What do Indonesia and Australia expect and get from aid?

Prime Minister Tony Abbott’s call for Indonesia to ‘reciprocate’ revealed the ugly side of Australian aid: politics. AAP/Lukas Coch

Australian Prime Minister Tony Abbott’s linking of aid to Indonesia to his call to spare Bali Nine duo Andrew Chan and Myuran Sukumaran, who are facing imminent execution, reveals an ugly element behind Australian aid: politics.

With his statement, Abbott made it clear that Australian aid to Indonesia is not neutral. This is not surprising. Aid is rarely neutral. Sometimes, providers of aid use it as a hidden weapon to pressure the recipient.

Aid, both as loans and grants, is given because it is seen as ultimately being in the national interests of the donors. The benefits for the recipients most of the time are seen as side impacts. In extreme situations, advocates against aid claim “aid kills” or “aid poisons” the poor in the recipient countries.

Australian aid in the Suharto era

Australian aid to Indonesia has different characteristics from mainstream international aid. Bilateral aid is commonly provided through channels such as to the government of the recipient countries, or through non-profit agencies from the provider countries working in the recipient countries.

During the time of the Suharto regime, loans from Australia mainly financed Australian private sector projects in Indonesia. Australian companies would established joint ventures with their Indonesian counterparts. In a sense, the loans were for Australian business projects in Indonesia.

But the Indonesian people paid for it. A company running a toll road in the northern coast of Central Java is an example of the type of “public debt used by private companies”. While the profit goes to the private company, the public is paying off the debt.

Australia cancelled the loans that were provided during the Suharto era through a debt-swap scheme five years ago. The debts were converted to a malaria and tuberculosis project implemented by the Global Fund, with a 50% discount. Indonesia paid into the Global Fund, instead of paying Australia, and the Global Fund implemented its projects in Indonesia.

From a civil society perspective, this debt swap is not a fair solution. The debts should have been treated as private not public debts.

Some of the projects that Australian loans financed were construction of roads and bridges in East Timor when it was still part of Indonesia. When East Timor became independent, Indonesia continued repaying the debts to Australia until the debt-swap scheme was signed.

Humanitarian aid for Aceh

Australian aid for the rehabilitation and reconstruction of Aceh after the Asian tsunami was a new scheme. The aid was mostly in the form of grants as humanitarian aid. Some were provided as loans.

Australia was among hundreds of sources of humanitarian support to Aceh and Nias island. Agencies that took part in rebuilding Aceh include Samaritan Purse, Oxfam, DANIDA, European Union, USAID and JICA.

In Aceh and Nias, Australian aid was mostly implemented by Australian companies, such as Coffey, AURECON and IDSS, among others. Components of the projects used products from Australia. At one level, the Australian companies, both as implementers and suppliers, in fact benefit directly from the aid. Roughly calculated, around 40% of the aid funding went back to Australia straight away.

If we talk about Australian aid in Indonesia, it is not only the people of Indonesia who benefit. Australians benefit from it too.

Students in Aceh collect coins for Australia in response to Tony Abbott’s statement about Australian aid for Aceh. EPA/Fully Handoko

Behind Australian aid

Australia is one of the big aid providers to Indonesia currently, but is still far below traditional donors such as Japan, the US, the World Bank and the Asian Development Bank.

Australian aid, both as loans and grants, is not independent of its political and economic interests. This can be seen from two aspects.

First, a large part of the aid is related to Australia’s economic interests in Indonesia. Mapping the geographical allocation of Australian aid to Indonesia, the regions receiving Australian aid are those where Australia has significant business interests. Almost all kinds of Australian aid from 2005 until now are allocated to East Java, where Australia has business interests in oil and gas mining in the province.

In the Sidoarjo mud disaster, an Australian mining company had a stake in the project but this was not made widely known to the Australian public.

Australian aid is allocated for West and East Nusa Tenggara, as well as Southeast Sulawesi. In West Nusa Tenggara, Australia has gold-mining interests. In East Nusa Tenggara, Australian companies are exploiting the Timor Gap oil reserves as well as other oil and mineral extraction. In Sulawesi, Australian companies have extensive mining operations.

When many actors were negotiating an end to the conflict in Halmahera, North Maluku, an Australian gold-mining company was preventing the mining area from being reoccupied by the original Indigenous owners of the land. At the same time Australia was supporting a conservation project in Akatejawe-Lolobata, Halmahera, near the mining area. Here, aid served as a vehicle to help secure the business interests of the donor.

Second, Australian aid to Indonesia has introduced a new format to international aid mechanisms. Australia has, from the start, used Australian companies to implement aid projects. The aid is designed to benefit Australian companies. The impacts for Indonesian people are a second or third-order priority.

If ordinary Indonesians were asked whether they know about Australian aid, the answer would probably be negative. This means that the impacts of Australian aid in Indonesia are debatable. But it means a lot to the Australian government and Australian companies.