I agree entirely with staff that “the early results of Papua New Guinea’s program of adjustment and reform are very encouraging, reflecting the authorities’ strong commitment to the program.”

2. When the Board approved Papua New Guinea’s (PNG) Stand-by Arrangement in March this year, the Board and others were justifiably cautious. But the evidence speaks for itself. Yes, approval of the SBA itself went a long way toward rebuilding confidence. But, more importantly, the Government has now built up an impressive record of reform that has helped restore economic stability, improved the policy environment and further buttressed confidence.

3. At this point, there are only a few issues that I would like to emphasize.

Performance under the Program

4. The authorities have met all of the end-June quantitative performance criteria, with over performance in some instances. For example, the authorities had by end-June surpassed the original program performance criterion for end-September net international reserves - and the authorities have locked-in these advances by adjusting the relevant end-December performance criteria (Table 2 of the staff report).

5. In the case of the one structural performance criterion and the structural benchmark where there has been slippage, the delays have been brief, minor and, in significant degree, reflect the authorities’ strong determination to follow due process, build consensus and establish ownership. In the case of the structural performance criterion on the public service reform plan, my authorities missed the end-June deadline, but have now completed the plan (see also below). I therefore ask that the Board agrees to my request for a waiver in this regard.

6. There is every reason to believe that compliance with the program will continue - the authorities have strong ownership of the comprehensive macroeconomic stabilization and structural reform program. As a clear demonstration of that commitment, the authorities have agreed to publish the staff report and associated documentation.

Macroeconomic Outlook

7. The improvement in PNG’s economic performance and management is continuing --GDP growth continues to be quite solid. Fiscal discipline is being maintained. The authorities’ reasonable expectation is that the inflation performance over the second half of 2000 will improve materially - a fully firm monetary posture will be maintained to that end.

Monetary and Financial Sector

8. The new Central Bank Act greatly expands the powers and independence of the Bank of PNG. Since the passage of the Act in March, BPNG has confronted circumstances requiring an early demonstration of independent judgement in the takeover of the administration of PNG Banking Corporation, pending its privatization.

9. The magnitude of the accumulated losses of the National Provident Fund is extremely unfortunate. But the fact that this information has been made available is a demonstration of the Government’s willingness to identify and address this problem in a transparent and accountable way. Furthermore, new Superannuation and Life Insurance legislation is in preparation, which will strengthen the supervision and operations of these institutions.

Fiscal and Public Sector Reforms

10. The Government’s public sector reform plan is the cornerstone of its reform efforts, inter alia strengthening accountability and transparency across the whole sector. As the process evolved, circumstances dictated that a slightly different approach be taken from the one foreseen in the program. Rather than a simple review of public expenditure, the authorities have developed a plan for a “whole of government” reform agenda. This meant that the end-June structural performance criterion could only be met with some delay. At the same time, however, there has been extensive consultation with the wide range of interested parties, enabling broad ownership of the reform plan. Reviews have already been completed for two major departments and implementation is expected before the end of the year, subject to finalization of World Bank funding. The review process is at an advanced stage in respect of one agency and three further key departments. In a closely related exercise, service delivery in the government sector is being comprehensively reformed with support from the Asian Development Bank.

11. During our last meeting on PNG, we pointed to the development of the new framework for the Rural Development Program. Staff notes that “most of the initial round of recent project proposals..... did not comply with the new guidelines and were not approved”. This provides reassurance of the Government’s commitment to improve the quality of, and accountability for, these expenditures. The authorities have recently opened a liaison office in Parliament to assist Members to comply with the new guidelines.

12. Although the end-September structural benchmark being missed, substantial progress has been made on the comprehensive taxation review. The final report has been completed and is due to be considered by Cabinet in coming days. Following Cabinet consideration, a final submission will be prepared to incorporate recommendations for inclusion in the 2001 budget.

13. It is also noteworthy that the authorities have agreed to publish the fiscal ROSC completed earlier this year with the assistance of FAD and PFTAC. More important is the authorities’ commitment to implementing the recommendations in the ROSC in the context of the 2001 Budget, for which ongoing technical assistance from the Fund will be essential.

Other

14. Since this review is taking place in October, I have to ask the Board to waive the applicability of the quantitative performance criteria for end-September, for which the necessary data are not yet available. The end-September quantitative performance criteria, of course, continue to apply for the second review of the SBA.