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Subject: Re: Price protest! by Unitech Students


Author:
Chicko
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Date Posted: Thu, Sep 18 2008, 08:06:35am
In reply to: tony 's message, "Price protest! by Unitech Students" on Sat, Sep 06 2008, 08:02:17am

With due respect to some useful economic discussions here, I can't recall at one instance when students won through petition to the government. May wisdom help in this one.

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[> Subject: Re: Price protest! by Unitech Students


Author:
Peles-Economist
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Date Posted: Thu, Sep 18 2008, 11:52:53am

Larsen, you have pointed out one very important factor that can contribute to development in the country. Infrastructure development is the key to building domestic capacity. Domestically, there is a huge savings and investment gap. Why is that the reason?

Several researches done in South Korea points out to one very important factor for development, i.e. infrastructure development. When South Korea build a major road net work that cut through most of the countries, the country started to flourish, because locally produced goods started flooding major Korean cities, hence, imported products no longer became attractive to korean city residents, consequently, imports were lowered, hence, foreing exchange reserves were saved. Just because of the major road work, millions of Korean won were saved, and to this day, Korea is one of the success stories, because they invested in something that would bring benefit to them for a life time.

Papua New Guineas infrastructure development is so poor that even a coffee bag rots in the remote areas of the Highlands. Locally produced food would have flooded the markets in Port MOresby and other major centres of the country, but, due to poor infrastructure, locally produced goods have become more expensive than imported goods. Good infrastructure reduces the cost of transportation, hence resulting in building domestic capacity.

Even the works department seem to have failed in maintaining the existing roads. Most often, the excuse would be, "there is no fund". I guess the fund is there but, how to manage the funds have been a major hindrance in maintaining and developing infrastructure. Australia our closest neighbour would be good place to sell our beautiful country as a tourist destination, but, most Australians find going to Europe, Asia and America more cheaper than coming here to PNG, due to less developed infrastructures that cant allow competition in the transportation industry.

Infrastructure development and maintainence is the key to every countries success. China is currently growing at a faster pace, because, the government has pumped in money to support the private sector, by developing good roads, bridges, airports, wharfs, schools, etc. Once the government is seen to clear all hindrances for the private sector to operate, the private sector becomes the engine room for development. Thats exactly what the emerging market economies of Asia have done. They are developing at a rapid pace because, they have got their fundamentals right. Development of good infrastructure by the government has become a catalyst for the private sector, hence, growth purely driven by the private sector.

As for PNG, with the current high inflow of mineral taxes into the governments cofers, the government needs to divert this funds into developmental projects, like the maintenance of the HIghlands highway, and wharfs and even try to link the country with road networks. The country has lots of potential, and once, better road networks link the country, domestic capacity would be build. Locally grown food products would replace the imported foods that the cities and towns in PNG has been depended upon. PNG is rich in so many ways, and it needs good infrastruture development to bring the much needed food products to the door steps of urban dwellers.

enough said..

peles-economist

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[> [> Subject: Re: Price protest! by Unitech Students


Author:
larsen
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Date Posted: Thu, Sep 18 2008, 08:47:07pm

Peles economist;

Specifically, in regard to your enquiry to huge saving and investment gap.

Let me say the following:

(1) saving = investment in most cases. saving, in more case propel investment. for instance, saving is used to finance investment thus the relationship.

(2) saving is either voluntary and involutary. when the interest on saving is higher (by commercial banks), there is increased savings. thus, this follows the relationship in point (1) with investment.
(2)(a) voluntary saving are predominantly determined by the interest on the saving. bank would increase saving if interest is comparatively higher.
(2)(b) involuntary saving are such programmes as the posf for the public servants and nasfund for the private sector. these programmes encourage citizens to save more of their income. i note that saving through such has increased dramatically and is exemplified in the finanical perofrmances of these two institutions annually.

(3)there can be increased saving but the interest rate on financial credits be low to induce investment in the country. if the interest rates are very high, the investment induced by the savings will be low. when one borrow K10.00 and the interest is 50%, it is not worth but when it is lower its worth undertaking the investment.

have not seen the current interest rate for commercial banks but the kina facility rate should give a general guide.

(4) if saving is higher and interest rate is lower and investment is very low then, the problem is with other economic structures not facilitating greater investment. some of the structural issues such as poor transportation, power, water supply and hingering regulatory regimes. the government needs to eradicate these structural impediments to ensure increased investment.

(5) my obeservation is that saving should be higher though interest (deposit interest rates) must be lower because excess liquidity but the interest rates should be lower because the commercial banks want to inject the excess liquidity in the system to the nvestors in real sector. however, investment is not responding accordingly because these structural impediments are hindering investment in the country. (foreign direct investment is included in discussion).

(6) due to such scenario there would be increased in capital outflow which the central bank needs to check and monitor. this would have adverse impact on the economy.

thank you for the enquiry and if not satisfactory please, inform.

cheers,

larsen

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