Investing in the Future: Making a Historical Case for why Australia should not Reduce its Foreign Aid during Financial Downturns


by Catherine Bone

Executive summary

  • Should we give aid to other nations when facing harsh economic downturns? Using Papua New Guinea and Bangladesh as case studies, this article argues that it is in our best interests to do so, to establish relationships with our neighbours, foster regional security and to actively encourage good governance.
  • Global downturns have a greater effect on those already in vulnerable positions than otherwise stable and wealthy nations.
  • Supporting Papua New Guinea in 1983 cost us less in 2008 due to a stronger and more stable economy based on reliable exports.
  • It is often more beneficial to address problems prior to their occurrence, or at least as they emerge.
  • History tells us that it is in our own best interests, both long and short term, to provide aid to those who need it.

Many Australians believe that our government should reduce financial input into international aid programs in favour of strengthening our own economy and improving our own infrastructure. In times of global financial uncertainty, such calls grow louder and gain more traction. As the global financial community waits to see the effects of the current financial slump, governments across the world are carefully watching budgets in order to prevent another financial crisis. In this atmosphere of economic uncertainty, here in Australia there are mounting questions about the amount of aid we contribute to other nations, particularly as some major recipients are showing negligible signs of progress. There is a ‘charity begins at home’ undercurrent that ebbs and flows with relevant current affairs, arguing that we should ensure all is well on our own soil before trying to reduce poverty elsewhere in the world. Understandably, those who subscribe to that view have a primary concern for the infrastructure that they themselves use frequently during the course of their lives. In 2010, however, a mere 0.34 percent of Australia’s annual Gross Domestic Product (GDP) was given to help those in far less fortunate circumstances overseas. In times of concern, or even crisis, are we justified in paring back an already comparatively small sum for our own benefit? Would we do better to keep our tax-payer dollars in Australia, or is international developmental aid worth the cost?

Why should we give aid?
Widespread support for the giving of foreign aid due to any perceived moral obligation to help those less fortunate is largely irrelevant to this article, as is discussion about emergency aid. Rather, this article concentrates on government-funded developmental aid. Foreign aid is not merely the government’s way of salving a collective national conscience, it is in Australia’s own national interest. Australia can expect short- and long-term benefits as a result of our support of foreign governments and projects. Australia strategically focuses its foreign aid primarily in the Asia-Pacific region—our own backyard—where approximately 800 million people live in disadvantaged circumstances. At an expense of less than 0.4 percent of our national GDP, Australia is recognised as a leader in the region. Implicitly, as leaders of the region, the question must then be asked: if we were not to provide such support in our own backyard, who would? We, as a developed nation and self-described ‘lucky country’, have a clear stake in the welfare of the Asia-Pacific. To this end, in the 2011-2012 financial year it is expected that $4.5billion dollars will be provided as part of Australia’s official development assistance (ODA), which is focused on improving law and order, conflict prevention and resolution, reducing international crimes (including drug- and people-smuggling) and increasing health and educational outcomes.

While the benefits of foreign aid throughout the Asia-Pacific region are clearly evident, the issue of protecting our own nation before we assist others remains relevant. Since Australia began giving aid, we have been through a variety of economic climates, including times of recession. To determine the value of continuing aid in the current uneasy economic climate, then, it is insightful to examine both how we have reacted in the past as well as the subsequent effects on our own economy and on the economies of recipient countries.

The effects of recession
It has been found that, depending on the impact felt by a donor country, a recession can substantially reduce aid for up to fifteen years. In the past, recessions typically have been somewhat contained to one region, but with increased global economic interdependence the stress of financial slumps now are felt across the globe. It is poor or developing countries, however, who are the least equipped to deal with spiked financial hardship. Previously, parties from outside the region in question were best equipped to support those in need of help. For example, during the East Asian crisis in 1997-1998, donors contributed loans or grants to the value of almost $100 billion to countries affected by the crisis in an attempt to lessen the effects. At the time of the East Asian crisis, donors were experiencing sustained financial growth. When donor countries themselves are in financial woes, however, aid budgets often are reduced in order to attend to domestic issues and it is precisely for this reason that the Global Financial Crisis (GFC) imposed new and increased stresses on the developing world. As a result of the GFC, the World Bank estimated that an additional 64 million people would be living in extreme poverty by 2010.

Case study I: Papua New Guinea
Australia began giving aid in the form of small monetary grants to Papua New Guinea (PNG) prior to the Second World War, although it was not until 1950 that we began having a broader international involvement with the creation of the Colombo Plan, which focused on bilateral aid in South and South East Asia. Since that time, our focus largely has remained in this region, although not to the exclusion of other developing nations around the world. In 1982, as Australia was sliding into recession, PNG, also under financial pressure, largely was relying on Canberra’s continued aid and deferred funding cuts to keep the economy afloat. Bob Hawke agreed in 1983 to defer most of the cuts for a 5 year period, subject to the price of copper, from which PNG reaped almost a third of its income, in order to ease the nation through the worst of the downturn. Despite these actions being at no small cost to the Australian treasury, in 1984 aid to PNG was increased by 3 percent and consumed almost a third of the government’s foreign aid program. Between 1983 and the GFC of 2008, PNG’s economic stability increased dramatically, and, as a result, the nation’s economy was strong enough to withstand the recession with very little damage, largely due to a continuing strong export trade. It is evident that assisting countries in need before their economic situation worsens benefits both the people of the country (by maintaining growth, job stimulation and the rise or stability of other aid outcomes such as positive health or law outcomes) as well as ourselves. In this case, previous assistance given by Australia helped to sustain PNG, which in turn resulted in a reduced amount of aid required in the longer term.

