The independent State of Papua New Guinea lies east of Indonesia and north of Australia and comprises the eastern section of the island of New Guinea (the western section being part of Indonesia) and a number of smaller islands. The population is largely Melanesian but there are a sizeable number of people of European descent. Papua New Guinea was formed by the merger of the Territory of Papua, under Australian rule from 1906, with the Trust Territory of New Guinea. Internal self-government was achieved in December 1973 and full independence on September 16, 1975.

The economy is based on primary industry. 85% of the population is engaged in subsistence agriculture. After minerals, the chief exports are agriculture products, particularly palm oil, coffee, cocoa and copra.

A comparatively recent development is the exploitation of extensive mineral resources. In this field, foreign investment, particularly by Japan, Australia and the United States of America is of paramount importance. Numerous challenges still face the government, including providing physical security for foreign investors, regaining investor confidence, restoring integrity to state institutions, promoting economic efficiency, and balancing relations with Australia. Other socio-cultural challenges exist in the HIV/AIDS epidemic in Papua New Guinea, which has the largest epidemic in the Pacific Islands.

The government’s long term policy aims at stability and self-reliance. Large scale production is required to achieve a significant reduction in imports of food and other commodities, but foreign aid and investment are a necessity in the short term, and possibly for a considerable time.