Journal Issue

Papua and New Guinea: A Program for Development

International Monetary Fund. External Relations Dept.
Published Date:
December 1964
  • ShareShare
Show Summary Details

THE TERRITORY of Papua and New Guinea, with its large mainland and other islands, is located about a hundred miles to the north of Australia. It is an area of unusual variety, with great mountain ranges, precipitous slopes and knife-sharp ridges, fertile valleys, great rivers, extensive forests, and vast swamps. The indigenous people, numbering two million, are for the most part primitive. Some have become part of a small modern economy, but others are only now emerging from the Stone Age. Until World War II, few people from the outside world had any knowledge of the interior. Terrain and history have combined to render the Territory one of the least developed areas in all the underdeveloped world.


Portuguese and Spanish navigators first sighted the island of New Guinea in the early part of the sixteenth century, but a long time elapsed before territorial claims were made. The Dutch claimed the western part of the island early in the nineteenth century, and a British Protectorate over the south coast of Papua was claimed in 1884. At almost the same time Germany annexed northeastern New Guinea. In 1906, the Commonwealth of Australia assumed responsibility from the British for the Territory of Papua and, after World War I, administered the Territory of New Guinea as successor to the Germans under a mandate from the League of Nations. After World War II, Australia undertook to administer the Trust Territory of New Guinea and the Australian Territory of Papua as an administrative union known as the Territory of Papua and New Guinea.

The Land

In addition to the mainland, the Territory is composed of about 600 islands stretching for more than 1,200 miles from east to west and 750 miles from north to south. The total land area is some 180,000 square miles, with the eastern portion of the New Guinea mainland accounting for about 85 per cent of it. It incorporates a complex system of mountains, with peaks rising to more than 15,000 feet, and large rivers, with great volumes of water, flowing to the south, north, and east. The Territory lies wholly within the tropics, with its northern islands almost bordering on the equator. The greatest concentration of population is in the New Guinea highlands; the administrative center of the Territory is Port Moresby.

The vegetation is luxuriant; yet, by a familiar tropical paradox, large areas are infertile, as the heavy rainfall gives rise to continual leaching of the soil under the rain forest. There are, however, highly fertile areas; and available information suggests that there are extensive areas of unused land in the upland valleys, the coastal areas, and the large river valleys which are well suited to the production of crops characteristic of the wet tropics. There are also extensive grasslands that are suited to livestock, while the dense forests that cover three fourths of the Territory have a large commercial potential. Geological surveys have suggested the presence of oil in Western Papua, but lengthy exploration has not so far discovered it in quantity.

The People

The indigenous people show a great diversity of physical types; the predominantly dark-skinned, woolly-haired Melanesians, who occupy the greater part of the western Pacific, are in the majority. When the Europeans came, the people were at Stone Age level. Some were cannibals and head hunters. Living in the rugged mountains and in dense jungle and swamplands, they were divided into large numbers of small, hostile groups, intermittently feuding with their neighbors. This fragmentation into small communities, cut off from one another by swamps or mountains, was one of the outstanding characteristics of the people. The groups usually numbered 100-200, and sometimes consisted of only a few families, each speaking a language generally unintelligible to neighboring groups. With about 700 languages or dialects being spoken, communication between European and native, as well as among natives, has been most difficult. Gradually, however, there developed a language which was a combination of Melanesian and English—pidgin English. Nevertheless, the fragmentation of languages continues to be a major obstacle. Writing was unknown prior to the introduction of European script. Even now the idea of large-scale communication is strange; few indigenes have traveled any distance. Fewer than a hundred indigenes have completed a secondary education. There are no political parties. There is as yet no feeling of national identity.

Religious beliefs and practices have played a central role in the indigenous culture, and magic and the propitiation of spirits still exercise a potent influence on the lives of indigenous people. One movement is of particular interest: the Cargo Cult. Sparked by the desire for European goods, the natives base their faith on the intervention of ancestors and spirits to obtain their desires. Generally a central figure, or a small group of men, claims to have been visited in dreams by ancestral spirits who promised that if the people make certain preparations the ancestral spirits will return, bringing cargoes of European-type goods. When the promised cargo does not arrive, confidence in the central figure evaporates and the particular movement crumbles. The Cargo Cults are not today either widespread or important; yet their existence and their history may throw some light on the aspirations of the people.

