In this story

When it is put to one Papua New Guinea old hand that the country seems perilously close to becoming a failed state, he demurs forcefully.

“It is not close to being a failed state,” he says. “It is a failed state, and has been for some years.

“Within government the struggle between good and evil is over. It is now a kleptocratic government. The only struggle is over who gets how much. There is theft on a scale that has no parallels outside Africa.”

The speaker won’t be named – for good reason – but he is a former senior Australian government official with intimate knowledge of the running of Australia’s northern neighbour going back many decades.

During the five years since the election of the current government, he and other experts say, corruption and dysfunction have become vastly worse in PNG’s institutions – the parliament, law enforcement, sections of the bureaucracy. And now it is failing economically, too.

This week the story that dominated news in Australia was Tuesday’s finding by PNG’s Supreme Court that Australia’s detention of asylum seekers on Manus Island was illegal and unconstitutional. The following day Prime Minister Peter O’Neill announced that the detention centre would be shut down.

“There’s been very little response from Australia, even in relation to these two anti-corruption units being shut down.”

But there was another bit of news that went largely unnoticed. Paul Flanagan caught it. Flanagan is a former Australian treasury official who served as chief adviser to the PNG treasury between 2011 and 2013, and who is now persona non grata in Port Moresby as a result of his public pronouncements on the dire mismanagement of the country’s economy.

You have to be careful about putting your name to criticism these days if you ever hope to get back into PNG. Hence the reluctance of our old hand, quoted above.

On Monday, Flanagan notes, the ratings agency Moody’s downgraded PNG’s credit rating. Again.

“They took it down to B2,” he says. “In some ways, that’s not very significant. Because they already were four levels below junk bond status. Now they’re five levels below.”

He went on: “The timing is particularly challenging, though, as a further external comment on the quality of their economic management.”

The country has a budget crisis and a foreign exchange crisis. It’s looking to the World Bank for a bailout because it can’t raise money. It’s bouncing cheques on its creditors.

“Papua New Guinea has been in big economic messes before,” Flanagan says. “Twice in the early 1990s they needed IMF/World Bank programs to dig them out.”

This time might turn out even worse, yet all the focus in Australia has been on Manus. That’s understandable but too narrow, in the view of Flanagan and other experts. They believe the economic crisis, the corruption, mismanagement and Manus are related issues.

“Unfortunately, I think it’s the case that we are fostering this bad stuff,” Flanagan says.

“There are a lot of people in PNG who hoped Australia would stand up for the things we expect from a democracy, like following the rule of law. The silence of Australia now is notably different from what we did in the mid-2000s.”

1 . Australia looks away

Another of the foremost experts on PNG, Professor Stephen Howes, director of the Development Policy Centre at Australia National University’s College of Asia & the Pacific, concurs with that assessment.

“In the past, Australia has taken a stand where governance is an issue, particularly in relation to corruption, because corruption is such an important theme to the aid program. And we provide half-a-billion dollars in aid,” he says.

The Australian government’s commitment to housing its refugees and asylum seekers offshore has made us dependent on the continued goodwill of Peter O’Neill.

“This dependence on PNG,” Howes says, “has made us much less willing to speak out.”

Even as other institutions have declined, says our anonymous old hand, one vital institution has remained substantially trustworthy: the court system.

“The Supreme Court is still a functioning institution, though it too is becoming a bit of a battleground,” he says.

“There are a couple of appointees who seem to have been corrupted, but there is a majority of people of integrity. And you can certainly rely on the integrity of Terry Higgins, who is a former chief justice of the Supreme Court of the ACT.”

Howes agrees. “The one strength to PNG governance is the independence of its judiciary.”

Others spoken to for this story say likewise: the government might be crook, but not the courts.

The problem is, the PNG government is apt to disregard the judgement of the courts. And it is tempting to suggest the Australian government was relying on O’Neill to do just that this week.

2 . O'Neill backs court

In a succession of media interviews following Tuesday’s decision, Minister for Immigration Peter Dutton calmly pointed out the ball was now in the PNG government’s court.

“We will wait to see their response to the court case,” he told 2GB.

The clear implication of his words was that the determination of the country’s highest court was not final.

Dutton did not do as the Labor opposition demanded, and jump on a plane to Port Moresby in an effort to rescue the situation. Instead, he did the rounds of the domestic media, offering assurances the PNG government would sort it out.

And, frankly, the Australian government had good reason to believe a way would be found to subvert the decision. Surely a government as cash-strapped and greedy as PNG’s would not be so rash as to shut down Manus after all the billions of dollars Australia has lavished on it.

Then came the bombshell, when O’Neill announced he would abide by the court’s decision.

Who would have thought, given O’Neill’s long history of finding ways to get around or simply ignore court decisions, that he would calmly accept this one? Not Turnbull or Dutton, apparently.

