Relations between the Bank and the government of Papua New Guinea were strained in July by the government’s decision to issue bonds to raise money from the private sector. Although the private sector funds will have to be repaid at a high rate of interest (about 16-17%, predicts the Bank) compared with Bank loans which have an interest rate of about 5.5%, the private sector money comes without conditions.
The Bank is concerned that the government is taking on unpayable debts to avoid economic reform. Other critics are worried that the country is reversing key forestry reforms to boost log exports to protect the country’s embattled currency.
For a briefing on the debt and policy implications of various forms of foreign finance see Drowning By Numbers, available from Bretton Woods Project by post, or on the web.