Australia's aid plan may backfire

By Dewi Anggraeni

MELBOURNE (JP): Australia's 1997/1998 aid budget announced last month brought few surprises.

Total aid flow to PNG and the south pacific are expected to be maintained at last year's level, country program assistance to most East Asia recipients, including Indonesia, will be maintained at 1996/1997 levels, Australia's treaty obligations in PNG, and obligations to the multilateral development banks will be met.

The budget, however, extends a higher profile to non- government organizations as assistance provided through the AusAID Non Government Cooperation Program (ANCP) will be increased by A$3 million (US$2.1), or 17 percent in real terms.

What may surprise some observers is the report submitted to Foreign Minister Alexander Downer by the Committee to Review Australia's Overseas Aid, led by Paul Simon.

In his interview with The Jakarta Post, Downer said the government would give its response to the report toward the end of the year.

The Simon's report, in its recommendations for Australian aid in the future, places greater emphasis on pure aid than its predecessor, the Jackson Review of 1984.

It argues that tying aid to goods and services supplied exclusively by the donor country's companies increases the cost of the assistance and can encourage donor-driven supply.

It suggests that Australia should untie its aid and encourage other donors to do the same, advocating greater involvement of non-government organizations in administering the projects and the funds.

The report also praises the abolition of a mixed credit scheme known as Development Import Finance Facility (DIFF) program as a positive step away from supply-driven aid. DIFF had been developed to assist Australian industry, and is therefore seen by the report authors as having no place in an aid program focused on maximizing development outcomes.

This argument is in line with that articulated by Community Aid Abroad in its latest Aid Review, that aid should be based on the notion that security, stability, and prosperity can only be brought about in the context of justice and an equitable access to resources.

This is no doubt true and ideal as an objective. However in practice, it is debatable that untying aid at the time when many of Australia's small to medium businesses most need assistance to keep afloat, is altogether wise. These businesses and their employees will feel betrayed by the government when they are left behind by the those who are strong enough to ride the globalization trend.

The emphasis of Australian aid on sustainable development and poverty reduction is indeed consistent with the Coalition government's philosophy regarding free trade and free market competition.

Reducing poverty will raise the purchasing capacity of the communities of the recipient countries, thus creating a bigger and better market. And businesses should be, and remain, competitive to survive in the marketplace thus created.

The problem is, businesses that can be instantly competitive are strong and established ones, while those still struggling for sufficient capital and having barely any contacts in the targeted countries will find it difficult even to enter in the first place, let alone compete.

For them mixed credit schemes such as the now defunct DIFF may be crucial in establishing these businesses in their take off mode.

Globalization of Australia's economy has driven companies to shift some manufacturing plants offshore, in search of lower production costs and to expand their export market. Recent examples include BTR, Dunlop and Glo-weave.

Increasingly, to survive, exports will become a necessity rather than an option for Australia's goods and services, as companies will have to raise quality and lift production.

Australia's market is simply not big enough to absorb these products. The obvious market for Australia's goods and services is within the region, especially in the Asian countries.

Unfortunately Australia is not the only player in this market. Europe and the United States are competing for the same marketplace. Nowadays, most of the countries in the region are also exporters.

Being a relatively new player, Australia's enterprises aspiring to export their goods and services in Asia need assistance. Before the abolition of the DIFF program, these enterprises were able to benefit from DIFF as their foothold in Asia's markets.

This arrangement may not be acceptable to adherents of the concept that aid should be pure and devoid of self-interest. However pragmatically speaking, while aid to developing countries helps boost or maintain the economies of the donor countries, it is more likely to last. Business will keep growing and the governments of the donor countries can justify to their constituents the money they spend.

While aid still provides business opportunities for Australia's small and medium enterprises, it will last, because without self-interest, good-heartedness alone will soon meet its expiry date. Mixed credit schemes created by tied aid may cost more than untied aid, but if managed carefully and responsibly by a reliable agency like AusAID, the extra costs may provide just the right balance to keep it last.

The writer is a free-lance journalist based in Melbourne.

Window: The emphasis of Australian aid on sustainable development and poverty reduction is indeed consistent with the Coalition government's philosophy regarding free trade and free market competition.