The period 1995–2001 is characterized by recognition of the urgency of the need for public sector reform by government, donors and the long-suffering public. A steady stream of reports reiterated the need for action to address serious problems in almost every aspect of public sector management (World Bank 1995, 1999; AusAID 1996, 2000; PDP 1997; Turner 1997). The result was a corresponding stream of reform initiatives. These derived both from the external pressures of donors and from domestic initiatives.

One of the first reforms was very much a domestic matter. This was the introduction of major changes to the provincial government system which had been subject to increasing criticism. National politicians and public servants claimed the system was too expensive, lacked financial accountability and was responsible for poor service delivery. Others saw the reforms being about national parliamentarians seeking control over subnational resources and management and not about efforts to improve governance (Filer 2000). There is no systematic evaluation of the 1995 changes but available evidence points to widespread policy failure.^[1]

Pre-existing capacity problems in provinces and districts were not fully appreciated by the law’s drafters and appear to have been exacerbated. There have been complaints that funds are inadequate to perform decentralized functions. There has been little training. There is weak planning capacity at all levels and infrastructure is in severe decline. The National Monitoring Authority which was established to develop minimum service standards and monitor performance has not been effective. Officials in rural areas complain that the system is complicated and creates confusion among stakeholders. They also report that the bottom-up system of district and provincial planning committees has been characterized by misuse of funds. Many district planning committees exist only in theory while lack of proper accounting records at provincial level facilitates financial mismanagement (see chapter 12).

While central-local relations were being reformed the country was experiencing severe economic difficulties necessitating a World Bank/IMF-sponsored stabilization and structural adjustment program (SAP) in 1994. Thus, in order to secure release of the second tranche of a $US50 million loan from the World Bank in April 1995, the government promised: a public sector wage freeze from April–December 1995; retrenchment for 7.5 per cent of public servants; improvement of personnel management and payroll controls; restructuring of finance and planning functions; privatization; and regrouping, consolidation and corporatization of agencies. The reform agenda was now being set by the multilateral financial institutions, although some of the reform measures were very familiar.

The most familiar measure was downsizing. Under the government’s 1995–96 economic reform program, around 3,800 positions were scheduled for abolition (AusAID 2000). Another 700 positions would go later. As usual, the figures were confusing. Some suggest that 2,750 public servants were retrenched (Kavanamur 1998) while others claim that the public service actually increased by 3,183 persons between 1993 and 1997 (Kavanamur and Kinkin 2000). Other reform initiatives to satisfy the multilaterals included a continuation of non-threatening institutional strengthening projects; the normal and ineffectual restructuring of agencies, such as the planning office three times between mid-1995 and 1999; and shuffling of executives (Turner 1997; World Bank 1999). The World Bank was disappointed with progress on conditionalities while the Papua New Guinea government thought the Bank was interfering with the nation’s sovereignty (Kavanamur 1998). Relations between the parties deteriorated and the second tranche of $US25 million was released only after the personal intervention of World Bank president, James Wolfensohn.

The government of Prime Minister Bill Skate was next to introduce public sector reforms, not at the behest of the World Bank but on the advice of one of its former Papua New Guinea specialists, Dr Pirouz Hamidian-Rad. While he argued that the World Bank was trying to bully Papua New Guinea to making policy decisions, some of which were unnecessary, he also announced that what Papua New Guinea needed was an aggressive public sector reform program (Wesley-Smith 1999). He believed political manoeuvring in Papua New Guinea would always derail any piecemeal approach. Politicians and bureaucrats would initially agree to reforms only to relent later once loans were released (personal communication, Hamidian-Rad 1998).

Despite the anti World Bank rhetoric, the reform program which emerged in the 1999 budget had strong affiliation with World Bank orthodoxy, except it seemed to be more extreme. The situation was neatly summed up as ‘structural adjustment without loans’ (Filer 2000). Seven thousand (later 7,500) personnel were to be retrenched. There were no plans indicating who would go, no strategic review of personnel needs. This ambitious policy of across-the-board cuts failed to materialize due to the government’s inability to raise the necessary funds to pay for it. Paradoxically, one analyst claimed a net increase of 3,000 public service employees in 1999 (Manning 1999). Privatization returned to the policy agenda with a move to establish a Private Enterprise Ministry to identify which government agencies should be privatized. The 1999 budget also contained provisions to relocate 2,000 personnel to the provinces; the abolition of fifteen statutory authorities and committees; and yet another restructuring for most government departments. Skate’s reform effort provoked considerable opposition and his government collapsed in July 1999.

