OPEN LETTER TO MINSTER FOR TRADE, SIMON CREAN

Dear Mr Crean,

As you know, investors and Governments are at the point of signing the biggest business investment in the history of the Pacific region, an LNG pipeline from the Southern Highlands and Western Province of PNG to Port Moresby, and related facilities which will cost around US$15 billion.

It seems the best kept secret about this project is that the Australian Government is considering becoming a stakeholder in the deal. The Export Finance Insurance Corporation (EFIC), the statutory authority that insures and finances Australian exporters, has asked you to lend it hundreds of millions of dollars so it can co-finance the project.

No doubt EFIC and the project’s main sponsors, ExxonMobil, Oil Search, and Santos, have told you that you should support this project because it will bring all manner of benefits to the people of PNG. However we suspect that they may not have told you the whole story, so we have prepared some information to help you make up your mind in the coming weeks.

One: Will the project lead to poverty-reducing growth in PNG?

Unlikely. The LNG project may double the size of PNG’s GDP. But as positive as this may sound, the poor are likely to be excluded from the benefits. In the absence of structural reforms towards better governance and transparency in state economic affairs, this growth will deepen the culture of graft from mineral and petroleum revenues.

For years, the PNG economy has been dominated by this kind of large scale extractive development. Those with strong connections to the economy have benefited. Yet the 85% of Papua New Guineans who live in rural areas and are largely excluded from the formal economy have seen no discernable improvement.

Two: Will the project offer much in terms of domestic employment for PNG?

No. Skills and training for locals will be minimal, as is typical of oil and gas sector projects in developing countries. An estimated 1,500 jobs, only a fifth of total employment generated, will go to locals.

Three: Will the project entrench the culture of corruption in PNG?

Yes. PNG is already one of the most corrupt countries in the world (ranked equal 151st out of 182 countries by Transparency International). The PNG government and landowners have a combined stake of 19% in the project, increased by a shrewd deal negotiated by Arthur Somare (son of the Prime Minister Michael Somare) with the Abu Dhabi government, to secure a loan enabling PNG to buy more equity. Conveniently, oversight of the LNG project is also in the hands of Arthur Somare, who by his effective control of the Independent Public Business Corporation (IPBC) has the ability to direct the dispersal of revenues once they start to flow in to the country.

Four: Is there an international accountability mechanism to improve transparency of revenues and ensure that funds are spent for the public good?

Yes. Extractive Industries Transparency Initiative (EITI) is a well-known set of international standards designed to increase transparency of resource revenues. There is ample evidence to support the positive impact of EITI, particularly in the benefit to providing civil society with the hard figures they need to keep their government accountable for public spending.

The PNG government has steadfastly refused to sign on to the EITI, meaning that there will be no effective way to track the revenues once they begin to flow.

Your government could make its support of this project conditional upon PNG government signing the EITI. Yet you have not done so.

Five: Is there a risk of the project leading to social unrest and even violence?

Yes. The landowner consultation process has not been handled well. At a benefits sharing agreement meeting held earlier this year, Independent Observers such as Transparency International PNG were kicked out of the meeting. In August protests at Hides saw dissatisfied landowners occupy the petroleum production facility. And just last week a group of angry landowners assaulted an ExxonMobil executive in a hotel lobby in Port Moresby.

Unrest and disputes have plagued the landowner consultation process, and the threat of social conflict is very real. The current developments are reminiscent of those that preceded the Bougainville disaster, where disputes over spoils of the Porgera copper mine and the environmental destruction it caused led to a decade long civil war from 1988.

Six: will this project undermine Australia’s aid and development priorities in PNG?

Yes. Australia's Aid priorities in PNG include both 'promoting good governance' and 'fighting HIV'. There is no doubt that Australian support of the LNG project, in its current form,, will undermine both of these objectives.

If you choose to finance this project as it stands, it will show that the stock price of a couple of Australian mining companies and a few thousand Australian work contracts are more important to you than the lives of hundreds of thousands of people in PNG who live in dire poverty. You will be using our tax dollars to underwrite corruption, environmental destruction, potential civil conflict, and to undermine our own aid program.  We think that Australians should expect more from their Government and their money.

Yours Sincerely,

JUBILEE AUSTRALIA
Jubilee Australia - campaigning since 2001 to expose and challenge the economic policies and practices that entrench people, communities and countries in poverty www.jubileeaustralia.org

Published Guardian UK, 29 September 2009: http://www.guardian.co.uk/commentisfree/cifamerica/2009/sep/26/g20-reform-pittsburgh

By Mark Weisbrot, Centre for Economic and Policy Research, Washington DC, member of The Global Movement

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"The old system of international economic cooperation is over," announced Gordon Brown at the G20 summit in Pittsburgh. "The new system, as of today, has begun."

