AUSTRALIAN - INDONESIAN AID CASE STUDY

Introduction
A major example of the way Australian regional aid programs and other aid links
operate is shown in Australia's government and non-government involvement with its
largest neighbour, Indonesia. Australia's aim is to reduce poverty and achieve
sustainable development is seen as serving Australia's national interest. The
following case study discusses this example and the role taken in bilateral projects
managed by the Australian Agency for International Development (AusAID) and by
non-government organisations (NGOs) such as Australian Red Cross and World
Vision. A look at AusAID's channelling of funds from the United Nations (UN),
International Financial Institutions (IFIs) and International Non-Government
Organisations (INGOs), and Civil Society Organisations (CSOs) and other
community groups will provide examples of approaches to regional aid delivery.
Reasons for Australian-Indonesian Aid
Australia and Indonesia have been development partners for many years and
today's total estimated level of government and non-government assistance to
Indonesia has increased to $270.3 million. Earlier aid efforts, such as the AustraliaIndonesia Development Cooperation Program (AIDCP), began in the 1950s and
continue to assist Indonesia with recovery from the financial crisis of the late 1990s
and with security issues. A strengthening world economy has helped lift economic
growth in Indonesia, however more than half of its 220 million people live on less
than US$2 per day. Investment in human capital and infrastructure remains
inadequate. Further, conflict still occurs in the fringes of the country, particularly with
the newly independent East Timor and in the northern province of Aceh. Other
problems include an unemployment rate of 9.3 percent as well as lack of access to
health and education services and recent malnutrition outbreaks. Bearing these facts
in mind, aid organisations such as AusAID have identified the key to assisting
Indonesia to reduce its poverty is this: improvement of its production and investment
climate. The impact of natural disasters such as 2004's tsunami strike at northwestern Sumatra are also addressed by bilateral agreements like the AustraliaIndonesia Partnership for Reconstruction and Development (AIPRD) (2005), and by
government plans to assist its economic management, democratic transition and
enhanced public welfare. Such efforts reflect an enlightened self-interest whereby
improved Indonesian living standards and stability promises the expansion of trade
and investment opportunities between the two countries.
Australia-Indonesia Partnership for Reconstruction and Development
Australia's total aid to Indonesia over the next five years will reach roughly $2 billion
in the form of the AIPRD and of the Commonwealth Government's initial tsunami
relief. The AIPRD aims to support Indonesia's reconstruction and development
efforts in afflicted areas and through cooperative efforts with the Indonesian
government at economic and social reform, as well as promoting security and
stability. It consists of a joint forum for foreign and economic ministers from the two
countries, with eligibility for AIPRD activities given only to Australian, Indonesian and
New Zealand firms. AIPRD funds of $175 million have been allocated to such

projects as the Aceh Rehabilitation Programme for health, education and

government services in Aceh. They have also been allocated to assist economic,
financial and public sector management through a government partnerships fund,
and to emergency preparedness for disasters. Scholarships enabling Indonesian
postgraduate students to study in Australia are included in the fund.
Proposed aid outcomes
Some argue that investment in human capital and infrastructure from domestic,
foreign, government and private sources may be insufficient to support higher rates
of growth in Indonesia. Assistance is aimed not just at economic growth, however.
Government aid recognises there is no real solution to poverty without an
understanding and promotion of human rights, with aid given to democratic reform
and to the accessibility and quality of basic social services. In 2004-2005, Australia
assisted Indonesia's debt management agency, state-owned bank monitoring units
and taxpayers office, as well as the Supreme Court, Human Rights Commission and
Anti-Corruption Commission.

Introduction
This chapter discusses the cultural and economic advantages and disadvantages for
Australia that result from its Indonesian aid links. The discussed economic and
cultural benefits include the long-term development of Indonesia and its region and
the improvement of employment and investment opportunities for Australian
businesses and of training opportunities. The discussed economic and cultural
disadvantages come from the inequitable distribution of aid, rights abuses, and
government corruption that results from the over reliance on aid income and the,
arguably, unrealistic nature of aid policies.
Cultural and economic advantages
Long-term development
The importance of long-term development aid is summed up in the often quoted
phrase, 'a fish for a day but a fishing rod for life'. Assisting the poor living in
Indonesia to encourage private investment and trade opportunities, and to create
stable social institutions as an avenue to sustainability and to assist education is,
arguably, to benefit both Indonesia and Australia in the long-term.
Employment and training opportunities
Approximately 45% of all Australian aid was used to buy Australian goods and
services in recent years. A significant amount of this came from aid to Indonesia, with
significant economic flow on effects for businesses and for increased levels of
employment in Australia. Thousands of full and part-time jobs have been created in
government and non-government aid agencies as well as in private consultancy
firms. Voluntary aid has been said to benefit young people seeking work experience
and retirees and unemployed people seeking worthwhile work. The theory is that
voluntary work gives them valuable knowledge and work skills and improves cultural
links between the two countries.
Enlightened self-interest
Assisting in the improvement of living standards has, arguably, increased the
consumer income and consumption demands of Indonesians for Australian exports
and increased the number of jobs in Australian export industries. An ongoing
demand for Australian goods and services in Indonesia is tied up in its prospects for
long-term development and is therefore seen to promise strong economic
advantages.

Regional security
Australia's security concerns are partly linked to social and economic inequalities
which are among the major causes of armed and civil conflict in the region. Other
issues linked to increased cross-border movements of people and environmental
impacts highlight the importance of aid that targets poverty reduction to improve
security. Aid given to conflict resolution and poverty reduction is thought to result in
fewer refugees fleeing Indonesia and greater regional security.
Culture and values
Australians are popularly understood to be 'champions of the underdog' believing in
the 'fair go' principle. To not have an overseas aid program is thought to be
inhumane and even unpatriotic. The Australian Overseas Aid Program (ACFOA)
argues that most Australians support Indonesian aid simply because they sincerely
care about those who are less well off. Aid to Indonesia may, then, encourage
friendly relations between it and Australia and the future positive exchanges of
cultural values.
Cultural and economic disadvantages
Political problems and inequity
It has been argued that aid agencies present their goals in unrealistic ways that
undermine their implementation and increase the vulnerability of the poor they seek
to help. The view that social consequences are less worthy of concern than
aggregate economic growth is further thought to result in equity problems. The
assumption is that increases in GDP will increase social benefits, whereas reality
shows this to be debatable with economic growth in Indonesia, despite the remaining
highly unequal income distribution. An unrealistic view of aid targets may also result
in propping up institutions that are able to be manipulated by unscrupulous local
political figures.
Rights abuses
A report by ActionAid International states that hundreds of thousands of survivors of
the 2004 Indian Ocean tsunami are still living in substandard shelters and are
deprived of adequate health care and other basic services. The report has linked this
to discrimination in the distribution of aid sent to tsunami victims and the possible
result of regional economic and security weaknesses. Weaknesses come from aidincome assisted government corruption and its forced relocations of Indonesians,
land grabs as well as arbitrary arrests and sexual and gender-based violence. This
has highlighted the need for not just financial aid but recognition of human rights
standards. Perhaps the answer to this is 'tied' aid. Tied aid is financial assistance
given on condition that it is used for a specific purpose. This purpose is usually

mandated by the giver of aid, with the aim of preventing waste of aid on projects that
are considered unsuitable by the donor country.