The Intel

As Treasury and Finance grapple with cost of living pressures, rising debt and growing domestic expenditures, it is understandable that every line of expenditure is heavily scrutinised for potential savings. Unfortunately, the $4.5 billion development budget typically sits high on the list of options for spending cuts. What Treasury and Finance need to know is that failing to adequately invest and prioritise regional development will only add to the fiscal pressures they have to manage in the years ahead.

As the global economic outlook deteriorates and geopolitical challenges continue to rise, Treasury and Finance should be mindful of the risk instability and inequality in our region presents to Australia’s economic outlook. Instead of looking at the aid budget as a ‘nice to do’ in fair economic weather, it should be seen as an essential spend in turbulent times. Australia’s development efforts are a long-term investment in building the capacity of nations to manage these challenges, support their citizens, and ultimately be self-sustaining. This isn’t just a matter of morality but of good economics. After all, more than half of Australia’s top 15 export markets are countries we previously provided aid to.

COVID-19 was a demonstration of how expensive it is to reduce development investments.  After years of cuts to the aid program, Australian development capability was diminished. In the midst of crisis, Australia had to scramble to rebuild presence abroad to help prevent health system collapse, and at the same time, reduce risks of pandemic scarring on regional economies.  

While the development program and policy may sit within DFAT’s realm, managing the cost of economic, environmental and humanitarian crisis ultimately falls to Treasury and Finance. They have significant skin in the game, which is only likely to increase in the years ahead.

U.S. Secretary of Defence Jim Mattis once declared that if State Department funding got cut then he ‘will need to buy more ammunition’. He saw development assistance as a force multiplier when it comes to enhancing stability and security - two key ingredients for long term and sustainable prosperity.

Similarly, Australia’s General Angus Campbell declared that ‘whether it's military operations that we undertake, or it's defence, cooperation, and engagement in our near region. We do this with DFAT, not instead of DFAT, with DFAT, and that's the way it must be’.  

That applies particularly when it comes to development assistance. Our humanitarian relief operations deploy elements of the Australian Defence Force (ADF) alongside DFAT, NGOs and civil society organisations. They have contributed significantly to the burnishing of Australia’s credentials, of its credibility in Southeast Asia, in the Pacific and beyond.  

But if we focus solely on emergency responses, we miss the opportunity to bolster resilience amongst our neighbours, such that the emergency response becomes less critical in future. This longer-term vision for development assistance is more important as we face a surge in environmental challenges, coupled with a spectrum of governance challenges that threaten liberal democratic institutions (corruption, people and drug smuggling, breakdowns in law and order and terrorism). A focus on additional development assistance with these concerns in mind makes eminent sense.  

Finally, while the ADF has an enviable reputation as a force for good, it has been stretched by the surge in operational tempo related to floods, fires, covid, tsunamis, cyclones and other crises. It is only a boutique force which must focus on its core business. For the ADF to focus on its core business, it must see supporting the resourcing of development assistance as a complementary investment in the security and stability of the region.

In the Australian intelligence community, all eyes are on China as a key donor of aid and development finance in Southeast Asia. For Australia, the one thing that must be understood by the intelligence community is the development model China offers the region, including how China’s infrastructure finance is fulfilling the developmental needs. China’s focus is on two areas of infrastructure in particular - connectivity and energy. 

On connectivity infrastructure, this includes high-speed rail networks, roads and highways. China’s support in particular to the CLMV (Cambodia-Laos-Myanmar-Vietnam) region will produce both an intra-regionally as well inter-regionally connection to China. This has significant implications for ASEAN connectivity – a vital developmental need for the region as Chinese funding narrows the developmental gaps for an erstwhile infrastructure deficient region. The value of this is exponential and cannot be cast aside by allied foreign policymakers as merely a matter of geopolitics of influence. 

The second kind of infrastructure China is investing in energy, primarily in energy distribution and generation. This involves constructing power plants of non-renewable sources like coal in energy-deficient countries like Indonesia and Vietnam and renewable energy sources like hydropower projects in Laos. For Indonesia, a country with chronic shortage of fossil fuel for power generation, China’s investments in coal fired power plants fulfils not just development needs but also political goals of current leaders who have promised a more energy-resilient Indonesia. 

Whilst it may be tempting for the intelligence community to assume that Australia’s development program can be easily used to compete for influence with China, they should be weary of using the aid dollar in a losing infrastructure race. A better approach may be to broaden the suite of financial tools at Australia’s disposal for infrastructure investment – which could start with creating a dedicated development finance institution to match the scale of China’s lending in the region.