you have a fair idea of what I am talking about.    

The above two scenarios state what is happening. That is the high increase in income levels would put an upward pressure on the inflation rate. This has been in a way controlled and eased given that the inflationary pressures that would have been generated are spread across the board. At the same time the trickle-down effect resulting from the transfer of monetary values (money) to those at the very bottom of the income level, creates a situation where apart from easing the inflationary pressure, it allows everyone to become active participants in the market. Subsequently that means that to some degree any future movements in economic indicators like inflation and employment is driven by the majority of 70-80% and not the minority 15-20% as is the case currently. This has the possible effect of increasing employment, reducing income disparity between the rich and the poor, increasing the standard of living and reversing the Rural-Urban Drift to one of

Urban-Rural Drift as unemployed city dwellers migrate back to their villages to earn income by either engaging in the agriculture or the tourism industry.

Also if the tourism industry and the agriculture sector are vibrant, there is a great possibility that we could see an increase in spending in general from both locals and expats who are engaged in the LNG Project or any other major projects within the country. Apart from attempting to attain socio-economic growth, the key recipe lies very much in the policy approach of the government of the day. The policy of the government must be a balanced by giving equal or at least some recognition (given scarcity in the availability of resources such as funds availability against so many priorities) to each essential sector within the economy.

Inflation is a big problem and if you have never given any serious thoughts about its likely adverse effects, well this is the time to start doing so. Be mindful of our spending because like Climate Change, your decision to blow your budget although can make up only a tenth of the overall rise in inflation, given the possibility that about 1-2 million of Papua New Guineans are doing the same thing makes you realise how vital it is when it comes to your spending decisions and plans. We must also be aware of important issues that surround us and be able to identify through critical thinking how everything is going to pen out at the end. 

"Let us all become conscious and wise consumers and next time you strike gold just remember not to let the pot get too hot".. 

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