3 . Parliamentary crisis

But failing states and desperate governments are unpredictable things. Dr Ron May, emeritus fellow attached to the State, Society and Governance in Melanesia Program at ANU, takes us back five years to when former PNG prime minster Sir Michael Somare went for urgent medical treatment in Singapore.

Although his leave from parliament was approved, the prime ministership was declared vacant in his absence, and O’Neill took over.

“Various people at the time, including the attorney-general, complained this was illegal. It went to the Supreme Court, which ruled in favour of Somare, but O’Neill ignored that.”

The action precipitated a crisis. Which was the legitimate government: the one constituted by the parliament or the one nominated by the court?

“For a while there were two national executive councils, two police commissioners, two governors-general,” May says. “There was retrospective legislation to try to disqualify Somare, moves to get rid of the chief justice, to postpone the 2012 election. All sorts of extraordinary things.

“The election went ahead, though, and Somare stood, saying he would put the plotters behind bars. But O’Neill won, and Somare joined the government.

“The person who engineered the move in parliament to remove him became leader of the opposition.”

Even by PNG political standards, in which party alliances are volatile, this was extraordinary, May says.

Since the 2012 election, however, that volatility has declined. O’Neill has entrenched himself in power.

“Now,” says May, “O’Neill probably has the support of about 80 members of the house of 109. So there’s no effective opposition in the parliament, and given that fact the opposition has taken the form largely of legal challenges.”

This has put law enforcement agencies and the judiciary under extraordinary pressure. One of O’Neill’s first actions as prime minister was to set up a special taskforce to investigate allegations of corruption in various parts of the bureaucracy. Taskforce Sweep comprised officials from the police force, public prosecutor’s and auditor-general’s offices, treasury and justice departments, among others.

It was very active, making more than 40 high-profile arrests of prominent business figures, senior bureaucrats and former and current politicians in relation to various offences, including the misappropriation of many millions of dollars.

It became a problem, however, when it turned up evidence appearing to show that O’Neill himself had authorised the payment of $30 million of fraudulent legal bills to the country’s biggest law firm, Paraka Lawyers.

“The taskforce found a letter bearing O’Neill’s signature, which he said was a forgery,” May says. “It was sent to Australia to forensic experts, who said they thought it was not a forgery.

“On that basis, he was called in for interview. He declined to come in and an arrest warrant was issued.

“Ever since then, O’Neill and the finance minister, who was also implicated, have launched one legal proceeding after another.”

O’Neill moved to shut down the taskforce, but the PNG National Court reinstated it. The manoeuvrings are too labyrinthine to detail here, but you can get a taste from this paragraph from a report in Guardian Australia, of June 19, 2014:

“In the space of one week an investigation by the country’s anti-corruption taskforce has led to an arrest warrant served on the prime minister and then stayed, the sacking of both the attorney-general and the deputy police commissioner, and the arrest of the police commissioner on his first day after replacing his predecessor who was convicted of contempt last Friday and then knighted.”

Unable to close the taskforce down, the government simply defunded it. Taskforce Sweep’s indefatigable head, Sam Koim, tried to keep it going by working without salary, but it was effectively dead.

In his final report, in May 2012, Koim said: “The level of corruption had migrated from a sporadic to a systematic and now an institutionalised form of corruption.”

A new “mobtocracy” was coming to “dominate the resources of this country at the expense of the majority,” he said.

4 . Corruption and economic crisis

The investigation of O’Neill did not die with the taskforce, however. It was pursued by a special anti-corruption unit within the police.

This month, the matter has again come to a head. The police taskforce arrested Attorney-General Ano Pala, Supreme Court justice Bernard Sakora, and the prime minister’s lawyer, Tiffany Twivey.

“They have projected cuts to health and education between 2015 and 2017 of 45 per cent.”

Sakora, the judge who stayed the arrest warrant for O’Neill, is alleged to have received K100,000 ($41,704). Twivey and Pala are alleged to have acted to frustrate the corruption investigation and are charged with perverting the course of justice.

The matters are now before the courts. In the meantime, the government has again attempted to shut down the investigation. The head and deputy head of the fraud squad were suspended from duty. Police loyal to O’Neill barricaded and chained shut the offices of the fraud squad.

The silence of the major political players in Australia underlines the point about Australian dependency on the PNG regime, Howes says.

In years past, pre-Manus, this would not have been the case.

“This time ’round there’s been very little response from Australia,” he says, “even in relation to these two anti-corruption units being shut down.”

Others have had plenty to say about it. The global anti-corruption organisation Transparency International, for example, released a tough statement on Thursday last week, suggesting the dominant faction in the PNG police force was itself perverting the course of justice.

