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Australia, BRI backlash should be a warning on loans

The rush to loan-financed infrastructure is a geopolitical play, but does not consider the wellbeing of the recipients.

By 2020, $130 million of direct aid programs to PNG and Solomon Islands will be used for a new broadband network (Markus Spiske/ Unsplash)
By 2020, $130 million of direct aid programs to PNG and Solomon Islands will be used for a new broadband network (Markus Spiske/ Unsplash)
Published 12 Feb 2019 

Australia created a $500 million loan scheme for Indonesia to support reconstruction following the 2005 Boxing Day tsunami. Australia lent a hand, forging stronger links in the process. But the loan scheme had its flaws.

As Australian ministers and officials currently tour the Pacific with a flagship policy to rapidly expand the use of Australian loans for development, it would be wise to heed the lessons from the Indonesian scheme and refocus our efforts on long-lasting, poverty-reduction, and sustainable development. 

Australia should not let geopolitical optics blur the focus on the wellbeing of neighbours.

Despite notable successes, a report by the Australian National Audit Office concluded that the 2005 loan scheme for Indonesia presented “substantial administrative challenges”; the identification of risks had “not been timely or sufficient”; and that given the large number of loans, “identifying, designing and implementing suitable projects” was challenging.

The Australian government is now planning to lend over $2-3 billion to multiple recipient nations – starting in July – following the loss of a dedicated government aid department (AusAid) to administer it. Early conclusions from a Department of Foreign Affairs and Trade feasibility assessment revealed that its establishment is not without major hurdles.

For the scheme to work effectively, Australia need to pause. Australia must grant the time to develop the skills, expertise, and frameworks required, and calculate what will work in the long-run to the benefit of our region and Australia. A growing backlash in Asia against China’s infrastructure bonanza, the Belt and Road Initiative (BRI), should act as a warning for Australia. 

News agency Bloomberg reported in late January that BRI projects in India, Indonesia, Malaysia, and Myanmar, were being “suspended, scaled back or terminated…amid concerns over corruption, influence-peddling and rising debt.”  A spokesperson for global risk consultancy, Control Risks Group, told Bloomberg that “BRI 2.0” would “change course” and would be “more sustainable”.

The Australian rush to loans-financed infrastructure represents a counter-play to geopolitical competition in the region. But Australia should not let geopolitical optics blur the focus on the wellbeing of neighbours. 

There are already warning signs that debt burdens could threaten human and social development. According to the risk ratings of the IMF and Asian Development Bank, ten countries in the Pacific are already in high or moderate debt distress. Australia should not add to debt servicing levels with loans which then risk removing resources for Pacific citizens.

The rapid realignment of funds from existing aid programs for infrastructure and loans also has costs for the basics. Between 2018 and 2020, $130 million of direct aid programs to PNG and Solomon Islands will be used to part-fund the new Coral Sea broadband cable, connecting Australia, PNG, and the Solomon Islands. Officials confirmed at parliament in 2018 that payments for health and vaccination programs could be delayed as a result. Given $500 million (realigned from within a $4 billion aid envelope) will be shifted from existing Australian grants to part-fund the new $2-3 billion loan fund, there is a risk that poverty alleviation measures suffer.  

In making this shift to loan-financing and infrastructure, Australia must secure Pacific nations’ interests. Plain speaking freedom fighter and former Timor-Leste President Jose Ramos-Horta recently said Pacific leaders were interested in “the wellbeing of their people”, not “regional power games”. This is where Australia’s “step-up” should focus. 

Creating more resilient societies where people are free from extreme poverty, persecution, violence, hunger, and sickness is good for the Pacific, but good for Australia too. It’s a win-win. By focusing Australia’s development cooperation on poverty, inequality, and human insecurity, it addresses the underlying drivers of regional and state fragility, conflict, and instability. In its simplest term, the security of states relies on the security of the individuals who inhabit them. It helps fulfil development aspirations in the Pacific, but also the Australian government’s primary foreign policy objective: the peaceful evolution of its region.  

Designing infrastructure from the outset which serves poverty alleviation and sustainable development, and wrapping loans-financed infrastructure with aid grants that advances education, health, gender equality, and protection against climate change would be a start in ensuring that Pacific peoples’ wellbeing is embedded in the “step-up”. The Australian aid program’s comparative advantage is that it can deliver social goods, like health and education. Australia should use its advantage and complement the “step-up”.

The Papua New Guinea electrification partnership – instrumented in a collaboration between Australia, Japan, New Zealand, and the United States – includes employment and training for local communities and improved coordination and governance within the energy sector. Australia must apply, extend and maintain this approach. This will create long-lasting human and social development, deepen the impact of infrastructure such as bridges and roads, and avoid the dreaded “roads to nowhere”. 

Read more recommendations for Australia’s development cooperation program via ACFID’s Federal Pre-Budget Submission 2019-20

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