Png Links Strained By Cheap Loans

The Age

Saturday July 3, 1999

PAUL DALEY, FOREIGN AFFAIRS CORRESPONDENT

PORT MORESBY, FRIDAY

Australia's ties with Papua New Guinea came under intense pressure tonight with disclosures that the embattled Prime Minister, Mr Bill Skate, is trying to salvage PNG's foundering economy with cheap Taiwanese loans in exchange for diplomatic recognition.

The Foreign Minister, Mr Alexander Downer, said that if Mr Skate was trying to trade cheap loans from Taiwan for diplomatic recognition, this could potentially jeopardise relations between Australia and China, which regards Taiwan as a renegade province.

Warning PNG not to attempt quick-fix economic solutions, he said Australia gave PNG $300million a year in aid, and urged Mr Skate's Government to resume negotiations with the World Bank and the International Monetary Fund.

In response to the disclosures in today's Australian Financial Review, a spokesman for Mr Downer said that ``what the PNG Government does is, of course, its own affair". ``But we are concerned about reports that the PNG Government may be considering recognition of Taiwan in return for financial assistance. We have asked for further information from the PNG Government," the spokesman said.

``Quick-fix solutions to the country's financial difficulties are not the answer, as appealing as they may at first appear ...

``We are worried about the long-term implications for PNG's important links with China if this report is correct ... If this report is correct, it could have wider policy implications for the region and would not then just be a PNG matter."

The Australian High Commissioner to PNG, Mr David Irvine, has formally expressed Australia's concern to PNG. He has not had a reply.

As PNG's main aid contributor, Australia will come under pressure from China to steer PNG away from exchanging cheap loans for diplomatic recognition of Taiwan.

Australian officials said the mention by Mr Downer's office of Australian aid to PNG was salient because Australia had been exploring long-term options on how to cut aid to PNG. ``If push came to shove, aid could be used as leverage," one source said.

Diplomatic sources said China was already threatening retribution against PNG if it chose to recognise Taiwan. Other countries in the Pacific would also be affected.

Mr Skate's spokesman did not respond to inquiries from The Age yesterday. Nor did the acting PNG Prime Minister, Mr Iairo Lasaro.

Mr Skate, who said he was leaving PNG last night for a four-day holiday in Cairns, faces a no-confidence motion when Parliament resumes on 13July.

His hold on office has become increasingly tenuous since six ministers quit last weekend and his main coalition partner, Sir Mekere Morauta's People's Democratic Movement, quit Government on Monday. But Mr Skate is adamant he will have the numbers to beat the no-confidence vote, likely to be held on 20 July.

While violence is not expected to accompany any change of government, Australian defence planners have stepped up contingency plans to evacuate the estimated 10,000 Australians here in the event of civil unrest.

Australia is also becoming increasingly concerned at suggestions that up to 25 PNG MPs are being held in Cairns against their will, after having their passports confiscated by PNG political powerbrokers.

Sir Mekere confirmed that up to 25 MPs from his and other parties were in Cairns and that their passports were ``being managed" for them.

© 1999 The Age

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