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Economy

Host problems cloud the outlook for this year's APEC

Beset by domestic issues, Papua New Guinea may struggle to put on the event

Asia-Pacific Economic Cooperation leaders arrive for the group photo session at the summit in Danang, Vietnam on Nov. 11. (Photo courtesy of APEC Secretariat)

AUCKLAND Corralling the 21 governments in the Asia-Pacific Economic Cooperation bloc into acting on regional challenges is hard enough at the best of times. It may be something practically unachievable in 2018.

Already strained by U.S. President Donald Trump's retrenchment from regional economic affairs, APEC now faces a clouded outlook for its annual summit on Nov. 12-18, as the task of running the event -- with its 180 meetings of ministers and other officials -- has been handed over to Papua New Guinea, its poorest member.

"It is fair to say that 2018 is the riskiest year in the decade" for the region, said Yves Tiberghien, a political science professor who specializes in global economic governance at the University of British Columbia in Canada, citing issues such as North Korea's nuclear tests and U.S.-China trade tensions. "When the going is rough, you should have an experienced and very well-resourced driver."

Port Moresby, PNG's capital, isn't that. While it is rich compared with the rest of the country, it is still poor in resources. It is also one of the world's most dangerous cities. Murder, sorcery-linked assaults, rape and robbery are common.

Tiberghien said Port Moresby is a "very difficult place to hold a global summit," noting that members of a recent Japanese government mission were not allowed, for security reasons, to leave their hotel or even walk between airport terminals.

There are concerns that PNG could seek Chinese help to run the summit and that Beijing would come to dominate the meetings. This has forced Australia, New Zealand and Indonesia to pour in aid to avoid having to deal with China's overbearing presence.

PNG was appointed to lead the APEC summit in 2013, a year into the government of Prime Minister Peter O'Neill and ahead of an expected mineral boom. Instead, the economy tanked as commodity prices fell globally, pushing the government to the brink of bankruptcy. The government estimates in its 2018 budget that the deficit will reach 2 billion Papua New Guinea kina ($619 million), or 2.5% of gross domestic product, but critics say it is more likely to hit 5.8%

Australia has provided 100 million Australian dollars ($80 million) in aid for the APEC summit, in addition to development aid worth A$497 million. Justice Minister Michael Keenan told Australian Broadcasting Corp. that Canberra had been advised that China would provide if Australia did not. "Obviously, that's a possibility," he said, adding, "We are their closest security partner and I consider that is going to continue into the future."

Despite Canberra's explicit support, PNG still played the China card. On July 7, O'Neill said that Chinese President Xi Jinping was the first leader to agree to attend the summit.

"We value their continued support and investment in the country," O'Neill said, adding that PNG was part of China's Belt and Road Initiative.

Australia is also spending A$48 million to provide F-18 jets and 73 police officers to help with the APEC summit. Indonesia and New Zealand are sending police, too. New Zealand on Jan. 12 raised its financial support for PNG's hosting efforts to 15 million New Zealand dollars ($10.9 million), agreeing to help finance cyber- and maritime security, among other areas.

According to a Jan. 11 announcement by O'Neill, thousands of APEC delegates will be housed in Port Moresby harbor on three leased cruise ships, a step that will address both the lack of quality hotel rooms and the dangerous urban environment. The ships "will adequately accommodate all the [delegates] that will come in," the prime minister said when visiting the construction site of the main APEC summit venue in the capital.

Prime Minister Peter O'Neill of Papua New Guinea at the APEC summit in Danang (Photo courtesy of APEC Secretariat)

The International Monetary Fund had estimated that PNG would spend 3 billion kina on the APEC event to build hotels, offices, roads and shipping terminals, equivalent to approximately 7% of all government expenditure. But in the 2018 budget, released in November, the government allocated just 300 million kina for the summit and its 180 planned meetings.

Jonathan Pryke of Australian think tank the Lowy Institute said it is "no secret that the Papua New Guinea economy is facing some very tough times." Its budget is not feasible, he said, and the government is "caught in a straitjacket of spending."

Paul Flanagan, director of the Moresby-based think tank PNG Economics, agreed. He said even with a "stripped down event, one just needs to look at the cost of previous meetings to see that the equivalent of just $100 million will just not cut it."

Flanagan estimates that the government will have to set aside up to an additional 700 million kina in a supplementary budget for the summit. Despite such shortfalls, he said leaders will still turn up because Australia's security support will provide enough assurances.

Rohan Fox, an economics lecturer at the University of Papua New Guinea, said he hopes the APEC event is successful because PNG "absolutely deserves some positive publicity. It gets more than its fair share of the negative kind."

But Fox also said that "putting on a good show will overshadow the provision of basic services in a time when budget spending has been cut for three years in a row." He also expressed doubts that playing host will have any long-term benefit for the island state.

The main APEC venue at Ela Beach in downtown Moresby is being paid for through a tax-credit scheme offered by LNG producer Oil Search, which owns 29% of the Exxon Mobil-led PNG LNG operation. With less than 10 months to go until the summit, the building is still incomplete.

Additional reporting by Nikkei Asian Review deputy editor Zach Coleman

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