"There is little room for waste or mistakes," Somare told a mining conference in Sydney. "My government must and will bite the bullet and focus its attention on far-reaching reforms to improve the structure of the state and the economy."

The government has reduced the corporate tax rate for new petroleum projects from 45 percent to 30 percent.

It also will abolish an additional profits tax for mining.

Somare says his predecessors were too complacent about the economy, relying on quick-fix loans from overseas to keep the country running.

In 1999, then prime minister Bill Skate briefly agreed to recognise Taiwan diplomatically in exchange for one such loan, causing a furore in Bejing, which threatened to stop buying Papua New Guinea timber.

Now GDP growth in 2002 is forecast by Price Waterhouse Cooper to shrink by 0.5 percent after contracting by 3.4 percent and by 1.2 percent in 2001 and 2000 respectively.

DOUBLE DIGIT INFLATION

Meanwhile, inflation is running at 12 percent a year.

More than a quarter of a century after independence from Australia, most Papua New Guineans still eke out subsistence livelihoods in tribal villages. The country is home to more than 1,000 tribes and 800 distinct spoken languages, making it difficult to govern.

Poverty, rising crime and an alarming increase in HIV-AIDS aside, the government's number one priority was to lay a 3,200-km (2,000-mile) pipeline under the Coral Sea to pump gas to neighbouring Australia, said Somare.

But the project has yet to be approved by lead partner ExxonMobil despite being proposed years ago.

Worse yet, reserves at the few mines currently digging for gold and copper are fast depleting, spelling disaster for the export-based economy unless new deposits are found.

But few mining houses have been willing to spend big on exploration, which can take years to show results, preferring to allocate their funds in other parts of the world, such as South America and Africa.

Some, like giant Rio Tinto Ltd (RIO.AX) (RIO.L), are still smarting from a 1989 secessionist movement that led to the capture of its Panguna copper mine on Bougainville Island.

Once the largest in the Southern Hemisphere, the lode sits dormant, with little chance of reopening after years of neglect.

MISSED CHANCE

"The 1990's could be seen as one of missed opportunities for the development of Papua New Guinea's mineral sector and the wider economy and society," Somare said.

Unless mining firms start poking around soon for new finds, by 2011 only one mine, the Lihir Island lode in distant New Ireland Province, will be left, said Mining Minister Sam Akoitai.