Event

The political situation is becoming increasingly complex with mounting tensions three weeks ahead of the 23 June general elections. Political turmoil began last August when historical political leader and PM Michael Somare was ousted by opposition leader O’Neill, who enjoyed a broad majority in Parliament. Later, the Supreme Court judged the move illegal and reaffirmed Somare as PM, which was followed by a pro-Somare military mutiny in January. The coup failed and O’Neill remained in power. Recently, although Somare had previously announced he would not be candidate at the next polls and would leave the political scene in the near term, the Supreme Court exacerbated tensions after re-instating Somare. As a result, deputy PM Namah chose the hard way by sending troops to arrest the Supreme court chief judge and later another member of the Court. This is a concerning sign that the independence of the judiciary might be undermined. Given the strained political context, parliament declared on 25 May the state of emergency in the capital and Highlands provinces in a move to control the situation and avoid unrest. On 29 May, in a surprising move, the parliament accepted the Supreme Court Ruling and reinstated Somare as Prime Minister. However, Somare was immediately disqualified as an MP for missing three sessions of parliament. Therefore, as the position of Prime Minister’s was vacant, the parliament elected Peter O’Neill as Prime Minister on 30 May.

Impact on country risk

The latest escalation and unresolved legal dispute over Somare’s ousting have highlighted the risk of a continued political crisis that threatens the constitutional order. O’Neill, ahead of Namah, appears to be the election favourite, but given the high number of candidates and difficulties to obtain a majority, he might find it difficult to quickly form a stable coalition. While the power battle with the judiciary is expected to go on, the main immediate threat comes from political violence to be feared as shown by past polls. There is even a risk it could affect LNG project sites in the Highlands. This is particularly concerning given the key economic importance of these huge projects, which will be operational as of 2014, boost economic growth and repair macroeconomic imbalances. Therefore, despite the absence so far of reported unrest, future political events could affect ONDD’s political risk assessment.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com