The Intel

Australia does have the stamina, skills and leadership it needs, but in order for Australia's aid to truly have strategic value both for the partner country and for Australia, care should be taken about how Australia positions itself in the development landscape.

In Southeast Asia, Australia's development cooperation investments are in middle-income countries, where – with a few exceptions – overseas development assistance represents less than 1% of the country's gross national income. As their economies grow, the development challenges faced by Australia's partner countries will become more complex, more layered, and more subtle. The well-being and prosperity of countries and social systems depend on their ability to effectively design policies and solve problems in a way that helps them learn, adapt and change with their context. Given this, Australia would do well to position itself as a strategic learning partner for growing economies in Southeast Asia by ensuring that its aid portfolio in these countries generates experience-based learning that can be applied to create positive systemic effects for complex development challenges.

To do so, the Australian aid program needs to have a few core capabilities at country level:

1. The capability to articulate a clear unifying intent for its aid portfolio, especially with regards to its role in that development space and the transformational effects it would like to induce;

2. The capability to design and manage not just individual aid programs, but a cohesive and deliberately interconnected portfolio of development initiatives that provide strategic learning value for partner countries;

3. The capability to continuously make sense of the learnings generated across its entire portfolio of initiatives, extract system-level insights, and provide these as salient recommendations that inform key transformative policies for partner countries.

Individually, these capabilities already exist within various elements of Australia's aid program in Southeast Asia, and its decades-long track record of development cooperation initiatives in the region means that Australia has both the stamina and the trust-based relationships needed to apply these capabilities effectively. The kind of leadership that is needed in this context, therefore, is one that can resource, activate, synergise and direct these capabilities to thoughtfully engage with the multifaceted development challenges presented by the region.

Good development is about relationships – those built on trust, often over decades.  It is these relationships – even more than particular skills, stamina or leadership that should be the key priority for Australian engagement in Southeast Asia.

In 2015, on the heels of year-on-year reductions that began two years earlier, the Australian government cut its aid program in dramatic fashion – by a billion dollars in one year. Southeast Asia took a big hit. In Indonesia, the Philippines, Laos, Myanmar, and Vietnam, existing programs were cut mid-stream and annual budgets reduced by up to 40%. For Australia’s local civil society partners, the cuts exacerbated an already challenging operating environment in which staying afloat meant lurching from one short-term project to the next. 

These sweeping actions, coinciding with a reframing of development goals away from social development, have reduced critical Southeast Asian civil society partners to sub-contractors in a sea of often disconnected donor projects. Rather than consulted as respected experts in their various fields, civil society organisations in many parts of Southeast Asia have been instrumentalised in the service of goals devised in donor capitals. In Indonesia, the Philippines, and other countries, this has had knock-on effects. Intense competition between organisations reduces the incentives for collaboration, and increasing prescriptiveness from donors pushes organizations to prioritize donor demands over their social impact missions, their constituencies, and their core work.

These impacts on local partners are still keenly felt and Australia should bear this in mind as it ramps up engagement, lest it come across as tone deaf. ‘Listening to the region’ should include actively listening and responding to Australia’s many long-term non-government partners and, in turn, being honest about the recent past. Civil society – including CSOs, NGOs, think tanks and associations of all kinds – has a crucial role to play in the region’s development. Australia has been a good ally in the past. By picking up those threads again, and prioritising locally led development, Australia can make more of a contribution that matters.

Yes, no and maybe. Let’s start with the issue of scale and type of development actor Australia is in Southeast Asia. Australia is a mid-sized development partner to the region. When compared to our peers and competitors, Australia's development program in the region is relatively small in scale and is modest in ambition. In fact, our aid has been steadily declining and today, we rank sixth in terms of contribution, trailing behind China, Japan, Korea, the United States, and Germany.

Nevertheless, Australia's provision of financial support in Southeast Asia has merits. It predominantly relies on grant financing rather than loans, which proves to be a more beneficial approach for the poorest countries with limited ability to repay debt. We are the third largest grant provider to Southeast Asia, behind the United States and Japan.

However, Australia’s funding has not been steady and the heavy reliance on grants imposes limitations on the extent and breadth of our development program. Our downward funding trajectory was interrupted in 2020, when our program tripled in volume, principally as a response to COVID-19. A $1.5 billion AUD loan to Indonesia set the standard for responsiveness to the region’s needs and appropriate use of non-grant financing to achieve greater scale. In fact, we were one of the development partners that reacted the most forcefully to the pandemic.

Looking ahead, one of the most critical capabilities Australia needs to stay relevant in Southeast Asia, is the deployment of more innovative financing mechanisms. As our aid budget is expected to remain at its current size, it should be maximised through the provision of loans, guarantees, and equity investments.