With the national budget in disrepair and the economy in disarray, Somare immediately named reformers and financial experts to his cabinet, which included many new members of Parliament. PNG had a deficit of US $95 million, and the central bank was going under, while the value of the kina kept diminishing. Before the election, government spending had gone up more than 20%; now that amount (including educational subsidies) would be taken away, as part of a strict austerity program. Natural disasters including a volcanic eruption, an earthquake/tsunami and drought, added stresses on PNG's underfunded government in the early months of Somare's administration.
The privatization measures initiated by the previous administration, including selloffs in the banking, telecommunications, and airline sectors, were immediately suspended by Somare, for "reassessment." Even after several months in office, Somare favored a slowed pace of state enterprise sales, stating, "We accept the concept of privatization, but privatization in the interest of Papua New Guineans."
In October 2002, PNG's Supreme Court decided that a value added tax (VAT), which it had earlier ruled unconstitutional, could be extended until July 2003, without refunds which would have bankrupted the government. This was an important reprieve for the federal government, but indicated future problems in raising revenue.
With most of its petroleum and mineral reserves becoming depleted, the county's potential sources of export income were starting to dry up. Pervasive corruption and infrastructure neglect have continued to be dampers on increased foreign investment in fields other than the extractive (oil, minerals, timber) industries. Those industries have caused enormous environmental destruction in PNG, but Somare's government has sought further international mining and petroleum investment through tax breaks, and actively promotes a pending project to build a natural gas pipeline to Australia. The rate of logging in PNG's tropical forests has increased, with international environmental organizations calling on Somare's government to better control foreign timber firms.
In April 2003, a parliamentary committee proposed a new law which would criminalize any criticism of the government or the nation. While the law did not appear to have Somare's support, it was viewed by human rights groups as an unconstitutional and unprecedented threat to the freedom of speech and free press enjoyed in PNG.