loi m bakani : financial inclusion and financial literacy in papua new guinea welcome address by mr loi m bakani, governor of the bank of papua new guinea, at the national financial inclusion and financial literacy development workshop, port moresby, 22 august 2013. * * * honorable don p polye, mp, minister of treasury un resident coordinator, our colleagues representing key department ad ministries, distinguished guests, ladies and gentlemen, welcome. i would also like to extend a special welcome to the pacific financial inclusion program, our partner in conducting this workshop. i offer in advance my thanks to our session chairs and panelists in the topic discussions later today and tomorrow for the wealth of insight they will impart into our deliberations. my deepest gratitude also to those who have travelled from the provinces and from abroad to take part in our first national strategy for financial inclusion and financial literacy workshop. papua new guinea has been at the forefront of innovations and commitments aimed at building an inclusive financial system, because we recognize its role in enhancing sustainable economic growth and development. the national informal economy policy ’ s included financial inclusion as one of its two main pillars for 2011 – 2015. and earlier this year, the national executive council endorsed the centre for excellence in financial inclusion ( cefi ). whether it is creating new technologies or drawing on technologies already widely available such as mobile phones – our banks and private sector actors have led efforts to move beyond cash and make electronic transfers possible for more people in more places – including most critically to the poor and those otherwise unable to access financial services. donors and our civil society also play a vital role in making innovations work – including to reach poor and vulnerable groups. their work helps to close capacity gaps & expand the opportunities available to poor people. it also important that our government and public leaders strike the right balance btw incentivizing innovation while ensuring new initiatives are fair, inclusive, and sustainable. to this end bank of png continues to put in place appropriate regulations, safeguards and adequate infrastructure. however, financial exclusion remains astoundingly high and is most severe among women and rural and informal workers. today ’ s national workshop on financial inclusion and financial literacy is about coming together to recognize those challenges that stand in our way. we must commit ourselves to overcoming them in a coordinated and collaborative way. because we cannot solve them as one institution or one individual. the workshop will start with setting the parameters for what is means to build an inclusive financial sector, after

level of foreign exchange reserves. it is important to note that the first crisis was all our own doing. the foreign currency inflows from the mining and petroleum exports were at their peak, at hundreds of millions of united states dollars per annum. the government of the day decided that we could afford a highly expansionary fiscal regime. the planned budget deficit for 1993 was at 5. 0 to 6. 0 percent of gross domestic product ( gdp ). it was obvious that it was far from being sustainable even in the short term, when the tax flows from mining and petroleum exports were expected to be high. in the medium to longer term it was a recipe for disaster. the public reacted as expected, by loosing confidence in the kina. in 1997 and 1998, the government of the day did nothing to mitigate the economic impact of these shocks. to maintain some resemblance of stability, the central bank used the foreign exchange reserves to support the exchange rate. in spite of heavy intervention in the foreign exchange market, the value of the kina declined at a fast rate, from around us $ 0. 70 in 1997 to $ 0. 34 in less than 2 years to 1999. as was the experience in other countries, currency devaluations do not stop the outflow of foreign currency ; on the contrary it accelerates it. the central bank did not have the independence to rein in the monetary expansion, resulting mainly from a high budget deficit and to be able to stop the pressure on the kina. in 1994, it was agreed that a floating exchange rate is inconsistent with foreign exchange controls. the recommendations were to retain the foreign exchange regulations until the reserves are built up to a comfortable level that can withstand any adverse impact of liberalization of foreign exchange control. in 2000, upon the enactment of the new central bank act ( cba ), the subject was revisited. it was concluded that the foreign exchange controls should stay in place as they are, at least until the central bank has developed appropriate monetary instruments to achieve the objective of price stability. the election driven 2002 budget, and the large built in fiscal deficit, were the first time the central bank could test the instruments it developed, mainly the use of interest rates, to counter - act an expansionary fiscal policy and try to maintain price stability. the other question that we needed an answer to was ; will the public believe that the bank of png is going to use its independence to achieve the objective of price stability. the developments in