Aid with strings attached Foreign policy not poverty reduction drives the Australian aid program

Aid with strings attached
Foreign policy not poverty reduction drives the Australian aid program

Tim O’Connor

Indonesia has been a major focus of the Australian aid program for several decades. Despite this focus the goals of the program have not always been clear, beyond not offending the Suharto government and providing commercial opportunities for Australian business. In 1996 the government announced one new overarching objective for the global Australian aid program – poverty reduction through sustainable development. Despite this noble objective however, much of the aid in Indonesia still seems designed principally to further Australian foreign policy objectives, with poverty reduction a secondary consideration.

Since the early 1990s Australia has provided Indonesia with aid worth more than $100 million/year, and this year it will rise sharply to more than $300 million, or 12 per cent of the global aid budget. The big increase is a result of the tsunami of December 2004. Within a few weeks of the crisis in Aceh the government had announced a $1 billion aid package over five years for tsunami relief and reconstruction, in addition to the existing program. A new mechanism, the Australian Indonesian Partnership for Reconstruction and Development, was established to manage the new program. However a close examination of the government’s plans casts doubt on how much aid will actually reach Aceh.

More than six-months after the tsunami, little government money beyond the initial $33 million of emergency funds had begun to flow through to Aceh. In early July over $170 million of the new funding had been allocated, but of this just $50 million will go to Aceh. The balance is to be spent on other projects throughout the archipelago that have no apparent benefit to Aceh or other tsunami affected areas. It seems only about $150 million of the total $1 billion of ‘tsunami’ aid will ever be spent in Aceh. In spite of government media statements which imply the contrary, a detailed examination of the new ‘tsunami’ funding mechanism shows this money is not intended solely for tsunami affected areas but is to be used all over Indonesia. It is potentially of great value to poor Indonesians outside Aceh, but why has the Australian government not explicitly acknowledged that most of it is unrelated to the tsunami emergency?
National Interest or poverty reduction

The priority areas that Australia is funding through the new mechanism are remarkably similar to those outlined by Foreign Minister Downer in May 2004 – seven months before the tsunami struck. It seems clear that this aid package was developed primarily to further the relationship between the Australian and Indonesian governments, and that the needs of the many affected by the tsunami in Aceh are secondary. This is a common problem with the way in which Australia delivers aid. Putting Australian national interest at the forefront of the aid program raises questions about the nominal objective of ‘poverty reduction through sustainable development’.

The priority of Australian national interest in the aid strategy is really not so surprising. Australia’s aid arm, AusAID, is firmly ensconced in the Department of Foreign Affairs and Trade. This contrasts with other countries such as the UK, where aid is a separate institution and operates without the complications such connections imply. The junior status of AusAID within the Foreign Affairs department has often resulted in aid advancing foreign policy interests rather than focusing on sustainable development. Of course no country is likely to implement an aid program that will work counter to its own national interest, but sustainable poverty reduction could be pursued much more effectively in the Indonesia program without harming Australian national interest.
Boomerang aid

The continuing focus on the national interest is clear in the promotion of Australian business within the aid program, which has become widely known as ‘boomerang aid’. This results from a policy which allows aid contracts to go only to Australian contractors in most circumstances. While the policy gives these contractors a substantial advantage in tendering for aid contracts, it results in aid recipients getting a more expensive service – the World Bank estimates it increases aid costs by 20—25 per cent. It also prevents the aid being used to foster the growth of domestic industry in Indonesia, which should be a key element of aid with a poverty reduction objective. The policy has resulted in a small number of Australian companies developing a virtual oligopoly in the implementation of large aid contracts. There is an impermeable barrier to Indonesian companies, or even other Australian businesses, from participating in implementation of the program.

Education, which for many years has been the largest single component of the Indonesia program, provides another example of ‘boomerang aid’. Scholarships for three hundred postgraduate Indonesians students to study in Australian universities account for $35 million of the aid budget every year, and an additional $58 million of ‘tsunami’ money will be used for these scholarships this year. Significantly these scholarships provide substantial funding for Australian universities in a period of shrinking government funding for higher education. But are they the most cost-effective way of raising educational standards in Indonesia, and is the real intent to provide an additional source of income for Australian universities?

This scholarship program has also been criticised because of its lack of impact on producing an educated workforce in Indonesia, and because it is not linked in any way to reforms of the Indonesian public sector. One critic, a former AusAID staff member, says that despite the large sums spent over many years on providing postgraduate education to Indonesia’s civil servants, the effectiveness of the civil service is today at a low point and still declining. The training in Australia had made no difference. AusAID seems remarkably unresponsive on this issue, despite criticism from auditors within Australia.
Aid or counter terrorism?

In the aftermath of the Bali bombing in 2002 the Australian government initiated assistance programs to Islamic schools, designed to improve the quality of teaching, and provide English language training. This initiative followed much strident debate in Australia about Islamist terrorism, and the timing suggested the government’s motives might have included counter terrorism. Islamic schools are a deprived part of the education sector, and deserve much assistance. But if part of the motivation behind this initiative involves Australian security interests, it does not bode well for any worthwhile impact on eduction standards, or much valuable cultural exchange.

Since 2002 an explicit counter terrorism initiative has also been included in the program. It is designed to prevent money laundering, thereby stemming the flow of financing to terrorists, and developing better collaboration between Australian and Indonesian police. Beneficial to Indonesia and worth doing no doubt, but does it contribute to ‘poverty reduction through sustainable development’? Would it not be more transparent to finance this activity from some budget outside the aid program?
Good governance

The aid program has recently embraced ‘good governance’. This concept has arisen from the analysis of many aid donors that economic and social development is hindered by a lack of effective and functional institutions of government and civil society in developing countries. The term is rather vague, and in the Australian aid program activities as diverse as neoliberal economic reforms (pursued with great zeal), laudable human rights activities, unremarkable election funding and counter terrorism training all come under the heading of ‘good governance’. Even proponents of the ‘good governance’ model complain about the lack of experience within AusAID on this form of aid. The large number but narrow focus of activities, the lack of long term commitment, the poor design of programs, the lack of cultural understanding and a lack of adequate funding leading to an ineffective program have all been criticised. Critics say that for the most part Australian aid does not reflect Indonesian needs, but rather the accommodation of aid fads such as ‘good governance’ and the government’s political and other interests within Australia.

With Australian aid so broadly spread and lacking in transparency the prospects for a strong focus on ‘poverty reduction through sustainable development’ do not look good. The contradiction inherent in the antipathy from the Australian public towards the Suharto government over East Timor and other issues, and the desire of the national government not to offend a powerful neighbour, may have declined. But the closer relationship between a new President Yudhoyono and the Howard government is now being cemented by the use of the aid program. In such a vital relationship it would seem aid should focus more on the alleviation of poverty and the promotion of sustainable development. Ultimately promoting human security is likely to further advance our own national interest more than any short term, quick fix approach that is so typical of the aid that Australia delivers today.

Tim O’Connor (aid@aidwatch.org.au) is the director of AID/WATCH, an Australian NGO that critiques Australian overseas aid programs

Inside Indonesia 84: Oct-Dec 2005