Transcript
PAUL FLANAGAN: There are three major problems with this statement and that's why I regard it as it being the worst statement that the central Bank has made for at least the last ten years. When it comes to printing money one of the risks of printing money is that you can overheat an economy by pushing that money into the economy. The Bank is claiming it is not creating that problem because it says it is taking the same amount of money out. But that's not the case. When we look at other central Bank figures we see in fact that put in 3.6 billion [kina], they are saying they only put in 1.6 billion, so there is a 2 billion kina gap there. And then they say when they put in that 1.6 they have also taken 1.6 out, but when we look at the numbers we find that that is not the case. They haven't taken the money out, they have actually put some extra money in, through the private sector too. So it is just one area where unless you acknowledge the problems you are creating, you can't find the solution, and this is the worrying trend in this statement.
DON WISEMAN: In terms of the impact on the economy, what happens? It's inflationary obviously.
PF: That's the risk - that it's inflationary. And what we are also seeing now is that with this inflationary risk, it's directing the funds primarily to government. There's very little money that is being made available to the private sector - it is being redirected to fund the government's deficit. And this is having huge problems on the private sector. So private sector credit is now not going up at the same rate as inflation. This means that small businesses don't have as much money to invest. It means if you are trying to borrow money for a housing loan it is now much, much more difficult. And we find the levels of this private sector credit growth, which is getting squeezed out because the central Bank is giving the money to the government instead, is crippling growth in PNG. PNG now has the worst growth prospects in the East Asia Pacific region according to the World Bank.
DW: But inflation is not necessarily a bad thing is it?
PF: Well it depends on the level of inflation. So in a country such as PNG it wouldn't be a problem to have inflation running at 4 to 6%. Indeed the economy is quite depressed at the moment in PNG. As I say the growth prospects are very poor relative to other countries, and the growth rate has been falling and it is now well below the population growth rate. And this is actually taking some of the inflationary pressures that would otherwise be there, the poor growth rate is removing those inflationary pressures. So the key problem at the moment isn't inflation, the key problem is the stalling in growth in PNG, and the things the central Bank is doing - both in the cutting off of private sector growth as well as even denying that there are foreign exchange shortages - these are the actions the central Bank is doing to kill growth in PNG.
DW: So they are performing very poorly - the worst in 10 years as you say, as far as this monetary statement goes, what do they need to do?
PF: Part of any solution is admitting that there's a problem. So on the foreign exchange, for example, they produced this disingenuous graph where they claim that more foreign exchange has been coming into the country than going out, so therefore there shouldn't be foreign exchange problems. But we know that when you talk to any private business in PNG at the moment they constantly talk of foreign exchange shortages. They are identified as their greatest issue. So if the central Bank is running arguments in these statements saying 'Hey it's not a problem. All that's happening is that the private banks are creating the difficulties' if they are saying and arguing that you can't get close to trying to find the solution. You have to start addressing foreign exchange problems. To do that, first of all you have got to admit there is a foreign exchange problem, and that's what businesses are saying, but the central Bank is denying that. So the first step is to actually acknowledge that there's a problem and once that's done then you can start doing things to deal with building confidence and getting growth back into the economy. And that means actually doing things to get foreign exchange flowing again. It means getting private sector credit growth up again. It means providing better information as to the limits in what you are doing in printing money, to build confidence again with international investors and the business community, so they will start investing again, so you will get growth again.
DW: Is this a sign that there is a talent deficit or knowledge deficit at the Bank or are they deliberately trying to mislead people?
PF: It is difficult to understand why this statement is so bad. The central Bank has a proud history. I know many of the people in there and they are very intelligent people. They know monetary policy better than the arguments coming through in this statement. So my fear is that there is some influence there in the central Bank now. My fear is that it's not as independent as it used to be. We know there are key people who have very close links to the Prime Minister's Office who are providing advice. And my concern is that that's now bad advice and that's undermining the proud history of the central Bank - knowing what to do to keep the PNG economy growing and thriving. And it's not doing that at the moment.
