Reserve Bank of Australia Annual Report – 1965 Papua and New Guinea

The Reserve Bank is required to exercise its powers in such a manner as will best contribute to “the economic prosperity and welfare of the people of Australia”, and as Australia in this context includes the Territories of Australia, the Bank has a responsibility to the peoples of those Territories, the great majority of whom are in Papua and New Guinea.

Over recent years the Bank has developed and extended its activities relating to Papua and New Guinea. All of this work, both in the Territory and at Head Office, is now organised within a separate Papua and New Guinea Division established early in 1965. One of the Governor's Advisers has been given special responsibility for the Bank's work in this field.

In a developing territory like Papua and New Guinea, which is in a process of transition to a money economy, a central bank must view its responsibilities and functions rather differently from those in a more advanced economy. In countries like Australia, the financial system is firmly established as a going concern, and its main operations are understood, or at least accepted, by the people. In Papua and New Guinea on the other hand, the financial system is little more than embryonic and so far as much of the indigenous community is concerned, there is little understanding of money and its functions. Although cash cropping and paid employment are becoming more common, there are still large parts of the Territory with little or no contact with money.

In this situation an important task of a central bank is to guide the development of a financial system suited to the needs of the Territory and its people. In particular, it has a responsibility to develop participation in financial institutions by a growing number of indigenes.

The Bank's work in Papua and New Guinea has been directed along three main lines. Firstly, it already carries out some basic central bank functions. It acts as banker to the Papua and New Guinea Administration and to Commonwealth Government departments operating in the Territory. It assists the Administration in floating domestic loan issues and manages the Inscribed Stock Registry. It provides note issue and coin distribution facilities. These aspects of central banking, along with economic research, are being added to as the financial system develops.

Secondly, in association with the commercial banks in the Territory, the Bank is conducting a campaign to improve the level of financial knowledge and to educate the people in the significance of money and in the operations of a money economy. This campaign has been directed primarily at students in Territory schools, but increasing attention is now being paid to adult groups, both in the larger towns and in the villages.

Thirdly, the Bank has sought to widen the experience of more Papuans and New Guineans and, in this regard, is promoting the growth of Savings and Loan Societies. Briefly, a Savings and Loan Society is a group of people with some common interest — e.g. the same village, place of work or church — who usually have at first joined together as a Savings Club and pooled their savings in a common fund. Members retain individual ownership of funds which they have contributed, but when the Savings Club has developed to the stage of a Savings and Loan Society it can make loans to individual members for a wide range of worthwhile purposes at reasonable rates of interest.

In essence, Societies constitute small scale co-operative banks run by their own members, and the Reserve Bank regards them, together with the associated Savings Clubs, as a sub-banking system designed to provide a stepping stone to the use of the established banking system and to an extent to supplement it. They help to mobilise some of the small savings of the people and to satisfy some of the small scale needs for capital. Also, participation in the Societies and Clubs introduces the people to modern financial techniques and provides members with practical education in the wise handling of money and in simple accounting.

By June, 1965 there were 62 registered Savings and Loan Societies operating in the Territory. These had a membership of almost 3,500 and total funds of £81,700. In addition, a further 254 groups were undergoing probation as Savings Clubs and the 11,000 members of these had saved another £69,000. Loans outstanding to Society members totalled £20,861. During 1964/65, the number of Clubs and Societies more than doubled while their total funds increased threefold.

The year saw considerable economic progress in the Territory, and an increasing involvement of Papuans and New Guineans. Government expenditure rose by 18 per cent to £45 million, being financed by a substantially increased grant from the Commonwealth Government (£28 million), by internally raised revenue (£14 million), and from an expanded loan programme (£3 million). The effect of the increased injection of funds into the economy was felt in several directions — gross domestic capital formation rose, a larger number of people were absorbed into the labour force, and personal consumption increased markedly. Whilst previous budgets have emphasized aspects of social development, particularly education and health, the stress in 1964/65 was placed more directly on economic advancement, with a much expanded public works programme.

A generally expanding market produced a sharp rise in imports. However, the output of primary industries also reached new levels and exports were commensurately greater. Prices for copra, the main export crop, rose but for much of the year cocoa suffered from substantially lower world prices. In 1965/66 two newly established crops, tea and pyrethrum, will add to export income.

Territory of Papua and New Guinea — Trade

Manufacturing output increased, although it is still small in relation to the Territory's primary industries. Several new industries were attracted to the Territory, among them factories for the production of nails, steel drums and paint. A Pioneer Industries Bill, which grants some taxation concessions to new industries, was passed by the House of Assembly in the latter half of the year.

The contribution made by indigenous producers to export income has been rising, their income levels generally have increased and they are participating more in the country's normal financial system, especially banking.

Business of the banking system expanded over the year. Trading bank deposits and advances each rose by more than 25 per cent; the major increase in advances was in the finance, building and commerce category. Savings bank deposits rose by 15 per cent, and the number of operative accounts increased even more rapidly to 193,000.

During the year, the report of a Mission from the International Bank for Reconstruction and Development was released. The Government has indicated its general agreement with the I.B.R.D. recommendations, which include an accelerated programme of development, particularly on the agricultural side, and the formation of a development finance institution for the Territory.

The ability of the people of Papua and New Guinea to assume control of their own affairs and in due course develop their own central banking structure will depend largely on the availability of trained people. At June, 1965, 13 members of the Bank's staff of 31 in the Territory were Papuans and New Guineans who are being trained and advanced to duties previously performed by Australians. In addition, in 1965, two Territory students were being educated on Bank scholarships in secondary schools in Australia, bringing the total of such scholarships to seven over the past four years. Two other students, one in his final year, were studying for the degree in Economics at the University of Sydney under Bank bursaries.

Plans are under consideration for a combined banks' programme to train indigenous recruits in banking fundamentals and to provide more advanced training for them as their experience develops. The Reserve Bank and the trading banks operating in the Territory realise the need for early action.

Every banking system should be developed in accord with, and have its roots in the society within which it operates. Each has to develop a structure and techniques peculiar to itself. It is the Bank's aim that in Papua and New Guinea central banking functions will be developed in a manner which will best serve the interests of the peoples of the Territory.