Pacific Nation Tackles Fiscal Crisis

THE closure of one of the world's largest copper mines on Bougainville Island has forced Papua New Guinea (PNG) into a financial crisis and precipitated the South Pacific nation's largest military campaign ever. On Jan. 9, the government devalued its currency, the kina, by 10 percent and announced a package of economic reforms. The mine's shutdown has meant the loss of the government's single biggest source of revenue. By week's end, Prime Minister Rabbie Namaliu had parliamentary approval to unleash the Papua New Guinea Army on some 200 rebels calling themselves the ``Bougainville Revolutionary Army.''

``My government cannot allow the people of Papua New Guinea to be held ransom any longer,'' he told Parliament.

The Bougainville mine ceased operating last May following attacks on mine workers and equipment. Militant landowners are demanding independence for the copper-rich island and $12 billion in compensation for environmental damage. In eight months of sporadic jungle skirmishes, about 45 people have died. Security forces sent to the island have tried to shield the mine from attacks and made occasional forays after rebels. But until now, Mr. Namaliu has resisted calls for a military solution.

Several times in recent months, church leaders, government officials and rebels have appeared close to a peace pact, only to have negotiations derailed by renewed violence.

On Jan. 6, the Australian operating company, CRA Ltd., threw in the towel. It sacked 2,000 Bougainville employees, leaving a skeleton maintenance crew of 300. Restarting the mine will take about three months but won't be attempted until the ``security outlook'' improves, say mine executives.

Mothballing the mine prompted the government to take decisive austerity measures. While they were politically difficult, in the 14 years since gaining independence from Australia, PNG has earned a reputation at the World Bank and International Monetary Fund for sound macro-economic management.

The currency devaluation is to adjust the economy for the lack of Bougainville revenue. It is also aimed at offsetting the fall in coffee and cocoa prices and will make PNG crops more competitive in world markets.

Government spending will be cut by $120 million. Setting an example, Namaliu and his ministers are taking a 5 percent salary cut. He's asked for public and private sectors to at least keep a lid on wage hikes. But the currency devaluation will mean higher prices on imported goods, pushing inflation from about 6 percent to 9 percent. The largest public sector union says it will be seeking to increase wages, not reduce them.

The devaluation also effectively reduces the value of financial aid PNG receives from Australia, its major aid donor. In ministerial talks in Port Moresby this week, Australia is likely to respond to a request for additional funds.

Meanwhile, the political, economic, and social costs of keeping 2,000 troops (most of PNG's armed forces) on Bougainville is growing. Amnesty International is calling for the government to address human rights abuses. Several villages have been burned by soldiers and one night last week, a young woman and baby were killed by a soldier firing into the darkness.

The opposition party leader, Paias Wingti, and local Bougainville leaders want the troops off the island. But last week, Police Commissioner Paul Tohain said the rebel landowner leader, Francis Ona, had been killed by his own men. The rebels are now led by a former PNG Army demolitions officer likened to Idi Amin.

``What began as legitimate requests by landowners has turned into a bloody rebellion masterminded by a fanatic,'' Mr. Tohain said.