PACIFIC: PNG and Fiji rate badly on political risk
Updated
Fiji and Papua New Guinea have been ranked in the top four countries for political risk by a major new assessment of 22 nations in the Asia-Pacific region. A report released earlier this week by international ratings agency, Standard and Poors, placed both countries in the high risk category. Only Pakistan and Sri Lanka ranked as badly.
Presenter: Jemima Garrett
Speakers: Standard and Poors' Sovereign Ratings analyst Kyran Curry
CURRY: Well, for Fiji it's the obvious. It's the political instability arising out of the coup in December, 2006, has I guess significantly weighed on the political settings, the economic outlook and social factors in Fiji. There are issues that we look at very closely, when we determine the credit ratings on Fiji. I mean just be reminded that we look very closely at the ability and willingness for government to meet its obligations and when that government is overthrown by a military-backed regime, it's something we look at very closely.
GARRETT: Nevertheless, in Fiji, the reserve bank is a strong and effective institution that has a record of acting quickly at times of political turmoil. Why didn't that have more impact on your assessment?
CURRY: Oh well it did, we respect very much the ability of the Fiji Central Bank to keep the machinery of monetary policy ticking over during periods of instability. It's a definite credit strength for Fiji that the Central Bank has been seasoned, if you like, over periods of instability and its performance is in the circumstances quite sound we believe. But against the backdrop of broader weakness in allied institutions, it's something we also look at and that's where we're coming from I guess. And I'm talking about, not just economic institutions, but also more broadly human rights institutions, the media, the judiciary, these sorts of things which also play in the policy development environment, if you like in Fiji.
GARRETT: Why was it that PNG rated so badly on political risk?
CURRY: I guess there are a range of factors in PNG, there is a multitude of political parties in PNG and that's historically made it very difficult to form broad-based political movements and a strong and central effective government is important in PNG. And full credit to PNG, the Somare Government has made significant strides in maintaining political stability. It's been re-elected for the first time, the first time a government has been re-elected and run full term in PNG in its history. But that said, there are a range of weaknesses in PNG's institutional backdrop.
PNG is getting a lot of help from countries like Australia in capacity building and what not, but there are still gaps there and they're the sort of things that we focus on.
The other factor is there are security issues in PNG which also weigh into the political settings as well.
GARRETT: And you also say that one of the problems in PNG is that the government has stalled in its implementation of structural reform in the non-mineral sector. Why is that so important?
CURRY: Well Jemima, one of the factors in PNG is weakness in the structure of its economy. It's very dependent on the mineral sector and it would very much be in PNG's long-term economic interest to broaden its growth outside of the mineral sector. And one of the ways to do that is to close some of the infrastructure gaps in PNG to promote and encourage development of the economy outside of the mineral sector and that's a challenge currently facing the government.
GARRETT: And I guess there you're talking about things like agriculture?
CURRY: Yes, agriculture, garments, sugar if it is affected. Tourism also has enormous potential in PNG.
GARRETT: You also say that in this international economic climate, where the outlook is looking weaker, all these risk factors are more important. Why is that?
CURRY: Well, I guess at times when the global economy is slowing, liquidity is drying up, it places greater scrutiny on governments' ability to respond to these sorts of challenges, and this is why we've produced this study. It means that the political and institutional backdrops are just that much more important during these times than what they traditionally have been, when say the economies could be booming, there could be a significant liquidity in the economy, business confidence and spending could be booming. These are the sorts of things that we're expecting to slow in the period ahead through this region and more broadly throughout the global economy.
