Roadmap to guide decision

TREASURER Ian Ling-Stuckey says no decision will be made until a roadmap for changes to the Kina are agreed to by the end of next month.
He said that yesterday in line with concerns on devaluation of the currency.
In a statement, Ling-Stuckey said: “We are still in the discussion stage — no decisions have been made other than wanting to return to Kina convertibility over time.
“The only certainty is that the Government will not support the type of policies being promoted by the Opposition earlier this year of an immediate 20 per cent devaluation.
“We need to discuss a reasonable speed of any adjustment, the sequencing of such changes with other measures such as an improved auctioning process for foreign exchange, as well as other policy measures to ensure consistency between our foreign exchange rate policy and our monetary policy.
“Fixing our foreign exchange shortages is certainly not just about the value of the Kina.
“The one clear PNG view is that it is just too risky to allow for a sudden change in the value of our currency.
“A large devaluation now of 15-20 per cent simply makes no sense for PNG. This will not happen.
“The Government can affect this by its choice of foreign exchange regime.
“However, once this choice is made, it is up to our independent central bank, Bank of PNG, to make decisions on the value of the Kina.
“Businesses have identified foreign exchange shortages as the greatest barrier to doing business in PNG — a bigger problem than law and order issues, a bigger problem than power shortages or lack or skilled staff.
“This is why the Government wants to return to full Kina convertibility so that our currency has full standing in the international community.
“It is embarrassing that our Kina is facing barriers all around the world, whether in trade, or if we try to travel overseas.
“This is why we are continuing discussions with PNG businesses as well as international organisations on the best way forward for PNG.
“The Government has already increased by 300 per cent the release of foreign exchange into the market, from US$30 million (about K107.4 million) per month to US$100 million (about K358.2 million) per month.
“This is only possible because of our shift to securing good, cheap, concessional financing.
“It has asked the International Monetary Fund and others for advice on how we can best return to full Kina convertibility, as well as increased flexibility in our currency.
“The Government is going through consultations internally and externally to try to sort out what is best for PNG.
“We need more information on the numbers to know more about the likely winners and losers from any changes.”
Key questions include the following:

• SHOULD we change our reference rate from the US dollar to a broader range of currencies reflecting our actual patterns of trade?
• SHOULD we move from our fixed rate system to one that allows smaller, gradual changes up and down in what is known as a “crawl-like” arrangement?
• SHOULD we actually formalise such changes through a range of formulas, moving to “crawling peg” arrangement?
• OR should we return to PNG’s formally stated position of a “floating currency”, even if that risked a massive reduction in the Kina, especially with the risks of an “over-shoot?
• WHO are the likely winners and losers from such changes?
• DO the costs of change outweigh the benefits?
• DO the costs of doing nothing, with on-going foreign exchange shortages, outweigh the costs of benefits of making a change?
• FOR possible losers, is there other government policy change that can compensate them for a change?”