Before the arrival of the Europeans, metals were not used. The indigenous people were dependent upon primitive implements, such as the stone ax, spear, bow and arrow, and digging sticks, to provide their subsistence. Needs were few and, for the most part, easily satisfied. Limited internal trading took place in salt, food, pottery, stone axes, wood carvings, and shells. In most areas, ownership of land was traditionally vested in the community, and a complex network of social obligations existed among the members of kinship groups. Each member could claim the assistance and support of other members in case of need, and in these ways traditional society developed a measure of social security which many individuals were—and still are—reluctant to abandon.

Today the pattern of life for the majority of the indigenes is not greatly changed. Their way of life is still primitive. Nevertheless, the people of the Territory are clearly better off than great numbers elsewhere. In spite of the primitive tools, subsistence agriculture on the whole is highly developed. There is no shortage of food, and needs for clothing and food are. usually not hard to satisfy. The state of public health, which was very poor at the end of World War II, has improved to the point where it is neither markedly better nor markedly worse than in most developing countries. Malaria is a major problem, and the absence of some serious diseases (for example, cholera and yellow fever) is balanced by respiratory and deficiency diseases and by other diseases found only in the Territory. Notwithstanding the economic progress of recent years, less than 2.5 per cent of the native people live in towns, only 80,000 (4 per cent) are in wage employment, and of these nearly 30,000 are migrant workers who return to their villages after a two-year absence. Some groups raise cash crops and are considerably more advanced than others. In addition to the indigenous population there are about 27,000 nonindigenes, of whom 21,000 are Australians, the remainder being either Chinese or of mixed race. The Australians are the key people in the economy, whether in the Administration, on plantations, in business, or in the professions. The more advanced indigenes and the nonindigenes are, however, a small minority. The vast majority of the population of the Territory still inhabits one of the world’s last redoubts of authentically primitive life.

The Economy and Its Development

There had been occasional stops by ships passing along the coast of New Guinea since the early 1800’s, but it was not until the 1870’s that the first trading stations for commercial transactions with the outside world were established in the Territory.

Copra was the product of greatest interest to European traders. Supplies from native growers were small and unreliable, and the advantages of organizing a steady and dependable supply from plantations under European management were soon realized, although the authorities still encouraged the indigenes to plant coconuts on their own behalf. In Papua, gold mining was the principal attraction for the Australians in the early years, though the output was small until the Bulolo alluvial deposits were tapped in the 1930’s.

Since the end of World War II, the exports from the Territory have continued to expand and have become more diversified; they have risen in value in recent years to an annual average of more than £.A 15 million (£A 1 = US$2.24). Output of copra and rubber has expanded steadily, and, from the mid-1950’s, a new development has been the fast rise in production of coffee and cocoa. These four commodities now account for more than 70 per cent of total marketed agricultural production; since 1950, when copra production had recovered nearly to its prewar level, marketed production of the four commodities together has almost doubled in volume. Indigenous farmers now make an important contribution to the production of copra, coffee, and cocoa, but two thirds of the total output of the four major export crops still comes from nonindigenous plantations.

Gold production recovered rapidly after World War II but, with the depletion of the deposits, it has since fallen by about 70 per cent from the postwar peak reached in 1953. To date, only a small export industry has been developed from the Territory’s great forest resources; small quantities of peanuts, passion-fruit juice, crocodile skins, and shells have also been exported.

While the growth of exports has been an important stimulus to the expansion of the money economy since World War II, the major impetus has been the rise in government expenditures, which is still continuing. Expenditures of the Administration amounted to £A 2.3 million in 1946-47; by 1962-63, they had increased to almost £A 30 million, to which direct expenditure in the Territory by the Australian Government added another £A 5 million. By comparison, export earnings were little more than £A 16 million in 1962-63.

In many of the postwar years, expenditure on health approached or exceeded one fifth of the administration expenditure, but the proportion has recently declined. Spending on education sharply increased to almost 14 per cent of administration expenditure in 1962-63. Investment expenditures have accounted for a high proportion of total public spending—just over 30 per cent in the past five years; much of this investment, however, has been in assets which do not produce an immediate increase in the productive capacity of the economy. The costs of government have been high in relation to the scale of the economy, largely because of the rapid expansion of government services and the need to employ expatriates.

More than two thirds of government expenditure has been financed by grants from the Commonwealth of Australia, and tax rates have been low. To provide incentives for expatriates to work and to invest in the Territory, the effective rates of direct taxation have been about half, or less than half, the Australian rates. To keep down the cost of living, imported articles consumed in quantity have been admitted free, or at low rates of duty.