Today, of course, PNG still faces developmental problems, having some of the lowest standards of both education and health infrastructure in the Asia-Pacific and high levels of poverty. Australian aid is focused on addressing the largest four problems plaguing PNG, with attention being directed at infrastructure for health, transport, education and an emphasis of establishing an efficient legal and justice system. In 2010-2012, we can expect, as a nation, to donate a sum of up to $ 482.3 million through both AusAID and other governmental agencies. While it is undeniable that PNG faces broad governmental and social issues today, we nonetheless are able to see evidence of the positive impact from our past ODA. The amount of people who have been tested for HIV/AIDS has increased three-fold from 2006-2010, and the number of children immunised from Diphtheria, Whooping cough, Tetanus, Hepatitis B and Haemophilias’ Influenza (type B) rose 4 percent (from 66 percent in 2009 to 70 percent in 2010). Women are empowered through increased representation through the justice system and by access to antenatal and postnatal support, which is estimated to have almost halved the prevalence of maternal deaths from 2005-2009. Questions about whether Australian ODA spent in PNG is worthy of our continued contribution, then, seem to be answered. Health outcomes in particular have seen a steady increase since 1990, despite the financial slump of the early 1990s, showing that, whereas problems remain and will not be easily or quickly fixed, progress is being made. While we can see that, in the past, we have had to give in order to foster growth or even survival, over time countries can slowly stand on their own two feet and begin to positively influence their own futures without such heavy reliance on foreign aid, even during financial downturns.

Case study II: Bangladesh
Bangladesh today is one of the most densely populated and poorest countries in the world. Australia currently is contributing approximately $92 million in ODA to assist the poor to access basic facilities such as safe water and sanitation, maternal and child health and education in an effort to alleviate the extreme poverty faced by entire communities. Since its hard-fought independence from Pakistan in 1971, Bangladesh has faced serious developmental issues. These were compounded in 1982, when economic growth almost ceased, expanding the GDP only 0.9 percent in comparison with 7 percent the year before. The nation’s imports, exports and agricultural sector all fell, with only pockets of minimal growth experienced elsewhere. Perhaps most damaging, though, was the lack of foreign investment due to recession. It dropped $244 million dollars in the space of 12 months. An unstable government, weak economy and increasing social inequalities were promising to cause many problems for the fledgling nation established just over a decade earlier. Due to the conditions that worsened as the effects of economic stagnation were felt throughout the country, foreign aid Australia was required to give was greater over time than it may have been had Australia pledged more at the onset of Bangladesh’s economic difficulties. Despite this, our aid contributions have helped see that, since 1990, Bangladesh, despite all its social and governmental drawbacks, has enjoyed steady economic growth of between 5-6 percent of GDP throughout both the recession of the early 1990s and during the GFC. Bangladesh remains one of the world’s poorest nations, but without previous Australian aid it would be in a far worse position. Furthermore, with time, and support provided by a host of nations including Australia, Bangladesh will continue to grow stronger.

Australian contributions to international aid and the results they produce, are fraught with both strengths and weaknesses. While many nations we assist continue to struggle, or are not progressing as well as we (and they!) would perhaps like, we cannot deny that it nevertheless holds both short- and long-term benefits for our own nation. We are strengthening our regional security, fostering positive relationships with our neighbours, strengthening present or future trading partners and improving quality of life for millions unfortunate enough to be born without the means to meet basic needs such as safe water and education. With this in mind, it seems illogical to reduce our contribution, which not only affects the future but may unravel what development we have successfully nurtured already. Australia has the capacity to influence its own part of the world for the better and, while our own needs must be met, in times of crisis, as in times of calm, there are others in much more vulnerable positions, for whom ODA truly can determine a life or death situation for millions. For a relatively small cost, we, as Australians, have the power to save millions. International developmental aid, then, is not only worthy of our contribution, deserving of the paltry budget allocation it is given, but is necessary for the benefit of the Asia-Pacific region in particular and the (developing) world more generally.

Selected further reading:

A Rahman, ‘Bangladesh in 1982: Beginnings of the Second Decade,’ Asian Survey, Vol. 23, No. 2, Feb., 1983, pp. 149-157

AusAID Country Profile, Bangladesh

AusAID Country Profile, Papua New Guinea

AusAID, Response to the Global Recession

DAC1 Official and Private Flows, Stats Extracts, Organisation for Economic Co-Operation and Development, accessed 18/9/2010.

P King, ‘Papua New Guinea in 1983: Pangu Consolidates’, Asian Survey, Vol. 24, No. 2, Feb., 1984, pp. 159-165.

R R. Premdas, ‘Papua New Guinea in 1985: The Tenth Anniversary of Independence,’ Asian Survey, Vol. 26, No. 2, Feb., 1986, pp.196-206

Saldanha, C & Grossman, J, ‘‘Effeciveness Not Size Matters in Aid Debate’ The Age, 5 April 2010, Opinion. http://www.theage.com.au/opinion/politics/effectiveness–not-size-matters-in-aid-debate-20100401-rh7y.html#ixzz1a2Ck81yk

© APH Network and contributors 2011. All rights reserved.

Citation: Catherine Bone, Investing in the Future: Making a Historical Case for why Australia should not Reduce its Foreign Aid during Financial Downturns.
Australian Policy and History. October 2011.

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