Papua New Guinea sides with China on Hong Kong

The second reason is less certain, but more profoundly troubling if it is true.

PNG has yet to agree to an emergency support package led by the International Monetary Fund and the World Bank, which is probably worth at least $3 billion. Negotiations are believed to be continuing but, frankly, PNG is running out of time.

The PNG economy is deteriorating rapidly, a problem that's hardly helped by the continued closure of the Porgera Gold Mine which the government is seeking to effectively nationalise.

The government is running out of cash, with the fortnightly payroll for the public service and parliamentarians being delayed regularly.

The problem the government clearly has with the IMF–World Bank package is the conditions that will come with it. Past experience indicates that those conditions will include a substantial currency devaluation, asset sales, and a substantial reduction in the size of the public service.

With national elections now less than two years away, such a package is hard for the government to embrace.

The real concern is that, out of sheer desperation, the government might do what it was clearly contemplating almost a year ago and accept a substantial rescue package funded by the PRC.

Australia intervened just in time and provided a $400 million soft loan (which is unlikely ever to be repaid) that effectively replaced emergency assistance from China, and put on hold a much larger package.

In desperate times - and these are the most desperate times in PNG's history - governments surrender good fiscal policy and even national integrity and security. We can only hope that's not what PNG will do in the coming months.

The question which now arises is how Australia should respond to this troubling reality.

The answer must not be to give PNG more cash handouts as we did a few weeks ago when we agreed to convert $20 million from the aid program to cash.

We have to encourage PNG to accept the IMF – World Bank package, to which we will no doubt contribute, without delay.