This, then, was the country which the mission was asked to report upon: a country vast and primitive, with a forbidding although beautiful terrain; a country many of whose people are only now emerging from prehistory; a country with an economy almost entirely dependent upon that of Australia.


In its request to the Bank to suggest the framework of a development program, the Commonwealth Government of Australia stressed that its major aim is to help the inhabitants of the Territory to become self-governing as soon as possible and to ensure that when this aim is reached the Territory will, to the greatest extent feasible, be able to stand on its own feet economically. The report makes recommendations for a substantial increase in agricultural output, which for a long time will have to make by far the largest contribution to economic growth. Livestock and forestry also have considerable potential for development. Some scope exists for the expansion of secondary industries, and tourism can be greatly expanded. The mission also recommends an opening-up of the country by improving transport and communications, particularly overseas port facilities, coastal shipping services, and the use of light aircraft. If economic development is to take place along these lines, support from Australia in the forms of manpower and finance will have to be increased. In all its planning, the mission in fact assumed that the availability of finance will not be the prime limitation on the scale of the program; however, it places considerable emphasis on the need to avoid saddling the Territory with a current budget figure that cannot possibly be financed from the Territory’s own revenues, even in the long run. For this reason, clear priorities are established in education (see below), and it is recommended that health services be expanded at a slower rate than in the past. The prime limitation is the prospective availability of skilled manpower, which for the period of the program will have to come mainly from Australia.

Advancement of the Indigene

The mission believes that, together with the stimulation of production, major emphasis in the development program should be given to the advancement of the indigenous people. This advancement will come through their taking a much greater part in expanding production, and by an acceleration of their education and training. The agricultural and livestock programs which the mission is proposing call for the native farmers to take a major part in increasing production. The aim is to move the indigene away from purely subsistence agriculture into the production of commercial crops, largely on a small-holder basis, at as fast a rate as the availability of the staff needed to direct and guide the program will permit. Specific planting targets are recommended for coconuts, cocoa, rubber, and tea, with major participation by indigenes, particularly in coconuts and cocoa. A ten-year herd-building scheme for livestock is intended to bring a tenfold increase in cattle herds to a total of 300,000 head, of which native operators would have 150,000-200,000 head. Proposed forestry development will, at this stage, necessarily be undertaken mainly by expatriates, but the indigenous people will benefit directly in a number of ways.

The rapid evolution of agriculture requires a change in the system of land tenure. Traditionally, land in the Territory is owned communally, but individuals can establish use-rights for hunting, food gathering, and gardening. Inheritance of use-rights is complex, and the Administration has been working toward a system of individual recorded titles. At the same time, the indigenes themselves seem to have been making successful efforts to reconcile communal ownership with modern needs. The mission favors a more flexible and varied approach to land tenure problems than followed so far, in part by placing greater responsibility on the indigenous people, including the Local Government Councils.


The evolution of agriculture and the evolution of land tenure that must go along with it call for flexible minds and trained intelligence—in short, for education. Education and training, it is envisaged, will take the form of practical experience and in-service preparation as well as formal education. The most urgent need is the expansion of secondary, technical, and higher education. Primary schools, which have already made great advances, should seek to consolidate these advances by concentrating on the completion of primary schooling by the numbers now enrolled. Additional enrollments should be limited. Secondary and technical training should proceed at the fastest rate which the output of primary students will permit, the aim being to increase the enrollment from 4,600 in 1963 to about 25,000 by 1969. By the latter year, primary-school enrollment should have risen to about 60-65 per cent of all children of primary-school age, or somewhat less if the number (400,000) assumed to be in that age group should be an underestimate.

While the mission is convinced that substantial progress can be made over the next five to ten years in improving the conditions of the indigenous people, it is also convinced that much of the benefit of this effort may be lost unless policies appropriate to conditions in the Territory are followed. In particular, the mission believes that there are three broad principles, or policies, that must guide the development program: concentration of effort, selection of standards suitable to the Territory, and the fostering of greater responsibility among the people.

Concentration of Effort

To obtain the maximum benefit from the development effort, expenditure and manpower should be concentrated in areas and on activities where the prospective return is highest. For example, the physical characteristics of the Territory—the mountain ranges, gorges, rivers, and swamps—are serious barriers to the development of some of its parts. On the other hand, there are large areas of good land which are relatively accessible and where development is relatively easy. These are the areas to which priority should be given. The mission has proposed a program whereby the skilled manpower of the Department of Agriculture, as an example, would be concentrated on agricultural and livestock programs in areas of greatest potential, in terms of physical and human resources. An attempt to spread development more widely would be a waste of scarce resources.

