Somare's predecessor Morauta had gained renewed international aid and loan support for PNG, maintaining especially close ties to Australia, whose assistance and investment continue to be crucial for PNG's economic survival. Some regional analysts fear that PNG's economic collapse could lead to interior secession movements, indigenous terrorism, or the use of PNG as a terrorist base, which would be a security issue for Australia, perhaps leading to Australian military intervention. Australia was seen as backing Morauta in the 2002 election, and Australia's prime minister John Howard was considered unenthusiastic about Somare. One of Somare's first acts as prime minister was to host a visit by Howard, with a joint press conference in which a friendly relationship was emphasized. However, by November 2002, aid from Australia, the IMF, and World Bank, was being frozen in order to make sure that Somare's government followed through on severe budget cuts. Somare contrasted the freeze with funding of the previous administration: "The Australian government went out to support Sir Mekere's (Morauta's) last budget before the elections and without the concurrence of the World Bank and the IMF."
A particular source of friction between the Somare and Howard governments has been Australia's use of Manaus Island in PNG as a "Pacific Solution" detention center for foreigners seeking asylum in Australia. Somare has criticized this strategy, stating that Australia is making PNG a "dumping ground for refugees." As conflict between Indonesia and indigenous Papuan separatists continued on the western half of the island of New Guinean, Somare tried to maintain friendly relations with Indonesia. He aligned PNG with Indonesia and against Australia in opposing 2003's U.S.-led invasion of Iraq (in which Australia participated.)
PNG has had difficulty balancing competing relations with Taiwan and China. Prime Minister Bill Skate proposed a deal in 1999 which would have traded diplomatic recognition of Taiwan for a substantial loan, a gesture which brought on trade sanctions from China. Morauta was quick to repudiate Skate's concept in favor of continuing a strict policy of official relations only with China, not with Taiwan. Somare seemed to favor more formal trading relations with Taiwan and sent a trade delegation (which appeared to have included his son, Arthur Somare) to Taiwan in November 2002, prompting protests by China.