Bart Philemon: PNG's Mr Money Man

Rowan Callick
Bart Philemon was one of Papua New Guinea's best known businessmen before he became Treasurer and Finance Minister three years ago.

Since then, he has fought off a string of attempts to hijack the budget and stabilised an economy lurching towards the precipice.

And while forecasting is perilous in PNG's public life, it is safe to predict that over the next 18 months as the country prepares for its next tumultuous election, he will have to fight a few more times to defend PNG's newly regained economic equilibrium.

The well-received 2006 budget, which he handed down on November 15, is the final full-year document before the next national election is due in mid-2007.

Philemon has come under immense pressure to distribute through members of parliament the windfall revenue PNG has gained from surging prices for the country's commodities, especially oil and gold.

At the last election in 2002, 80 of the 109 MPs lost their seats. And while this government, led by Sir Michael Somare, is odds-on to become the first to complete a full five-year term since independence 30 years ago, it faces a huge challenge to survive into another parliament.

So the pressure to blow the budget to save the political careers of his colleagues has been immense.

Sir Mekere Morauta, the previous prime minister and a former central bank governor and finance department head, accomplished much during his three years in office. But he suffered a severe budget blow-out in the election year, when the deficit reached eight percent of gross domestic product.

Philemon is confident, however, that he has learned from PNG's 30-year rollercoaster ride.

Philemon says he has a strategy in place that will present the next government-possibly comprising a similar line-up-with a firm base for pushing GDP growth up to 6 percent a year by 2010, a modest enough aim.

There's still a long way to go. Living standards have halved over 10 years to about US$500 per head.

But inflation is down from 20 percent early in 2003 to 1.6 percent. The cash rate has fallen by more than half since early 2003 to 6 percent, while the currency, the kina, has been stable at about 30 US cents for about two years.

The budget moved to a surplus last year and was expected to be 0.6 percent in surplus again in 2005, thanks to a strong increase in government revenue from crude oil, gold and copper exports, along with the recovery of the state-owned PNG Power, Telikom PNG and Air Niugini.

Private sector lending rose K240 million (US$74 million) in the first half of 2005, and a national working group is bringing a list of impediments to investment before cabinet.

Philemon grew up in Butibum settlement in Lae, PNG's second city and its export and processing centre.

His father was a Lutheran pastor who ministered at the church during World War II, while the Japanese occupied the city.

“The American soldiers were very surprised to find him conducting a thanksgiving service as they arrived,” he says.

He won a scholarship to St Peter's Lutheran College in Brisbane for six years and worked as an administrator at the University of PNG after dropping out of an undergraduate course.

He joined the Australian airline TAA as a PNG sales representative, and when it merged with Ansett in PNG to form state-owned Air Niugini at independence in 1975, he became port manager at Mount Hagen, secretary of the board in Port Moresby, and then assistant general manager, marketing.

When former transport minister Iambakey Okuk flew to Canada to sign a deal with aircraft company De Havilland and ordered Air Niugini without consulting its management to sell much of its fleet to pay for the new planes, all the top managers, including Philemon, quit to protest against such naked political interference.

He then utterly changed his career course, starting a chicken farm selling 120,000 birds a year and producing 10 tonnes of bananas.

By then, he had three small children with his Australian wife, who was running a coffee shop and pre-school in Lae.

For a dozen years, he worked hard building his businesses, forging close personal links with a group of Lae businesspeople, most of them originally Australians, who remain among his firmest friends and supporters.

Partly as a result, Philemon is perceived by PNG's private sector as one of the few leading politicians with a real grasp of what it takes to build a business there.

In 1992, he was appointed chairman of then ailing Air Niugini. The board invited consultants McKinsey to review the operations, and as a result interviewed and appointed new managers after advertising internationally.

But politicians began, again, to interfere. “I and Mekere (Morauta), who was also a director, made what we regarded as a very rational presentation to cabinet and they rejected it. We turned to each other afterwards and asked-in more earthy language- 'How on earth do they run this country?'”

Philemon first, then Morauta, decided to answer the question by entering politics themselves.
Philemon has since been elected three times for Lae, and is one of four deputy leaders of the National Alliance led by Prime Minister Somare.

In 1994, he became public service minister. He reviewed with distaste the trend of the bureaucracy to ignore maintenance requirements and simply abandon buildings once they became dysfunctional, obtaining money from aid donors and the national budget for successive new office blocks.

Philemon approached the Public Officers' Superannuation Fund, which was willing to put up K10 million to renovate the “Pineapple Building”-less than 20 years old-which had housed prime ministers but fallen into disrepair, although the structure remained sound.

