For PNG as with most other sovereign nations, it is trading relations which take up most of the Foreign Affairs effort. Trade with Australia, Japan and Germany accounts for two thirds of all trade. But by far the most important trading relationship is with Australia.
Before Independence, Australia gave aid and took advantage of the market. Australian companies dominated the formal economy. Burns Philp, Steamships and Carpenters were everywhere as were Australian banking and financial services and the effects of the massive Bougainville copper mine.
After Independence, Australia stepped up the aid and took further advantage of the opening market. Until 1986, up to 40% of PNG’s budget came directly from Australian aid. Then in 1986 Australia unilateraly reduced the grant by 10 million Australian dollars. The time had come for a reappraisal of the ‘special relationship’.
1987 and 1989 saw the formalisation of the relationship into one of self reliance and mutual defence (Australia still helps PNG maintain a viable well-trained defence capacity). Australia’s development assistance to PNG shifted from budget support (direct financial transfers to government revenue) to programmed assistance (investment tied to particular sectors and projects). Both governments are committed to completing this shift by the year 2000. AusAID is now directed at health, education, law enforcement, infrastructure and the rehabilitation of Bougainville.
What is remarkable is that Australian programme aid has actually increased, by almost 40% over the last year. And this rapid growth will continue. In 1995-96 Australian aid will increase to A$118.6 million (approximately K110 million). Programme aid will be more than 50% higher than in 1994-95. Australia provides more programme aid to PNG than it provides to any other country, although Indonesia runs a close second. Australia clearly has an interest in seeing PNG through its current economic problems.