Over-all government expenditure should reflect these priorities. An increase in spending on agriculture, forestry, transport, and education will require a curb on the growth of other expenditures. For example, the mission thinks that spending on curative health programs should increase more slowly than in the past.


The standards of administration services and facilities should be related to Territory conditions, and wages and salaries must be adjusted, in the long term, to levels that the Territory can sustain. So far, it is Australian, and not Territory, standards which have been applied—for instance, to salaries.

Hospitals, court buildings, and houses have been planned and constructed generally to European standards. The development of curative health services, and in particular the ratio of hospital beds to population, has been more in line with those found in some countries of Europe than with those found in the less developed countries. While existing facilities will be maintained, it is quite unlikely, even on the most optimistic estimates, that continued expansion and development along these lines can, even in the long term, be supported by the resources of the Territory itself.

The gradual conversion of the public service to one largely staffed by indigenes, the adoption of simpler design standards for buildings, and the maximum use of local materials in construction would permit substantial savings in the cost of government, and would help progress toward the eventual goal of economic and financial viability.

Fostering Responsibility

The Administration’s attitude, both to the indigenous people and even to the Europeans, has in the past been one of benevolent paternalism. Natural as this was in the historical circumstances, a shift in emphasis toward policies giving greater responsibilities to the people is now essential and indeed inevitable. Notable progress in this direction has already been made. The setting up of Native Local Government Councils, with quite a wide range of powers and responsibilities, was an important step. But the mission believes that still greater responsibilities should be given to the Councils.

In the more strictly economic sphere, many services have been provided by the Administration, either free or at charges greatly below cost. Housing for public servants, water supplies, telephone and telegraph services, and health and education facilities have been provided at no charge, or at more or less sub-economic rates. The mission considers it important that a tradition of providing economic services at subsidized rates should not become established.

In measures affecting the indigenous people, the mission endorses the gradual shift from the payment of a wage largely in kind to payment of a full cash wage. In respect to health and education services, the mission believes that the indigenous people should contribute to the cost, either individually or communally, by providing the land for building and maintaining rural primary schools, teachers’ houses, medical aid posts, and rural health centers. A system of payment either in cash or in kind for drugs and medical services should also be introduced.

The Role of Australians

The mobilization of unskilled indigenous labor should not be difficult; the mobilization of capital and managerial and professional skills is much more so. For a considerable number of years, Australians will have to supply them. In agriculture, Australians lead the way and provide agricultural training. The comparative need for Australians in other sectors of the economy is even greater. In commerce, industry, banking, and the professions, Australians must continue to supply their skills and capital if further development is to be achieved.

The role of the Australian in the Administration is also very important. In the mission’s view, the problem of recruitment is less one of availability than of conditions of employment. The mission would like to see a greater degree of interchangeability between Australia and the Territory. Short-term contracts might prove attractive, and young people might be called into service by a scheme such as the British Voluntary Service Overseas scheme or the U.S. Peace Corps.

Budget Effects

If the program recommended by the mission is carried through, it could result in an increase in annual export earnings from the main agricultural commodities to approximately £A 23 million in five years, £A 34 million in ten years, and £A 50 million at full development of the plantings made during the next ten years. A substantial margin for continued expansion would remain. In addition, the mission estimates that earnings from forest products could be stepped up to almost £ A 7 million annually in five years. Together, these earnings, totaling £A 30 million annually by 1968-69, would represent a doubling of the existing export production of agricultural and forest products. Credit for the expansion would be provided by a Territory Development Finance Company.

The program will require increasing expenditures by the Administration in the years to follow. The mission’s projection indicates that an average of £A 50.2 million—as a minimum—will be needed annually by the Administration during the next five years. Economic overhead, including transport, electric power, postal services, and telegraphs, is expected to require about the same share of expenditure as in the past five years—16 per cent. For social services, the share is about 32 per cent, 3-4 per cent lower than in the past. The share of expenditures for general administration, law, and order, would be about 34 per cent of the total.

The mission’s proposals for the economic development of Papua and New Guinea are far reaching, in conformity with the ambitions which the Commonwealth Government has for the Territory. Altogether, the mission sees good possibilities for economic growth, although progress will not be easy nor automatic, and the Territory will for many years continue to rely on the large-scale assistance that Australia is providing.

Other Resources Citing This Publication