Instead, the fund was directed by the then prime minister and treasurer to “invest” the money in the Cairns Conservatory, a building bought by West Australian developer Warren Anderson for A$9.75 million and onsold to the fund within a month for A$18.7 million.

Since then, Philemon has taken a more pro-active position on governance issues, his confidence grounded in his crucial role in stabilising the economy.

He applauds the Australia's Enhanced Co-operation Programme which, despite the problems in the police component, has deployed 20 experienced economists and other public servants to his departments-treasury, finance, tax and customs.

He recalls watching from an upstairs window one Friday afternoon when a large, restive crowd formed seeking payments for various claims from his office. An Australian with the ECP jumped on to a wall and shouted explanations and assurances to the crowd, which quietly dispersed.

Philemon met his Australian counterpart, Peter Costello, in Washington during the World Bank annual meeting in 2002, where he asked if PNG could defer repayments on US$80 million borrowed by the previous government for balance of payments support as reserves were falling dramatically.

“(Costello's) response was that we should put some runs on the board first. I made the same request in Dubai in 2003 and he said: 'You've got runs on the board, can you sustain the performance?' I can understand that, on past performance. I don't mind constructive criticism. Now we've repaid the US$80 million anyway, without any assistance.

“I'm quite pleased with that, and I wanted to tell Costello that at the last bank meeting, but he arrived late.”

Philemon says he inherited a K8.7 billion debt, almost 80 percent of GDP, which has since been cut to 54 percent.

His aim is to reduce it below 40 percent during his term. And he has instituted a long-term domestic bond market, replacing the sale of short-term Treasury bills that for years sucked the liquidity out of the banks.

The prevailing interest rate has also been reduced over the past three years from about 18 percent to about 4 percent. Pension fund arrears have been paid off and the government has set aside K400 million from the surplus for its equity in the forthcoming gas pipeline to Brisbane.

Philemon says 90 percent of the windfall earnings from soaring commodity prices has been used to retire debt.

He gives considerable credit for the political stabilisation that has made economic stabilisation easier to former prime minister Morauta, who introduced political integrity legislation that halted the constant shuffling of MPs between parties as they offered their parliamentary votes to the highest bidder.

He also points to “the group of like-minded people in cabinet”-including Petroleum and Energy Minister Moi Avei, Foreign Minister Rabbie Namaliu, Lands Minister Puka Temu, Mining Minister Sam Akoitai and Police Minister Bire Kimisopa. And to the quality of the staff at Treasury and Finance.

Inevitably in PNG, politics continues to pose the biggest challenge to sound policy and administration, despite the recent stabilisation.

Philemon says he had to fight to keep his new departmental secretary, Simon Tosali, in his job in the face of “a political push to change him, making him responsible for the country's economic ills over the past 10 years”.

And he says, “corruption is an everyday thing, in one form or another”.

A crucial tool for combating corruption is the medium-term development strategy, a fiscal framework that Philemon has resurrected.

It commits the cabinet to an expenditure strategy for five years-which should include taking it beyond the 2007 election.

This is how he opposed the proposal from an American-who later sent a bill for US$8 million-to market a maverick US$200 million bond issue. It had been agreed to by cabinet while Philemon was abroad.

He says it did not fit the agreed framework. But he had to threaten to resign to gain Somare's agreement to scrap the scheme, for which K3 million compensation had to be paid.

Philemon also fought off proposals to pay all parliamentarians with 25 years' service an ex-gratia K500,000, as well as for the purchase of a government VIP jet for K38 million.

“I told cabinet that would pay for 1 million children to receive basic immunisations, for 300,000 primary school places, or for 600 kilometres of roads to be maintained.”

The usually mild-mannered Philemon gets wound up as he recounts what he views as outrageous raids on the public purse.

He describes opposing another attempt to reward public servants and politicians, by asking “who in the last 10 years deserves it? From my memory, the country has been f---ed up.”

He halted an attempt to increase spending on celebrations recently for the 30th anniversary of independence from K10 million to K14 million.

“I asked how it would benefit the country beyond Port Moresby. Such requests reflect the view that we have lots of money that we can still spend, spend, spend.”

In an attempt to ensure services start reaching the rural majority, he has begun to establish treasury offices in the country's 89 districts, which coincide with parliamentary constituencies, and to train staff so they get paid where they work, rather than have to take days off to travel to the major provincial centres.

Community police stations, education and health services and lock-ups will also be funded over the coming year.

This, Philemon hopes, will head off MPs' requests for bigger discretionary payments or “slush funds”.

He says: “I want to change that culture.”