It called for the immediate reopening of the fraud and anti-corruption offices, and warned it was taking legal advice with the intent of getting the courts to rule again on the legality of the government’s actions.

“We are pretty proud of our courts and our good police officers,” Transparency International PNG chairman Lawrence Stephens tells The Saturday Paper.

At the time of writing, Stephens says the standoff between police factions was continuing. Meanwhile, calls for the prime minister to step aside are growing.

People have noted the contrast in O’Neill’s respect for the rule of law in relation to Manus and in relation to the corruption investigations, Stephens says.

How it plays out from here is anyone’s guess. But the crisis is not just political, it is economic.

Until just a few years ago, PNG’s economy appeared to be going strong. To an even greater extent than Australia, it was riding the resources boom. In particular, it was looking forward to coming riches from the construction and start-up of a $19 billion gas plant operated by ExxonMobil.

Then came the collapse in oil and gas prices.

“That has eliminated much of the revenue expected from that project,” Howes says. “The huge stimulus that came from the project’s construction also has come to an end. Revenue is down across the board.

“The trouble is, government had ramped up spending in 2012-14 in anticipation of the gas revenue, and had borrowed a lot, so it is facing a much higher interest burden.

“It also started a number of new programs, in particular a huge increase in funds given to MPs at the provincial and district level, to be spent locally.

“So there’s a massive increase in the deficit. They need to borrow money but the appetite of lenders, whether domestic or external, has dried up. There’s a cash-flow crisis impacting basic services like health and education.

“They’ve got real problems with foreign exchange, and the central bank is prioritising who gets the foreign exchange.

“There is a backlog of orders for US dollars, now said to be about K3 billion kina, or close to $1.2 billion Australian.”

Paul Flanagan takes up the tale of economic woe. He notes the government is seeking to borrow $300 million from the World Bank, following its failure to raise $1 billion on bond markets late last year.

“The resources bust was not their fault,” he says. “But other things were.” Flanagan cites the government’s decision to borrow $1.2 billion to buy into the gas project; the decision to abandon the free float of the currency, which has left it overvalued despite a 30 per cent drop in the past year; and the huge increases in spending made in anticipation of gas revenue.

Then there is the plan to buy out small- and medium-sized business enterprises and put them under indigenous ownership. Flanagan says this “is really scaring the business sector”.

Another business killer is the non-payment of debts. “One way they are saving money is simply by not paying their bills. They sent out cheques in December 2015 and in January they just rang everyone up and said they were dishonouring all government cheques issued in December,” Flanagan says.

“Since 2012, we’ve seen the two largest deficits in PNG’s history. When your deficit is just shy of 10 per cent of your economy, that’s a budget emergency.”

So now flamboyant spending is being replaced by austerity. “They have projected cuts to health and education between 2015 and 2017 of 45 per cent,” Flanagan says.

The potential consequences, particularly for health, are “really scary”. Flanagan notes that among many other health problems, PNG is now a global hot spot for multi-drug resistant tuberculosis. The highest concentration of cases in the world is in Daru. “That’s what, 10 kilometres away from the nearest bit of Australia?”

5 . Australia's strategic interest

Flanagan has “dared suggest” an exodus to Australia – a refugee issue much larger than Manus. “It’s a much shorter trip across Torres Strait than across the Mediterranean to Greece.”

This, Flanagan concedes, might sound a bit catastrophist. “But I used to look after programs in Africa for AusAID and I watched Zimbabwe go downhill,” he says. “This is my worry: the type of creeping crisis that comes from continued bad governance, increasing attempts by the executive not to be held to the rule of law, continuing bad policy decisions. It’s the accumulation of those sorts of things over five or 10 years that gives you a Zimbabwe.”

The PNG veteran whose words began this story is more measured, but only slightly.

“We spend a lot of time worrying about the disintegration of the Syrian state, but that is of trivial consequence to Australia compared with the looming disintegration of PNG,” he says.

“Our great interest in PNG is in an effective state with working institutions. If Australians had an eye to their own strategic interest, their main focus would be on the support of PNG’s good institutions.”

But Australia is in pursuit of domestic political ends. Australia’s major political parties are not supporting those institutions. Ever since we started exporting our asylum-seeker problems to what Alexander Downer once called “busted-arse countries”, we have undermined that which is good and strengthened that which is bad.

Now Peter O’Neill has called an end to it, saying that by hosting Australia’s sad castoffs he was damaging the reputation of his country.

The problem is much greater than that, though. It is about a failed state stoked and ignored on our nearest shore. As we find cruel and legally exotic ways to punish the 900 men on Manus Island, we forget the near eight million people of Papua New Guinea whose institutions we let founder for our own cheap political ends. It is almost surreal that the high moral ground has been forfeited to a leader such as O’Neill this week. More than that, though, it is embarrassing, if not shameful.