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Business Insight: AusAID

For Australian aid program, a renewed emphasis on East Asia

By Lorenzo Piccio03 December 2012

Girls at a Philippine school waving Australian flags. Photo by: Rey Mondez / AusAID / CC BY-NC-SA

Amid rapid economic growth and hopes of greater self-sufficiency in East Asia, several major aid donors are turning their attention away from the region. Last year, the United Kingdom announced plans to wind down its bilateral aid programs in Indonesia, Vietnam and Cambodia.  And under its proposed aid differentiation policy, Brussels is expected to effectively discontinue assistance to middle-income countries including Thailand and Indonesia.

Australia, an OECD-DAC country located closer to the region than other major donors, is taking a far different approach. As part of a broader initiative to enhance its ties with East Asia, Australian Prime Minister Julia Gillard and her government have pledged to bolster already deep aid engagement in the region.

Canberra’s much awaited Australia in the Asian Century white paper, which was unveiled by Gillard in October, underscores the strategic imperatives for Australia’s development cooperation with its Asian neighbors.

“Australia’s future is irrevocably tied to the stability and sustainable security of our diverse region. Australia has much to offer through cooperation with other nations to support sustainable security in the region,” reads the white paper.

Australian aid officials also emphasize that while most of East Asia has achieved remarkable economic progress in recent decades, poverty reduction across the region has been uneven. According to the World Bank, in East Asia, 500 million people live on less than $2 a day.

In its budget strategy from earlier this year, the Gillard government committed to ramping up aid spending in East Asia by 48 percent from 1.32 billion Australian dollars ($1.37 billion) in 2012-13 to 1.95 billion Australian dollars in 2015-16. Over the next four years, Canberra – which considers education programming the flagship of its aid program – forecasts that Australia will become the largest bilateral grant donor to East Asia.

Through 2015-16, the Gillard government has also proposed smaller aid increases of 38 percent for South and West Asia, 37 percent for the Pacific, and 34 percent for Africa and the Middle East. Despite deferring its commitment to hike aid spending to 0.5 percent of gross national income, Australia remains one of a handful of aid donors that are substantially increasing their foreign assistance budgets.

Historically, Australia’s neighbors in both East Asia and the Pacific have garnered the bulk of Australia’s aid spending.  For 2012-13, the East Asia region will garner the largest share of the Australian aid budget for regional and bilateral programs at 37 percent, while the Pacific follows with 33 percent.

Annmaree O’Keeffe, a former Deputy Director General at the Australian Agency for International Development and research fellow at the Lowy Institute for International Policy, says that aid absorption constraints in the Pacific may be spurring Canberra to shift more Australian foreign aid to Asia. The top 10 countries with the highest official development assistance to GNI ratio include three Pacific nations where Australia is a major donor.

“The Pacific already receives an extraordinarily high amount of assistance, and mostly from Australia, which then caps the amount of aid you can effectively provide to those countries. This leaves Asia in a situation where there is still a significant, significant issue of poverty,” O’Keeffe told Devex.

As its strategic partnership with Jakarta continues to evolve and expand, the Gillard government anticipates that Indonesia will maintain its standing as Australia’s largest aid recipient. Canberra has pledged to increase its aid spending in Indonesia by 64 percent to 950 million Australian dollars in 2015-16, or nearly half of Australia’s proposed aid budget for East Asia that year. Vietnam, the Philippines, East Timor, Cambodia and Myanmar are also slated to count among the leading East Asian recipients of Australian aid in 2015-16. (See our recent analysis of the AusAid-Indonesia partnership here.)

A 2011 study of AusAid Indonesia, commissioned by the independent panel which reviewed Australia’s aid effectiveness, revealed that the program not only offered good value for money, but was also well-received by senior government officials in Jakarta.  In April, Indonesian Foreign Minister Marty Natalegawa joined former Australian Foreign Minister Stephen Smith to open the 2,000th school built under the A$355 million Australia-Indonesia Basic Education Program.

Early last year, Opposition Leader Tony Abbott had urged the Gillard government to shelve the A$448 million Australia-Indonesia Education Partnership, the successor to the Australia-Indonesia Basic Education Program, in favor of funding the rehabilitation of schools damaged by massive flooding in Queensland. Abbott has since quieted his criticism of the Australian aid program in Indonesia and recently reiterated his pledge to further deepen engagement with Asia in a Coalition government.

In the run-up to elections due next year, both Gillard’s Labor Party and the Coalition have reaffirmed their commitments to increase aid spending to 0.5 percent of GNI. However, as pressure mounts to deliver a budget surplus in Canberra, some analysts caution that either party may yet turn their back on this pledge – a development which could call into question Australia’s renewed emphasis on aid engagement with East Asia.

“So far, there’s bipartisan support for the increase in the aid budget. Whether this continues is yet to be seen in terms of Australia’s overall budgetary circumstances as we move into elections,” says O’Keeffe.

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About the author

Piccio
Lorenzo Piccio

Lorenzo is a Devex senior analyst based in Manila. Our resident budget cruncher, Lorenzo spearheads Devex's in-depth reporting and analysis on global development finance and policy. He attended Wesleyan University in Connecticut on the Freeman Asian Scholarship, earning degrees in Government and Social Studies.


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