l wilson kamit : difficulties, risks and opportunities for papua new guinea address by mr l wilson kamit, cbe, governor of the bank of papua new guinea, to the fifth annual report meeting of papua new guinea sustainable development program limited, port moresby, 25 may 2007. * * * “ the chairman of pngsdp prof. ross garnaut, members of the board, chief executive officer mr robert igara and the staff, chief secretary ambassador isaac lupari, department heads, members of the diplomatic corps representatives of the private sector, ladies and gentlemen. i thank you for inviting me to the 5th annual report meeting of png sustainable development program limited. ” there are many reasons potential investors give for not investing in papua new guinea. lack of infrastructure, scarcity of skilled labour, high cost and unreliable utilities, small urban centres result in fragmented markets, law and order problems and the non accommodating land tenure system are the causes given by those familiar with the present state of affairs in papua new guinea. as you all know papua new guinea is a very old nation but a new country. we can boast about having one of the most diversified and rich ecological systems in the world in flora and fauna. five large islands with several hundred small ones of unspoiled white beaches, outstanding sceneries of high mountains, fast flowing rivers, swamps and thousands of kilometers of waterways. we have very rich, highly diversified cultures and traditions, with more than 800 languages of which more than 200 are advanced to a stage that the bible can be translated into. there are huge tracks of arable land and tropical forests, very substantive marine resources in the 200 mile fishing zone, the most known resource is tuna but there are many other smaller ones. last but not least an abundance of mineral resources of gold, copper, nickel, oil and gas which have already been discovered, and exploration for others is on the rise. i know that there are difficulties and risks as stated in the opening paragraph of my address. now i will state the opportunities. the mining and petroleum industries are attracting many investors from all over the world. there are new substantive entrants such as the state owned chinese mining company at ramu nickel, barrick that took over the porgera gold mine from placer, and many companies investing large sums in exploration and others that have submitted exploration applications. there are undersea explorations for minerals ( gold ) with positive results. the gas developments are moving into

the public finances, that means that the burden of stimulating our economic recovery falls mainly to monetary policy. bank rate is at, effectively, zero. and the bank has provided further stimulus, via quantitative easing, in order to underpin demand, and so guard against inflation being persistently below our 2 % target further down the road. for the economy as a whole, that has bought time to smooth the adjustment. for firms, it has reduced the cost of capital and the weight of debt burdens. the equity prices of leveraged firms have generally risen more than the market as a whole. easy monetary conditions no doubt go some way to explain why more firms haven ’ t failed ; and why the bank has received few approaches, under what is still known as the london approach, to help banks and firms keep talking when a co - operative solution is within reach. in all this, the monetary policy committee faces a delicate and unavoidable balancing act. as i have said before, easily the committee ’ s biggest judgment in recent years has been that inflation will gradually fall back to the 2 % target – initially as the effects of higher vat, energy bis central bankers ’ speeches and import prices diminish ; and then as slack in the economy bears down on wages and prices. though it has fallen significantly over the past six months, from over 5 % to 3. 5 % on yesterday ’ s reading, it remains uncomfortably above target. the mpc will guide inflation back to target in the medium term, but in the near term there is considerable uncertainty about the path that it will follow. in its february forecasts on the outlook for growth and inflation, the mpc saw a gradual pickup in activity as the headwinds from weakness in the world economy and tight credit conditions receded and as the squeeze on household incomes is ameliorated through lower inflation. big picture, that view on the growth outlook still looks broadly on track, but it is not always going to seem like that over the next few weeks and months as the ons data for the first half of the year are published. two temporary factors look likely to muddy the waters, leaving the headline ons figures for gdp growth well short of what has been suggested by surveys. first, data for construction output over the turn of the year were extremely weak. that looks likely to be a substantial drag on recorded growth in the first quarter of the year, possibly leaving the headline figure for activity close to flat. but surveys point