The first part of that statement is partly true. The second is a fantasy.

The G20 is not a system of international economic co-operation, or a board of directors, or a governing council for the global economy, to pick some of the terms that have appeared in the media. It is a forum where the heads of state of 20 economies discuss some important economic issues. It has very little ability to directly implement its decisions.

The institutions that do have economic enforcement capability are the International Monetary Fund (IMF), the World Bank, and World Trade Organization (WTO). These first two are directly controlled by the rich countries, mostly by the US Treasury. The third organisation that actually makes decisions that affect hundreds of millions (or billions) of people, the WTO, is not so completely controlled by a few rich countries as the others are, since it was formed half a century later. Developing countries have a formal veto power in decision-making. However, it is still dominated by the rich countries, and most importantly, its rules are heavily stacked against developing countries and in favour of the rich – and especially corporations from hose rich countries. For example, the WTO's Trips (Trade related aspects of intellectual property rights) is unequivocally designed to help corporate patent holders such as the big pharmaceutical companies.

These facts help put the G20 announcement into context. First, the expansion from the Group of Eight (G8) to the G20 is mostly symbolic. Since the rich countries control the institutions with actual power – in addition to their own enormous international economic, military, and diplomatic influence – the G20 is still mainly the G7 with the other 13 countries sitting in. (I am counting the G8 member Russia with the other middle-income countries. The rich countries have still not allowed Russia to join the WTO.)

Furthermore, the G7 is not even as much of a decision-making body as it was a quarter of a century ago. For example, in 1985 five of the G7 countries (the US, France, UK, Germany, and Japan) agreed on the "Plaza accord" to bring down the value of the dollar. This was accomplished through coordinated intervention by central banks. The dollar lost more than a third of its value within the next two years. Today, the dollar is even more overvalued and as a result we have the large global imbalances that the G20, in its final statement yesterday, pledged to rectify. However, do not expect its members to do anything about it.

The US government does not even have a logically coherent position on the dollar's exchange rate. Treasury secretary Tim Geithner says the US wants a "strong dollar." At the same time, the US government complains that China is keeping its currency undervalued. These two statements are logically contradictory, since an undervalued Chinese currency is the same thing as a "strong dollar". And without a fall in the value of the dollar – not only against China's currency but others as well – we cannot expect global trade imbalances to be corrected. (The US trade deficit has fallen by more than half since this recession started, but the effect will be reversed when the economy recovers.).

A solution to this problem would also require the G7 to accept China as an equal partner, something they do not appear willing to do. China's economy is now the third largest in the world – or second largest, depending on how its currency is converted.

The IMF is the most powerful of the institutions controlled by the US and its rich allies, and it currently has about 50 agreements with low-income and middle-income countries. In the majority of these agreements it has prescribed "pro-cyclical" policies such as budget cuts and monetary tightening that worsen the impact of the world recession. For many years developing countries have demanded a greater voting share in the organisation, but the tiny (1.8%) reallocation in 2006 [PDF] was insignificant. At this week's summit the leaders pledged to reallocate five per cent of the voting shares from over-represented to under-represented countries. It is not clear that this will actually happen. The European governments were reportedly upset at giving up some of their influence. But even if five per cent is shifted, this will not change the balance of power at the IMF. The United States, with its 16.9% share, will be able to veto important decisions that require 85% and, together with allies, will have a majority for almost anything it wants to achieve.

Most of the other issues that the G20 includes in its final communiqué are either inadequate or would have to be implemented at the level of the individual countries. This includes badly-needed financial reform – the rich countries just can't seem to say the words "too big to fail is too big" – and economic stimulus. And for the poor countries, where the recession has pushed tens of millions of people closer to the edge of survival, the G7 countries have yet to offer any significant debt relief. Loans are better than nothing, although even these will offer only a small fraction of the capital inflows that poor countries have lost due to the world recession that was caused by the rich countries. But most of the poor countries have too much debt already, and can't afford to take on more.

Reform at the top of the international economic system is still a long way off.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy. He is also president of Just Foreign Policy.

For further reading on the G20, we recommend these articles written by our international partners:

• G20 remains vague on social impact measures, still fails to tackle fundamental reform http://www.brettonwoodsproject.org/art-565466
• IMF aid conditions risked deepening financial crisis in some countries, says CEPR study
  http://www.telegraph.co.uk/finance/6261365/IMF-aid-conditions-risked-deepening-financial-crisis-in-some-countries-says-CEBR-study.html