5 Toea – Papua New Guinea

In 2002, Papua New Guinea's currency, the kina (PGK), operated under a managed float regime, but the year was characterized by significant downward pressure and volatility. The kina's value was heavily influenced by a persistent shortage of foreign exchange (FX), particularly Australian and US dollars, which was a chronic issue stemming from structural economic weaknesses. This scarcity created a substantial gap between the official bank rate and a thriving black market, where businesses and individuals often paid a significant premium to access foreign currency, hampering trade and investment.

The underlying causes of this pressure were multifaceted. Economically, the country was heavily dependent on volatile commodity exports (minerals, oil, and coffee), and 2002 saw periods of low global prices, reducing FX inflows. Furthermore, fiscal discipline was a recurring challenge; government spending often exceeded revenue, contributing to a high public debt burden and eroding international confidence. Political instability, including a contentious general election that year, exacerbated economic uncertainty and discouraged the foreign investment needed to support the currency.

In response, the Bank of Papua New Guinea (BPNG) intervened regularly in the market, using its limited reserves to defend the kina's value and smooth out fluctuations. These efforts aimed to maintain stability but could not resolve the fundamental supply-demand imbalance. Consequently, 2002 highlighted the kina's vulnerability to external shocks and internal governance issues, with the tight FX constraints acting as a major brake on broader economic activity and reflecting the deep-seated challenges of transitioning from a resource-dependent economy to a more stable and diversified one.