What happens when “the most impoverished region in one of the world’s poorest countries“ wakes up one morning and figures out, “We’re rich!?” Well, Norimitsu Onishi’s article in the NYT today on Papua New Guinea offers some remarkable insights. Using a series of compelling stories, Onishi highlights the immense societal, cultural, political and economic challenges faced by frontier economies that do in fact discover they are resource rich. Have a gander at these remarkable excerpts.
On the difficult economic geography:
“Constant tribal wars over land, women and pigs — the last being prized measures of wealth, used to pay for dowries and settle disputes — have grown deadlier in the past decade with the easy availability of high-powered rifles smuggled in from Indonesia, just to the west, which are exchanged for the marijuana grown here…”
And on the temptations associated with this sudden influx of wealth:
“…A short drive away, Hamon Matipe, the septuagenarian chief of Kili, confirmed that he had received that sum [$120,000] four months earlier. In details corroborated by the local authorities, Mr. Matipe explained that the provincial government had paid him for village land alongside the Southern Highlands’ one major road, where the government planned to build a police barracks. … Mr. Matipe said he had given most of the money to his 10 wives. But he had used about $20,000 to buy 48 pigs, which he used as a dowry to obtain a 15-year-old bride from a faraway village, paying well above the going rate of 30 pigs. He and some 30 village men then celebrated by buying 15 cases of beer, costing about $800. All the money is now gone,” Mr. Matipe said. ‘But I’m very happy about the company, ExxonMobil. Before, I had nothing. But because of the money, I was able to buy pigs and get married again.’”
What a story! Basically, the Chief – ostensibly the wise elder of the local village — received $120,000 for his land, which he immediately spent on women and alcohol. That may be a crude simplification of the story, but how else would you interpret this? Even the pigs he purchased were intended as a dowry for his 11th (!) wife.
Now, to be fair, it’s ridiculous for any American (and I do hold an American passport) to comment on the consumption habits of other countries; the amount of credit card debt we’ve amassed in this country is both astounding and depressing. (…and in reading this story, I can’t help but think of a similar story from my undergraduate days in which a lump sum was blown on beer and oreos…)
Still, wouldn’t it be wonderful to come up with some sort of governing institutions that can help frontier economies better manage their resource windfalls? No doubt the Chief would have liked to make his entire village better off for generations to come?
And, since you’re reading this story on this blog, you’ve no doubt guessed that I’m thinking about a SWF. But, surprise, PNG is well ahead of me on this. In fact, the country has been actively considering a series of new SWFs, which it will direct the revenues from its stunningly large LNG project, which will come on line in 2014. (This project could bring as much as $50 billion into PNG, which translates into roughly $10,000 per person in a country with a GDP per capita of just over $2,000. That’s a lot). Let’s turn back to the NYT article again:
“While conceding the danger of social disruptions, Papua New Guinea officials are adamant that the windfall will be used for development and not siphoned off by the well connected. Mr. O’Neill, the finance minister, said the government planned to channel the revenue into three sovereign wealth funds that would be overseen by a board of advisers, including foreigners, adding that the government would also be held accountable by the World Bank and other creditors.”
Now, PNG has the dubious distinction of having been the sponsor of a failed SWF: the Mineral Resource Stabilisation Fund, which was shut down in 1999 due to excess draw-downs. However, I think this failure offers PNG a leg up on other frontier economies in a similar position, as it knows all too well the pitfalls of poorly designed and governed SWFs.
As such, PNG has been working closely with Australia in order to set up the appropriate fiscal and macro-economic infrastructure in order to ensure that the LNG wealth coming on line helps PNG advance its development (rather than ushering the country into the resource curse). And this will include a SWF. I also think they should be paying attention to Alaska, where the SWF connects the oil wealth directly to the people through a yearly dividend. And yet, centralized asset management and decision-making by bonafied experts ensures that the assets will be around for generations to come. That’s a model I can get behind!