Australia's aid plan may backfire

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.