The World Bank breathed a sigh of relief as Sir Mekere Morauta, a technocrat, stepped up to become prime minister. He soon unveiled a reform program which he was anxious to differentiate from previous ones so as to harness local support. Earlier programs, he said, were externally imposed, not understood, and never fully implemented (Papua New Guinea Post-Courier 30 November 1999). Thus, Morauta adopted the label ‘Structural Reform Program’ (SRP) to distinguish his policy.

But whatever the rhetoric, this new reform initiative embodied ideas favoured by the multilateral financial agencies and had the support of foreign consultants to the Morauta government. His broad goals were to promote good governance and strengthen the institutions of state; to build macroeconomic, financial and budget stability; to introduce public sector reform for improved public sector performance; and to remove obstacles to economic growth. It had obvious kinship with measures proposed in earlier reports for the World Bank (1995, 1999) and AusAID (1996), which called for an urgent adherence to good governance and institutional strengthening.

The Morauta government’s wide-ranging reforms also included a new element — political parties and the electoral process, which were seen as being at the heart of bad governance and irrational behaviour by public officials. The quality of the policy process could be improved through political engineering rather than traditional capacity-building initiatives (The National 24 April 2001). This new approach led to the Organic Law on the Integrity of Political Parties and Candidates of 2001. Its objective was to limit the numerical dominance of independent MPs and their party-hopping practices as well as to reduce the burgeoning number of political parties. There were additional proposals to reform the electoral system by replacing the current first-past-the-post method with a limited preferential voting (LPV) system to broaden a candidate’s representativeness and hence accountability. Under the first-past-the-post system candidates often won seats with small proportions of the total vote, not infrequently under 10 per cent, and then devoted their parliamentary activities to satisfying that narrow constituency (Reilly 2002; Kavanamur 2001; Okole 2001).

Privatization returned to the forefront of reform with the decision of the Morauta government and the Privatisation Commission to sell 75 per cent of the state-owned Papua New Guinea Banking Corporation (PNGBC) to a local private bank (Papua New Guinea Post-Courier 24 January 2002). PNGBC was a badly performing asset but opposition to its privatization was strong. In 2001 student-led protests against privatization and land reform resulted in the deaths of three students at the hands of police riot squads, but Morauta pushed on with the privatization.

Morauta also made efforts to restore power to the Public Services Commission (PSC). The objectives were to eliminate the power of politicians to appoint cronies and business associates to senior positions in the public sector; to curb the proliferation of consultancy positions; and to strengthen the PSC’s role in appeals on personnel matters. The politicians baulked at the power losses entailed in this legislation and the item was removed from government business.

Morauta halted Skate’s policy of downsizing the public service by reinstating suspended officials. But he lined up the Papua New Guinea Defence Force (PNGDF) as a new target of downsizing. Mutiny, disorder and a government-threatening stand-off with troops accompanied this policy initiative. The troops were particularly angry about foreign involvement in determining the downsizing. A new reform package designed internally saved the day but did not prevent a further mutiny in 2002 (see chapter 14). Morauta also responded to multilateral and domestic concerns over the sorry state of the public sector financial system, including widespread corruption.

To pay for these public sector reform initiatives, multilateral assistance was sought. A Governance Promotion Adjustment Loan (GPAL) for $US90 million was provided by the World Bank in 2000 for improving budget management, including debt management, through increased transparency and accountability; delivery of provincial services; forestry management; and the efficiency of financial services, including the privatization of the PNGBC, as well as enhancing the operating environment for business. The Asian Development Bank (ADB) also contributed a $US25.8 million loan in association with AusAID and UNDP in October 1999 for a Financial Management Project (FMP) aimed at improving: planning and budgeting systems; budget execution and accounting systems; information technology systems; the government enterprise network; training and human resources development; and change and program management (ADB 1999). By December 2001, the ADB had approved a further $US70 million loan towards a second public sector reform project known as the Public Service Program (PSP), to be completed in 2003. This program was aimed at supporting policy and institutional reform to build a performance-based public sector and reorient human resources management systems and processes in public sector organizations (ADB 2001). Part of the loan was for short-term structural adjustment costs relating to retrenchments and service improvement plans.

To oversee these and other reforms Morauta established an interdepartmental panel known as the Central Agencies Coordinating Committee (CACC) headed by the chief secretary. The CACC closely liaises with the Public Sector Reform Management Unit (PSRMU), which like the Chief Secretary’s office is located within the Department of the Prime Minister and National Executive Council. Parallels with the PMU of a previous decade are obvious. The CACC coordinates implementation of reforms and reports on a monthly basis to the cabinet, the World Bank and other donors such as AusAID.