Skate Warned Against Loans Lure

Sydney Morning Herald

Saturday July 3, 1999

By PAUL DALEY in Port Moresby

Australia cautioned Papua New Guinea yesterday after disclosures that the embattled Prime Minister, Mr Bill Skate, is trying to salvage PNG's floundering economy with cheap Taiwanese loans in exchange for diplomatic recognition.

Taiwan, stifled by China's diplomatic embargo, denied the move yesterday. But Australia's Foreign Minister, Mr Downer, conceded that if Mr Skate was trying such a deal, relations between Australia and China could be jeopardised.

He warned PNG not to attempt "quick-fix" economic solutions and noted that Australia gave it $300 million a year in aid. He urged Mr Skate's government to re-engage with the World Bank and the International Monetary Fund.

In response to disclosures in yesterday's Australian Financial Review, a spokesman for Mr Downer said: "We have asked for further information from the PNG Government. 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 . . . 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 Mr Skate's government but has not received a response. Officials said 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 in this circumstance," one source said.

China has threatened "retribution" against PNG if it recognises Taiwan, regarded by Beijing as a renegade province.

A spokesman for Mr Skate declined to respond to inquiries from the Herald yesterday.

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 July 13.

Meanwhile, the Australian Defence Force is stepping up contingency planning to evacuate Australians from PNG if violence accompanies a possible change of government, as Australian intelligence agencies become increasingly concerned about reports that 25 PNG MPS are being held "hostage" in Cairns.

Defence sources said defence strategists had stepped up contingency plans to evacuate the estimated 10,000 Australians in Port Moresby.

© 1999 Sydney Morning Herald

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