Summary

Seventh Annual Report to Parliament on Australia's Development Cooperation Program and The Government's Response to the Committee of Review of Australia's Overseas Aid Program The Hon Alexander Downer MP Minister for Foreign Affairs

Description

Seventh Annual Report to Parliament on Australia's Development Cooperation
Program and The Government's Response to the Committee of Review of Australia's
Overseas Aid Program

The Hon Alexander Downer MP Minister for Foreign Affairs 18 November 1997

Mass poverty is the single most important economic and social issue on our
planet today.

The relentless challenge of most countries in the world is to provide their
people with the opportunity to meet their basic needs and aspirations. Meeting
this essential challenge has proven to be no easy task. Mass movements of
people, international environment problems and pandemics such as HIV/AIDS cut
across national borders and strain development efforts.

If there were any doubts about the fragility of the development process and
the need for effective assistance in the region, these would have been dispelled
over the past two months. Recent events such as the severe drought in Papua New
Guinea, forest fires in Indonesia and the South East Asian currency realignments
bring home the diverse and urgent problems faced by our nearest neighbours.

Economic globalisation, underpinned by rapid technological change will
continue to transform the development process. It has fundamentally increased
the importance of trade and investment, and offers huge opportunities and
challenges for developing countries. And as the Prime Minister said recently in
London, the slow and difficult task of building open and democratic societies is
also important. Economies will not achieve their potential unless government is
transparent, legal systems are fair, and information flows freely.

Australia must play a role in assisting developing countries deal with the
challenges of development. While I understand that some people in the community
think that it is a choice between dealing with problems at home or providing
assistance overseas, I firmly believe that this is a misunderstanding, and a
self-defeating approach. Many Australians want to assist people in developing
countries. This is in part, because of the generosity of the Australian spirit.
Australians recognise that the vast majority of people living in developing
countries are incomparably worse off than ourselves. The average income of
people living in Indonesia is a mere 6 percent of that in Australia, people in
China earn only 3percent of what we do.

Our aid program, by promoting human rights and addressing the needs of the
world's most disadvantaged, is a clear statement of Australian values. I have
great faith in the generosity of Australians and our commitment to giving
others, much worse off than ourselves, a fair go. We are a country founded on
equality and opportunity; we are strengthened by our cultural diversity. These
principles extend beyond our immediate shores and are clearly reflected in our
aid program.

Australia's commitment to assisting with development overseas also reflects a
realisation that in an increasingly globalised world, it is in our self-interest
to help. Not to do so would harm our own economy. By promoting growth in
developing countries the aid program helps foster stability and expand trade and
investment opportunities for Australia. Through aid, we are also addressing many
threats to our own prosperity, such as HIV/AIDS, illegal migration, refugee
flows, global environment problems and narcotics. Many of these problems need be
dealt with at a global level and Australia must pull its weight internationally.

For nearly half a century our aid program has made a substantial contribution
to development. Since the establishment of the Colombo Plan in the early 1950s,
our aid program has touched the lives of millions of people in developing
countries, many of whom are our immediate neighbours. We have also played a key
role in nearly every major humanitarian emergency in the last thirty years. This
is a record of which Australia can be proud. It is a record I am committed to
continuing.

Our development assistance is of course only part of Australia's broader
efforts to help our neighbours. Many other aspects are not aid funded, but work
equally in Australia's national interest to promote regional prosperity. Our
efforts to promote agricultural trade liberalisation through the Cairns Group is
one example. Another is the provision of financial assistance on commercial
terms as part of IMF-sponsored international financing packages for Thailand and
Indonesia. Such assistance will support the foreign currency reserves of these
countries and maintain confidence in financial markets, but are not funded from
Australia's aid budget.

For some time, however, I have been concerned that the aid program has been
in danger of losing focus on its core developmental role. The program had not
been subject to an in depth independent review since the Jackson Review,
instigated by the Fraser Government.

For these reasons, an independent review of Australia's aid program was
foreshadowed in our pre-election platform, 'A Confident Australia', and
in June last year I instituted a review. The Review Committee headed by Paul
Simons, and including Gaye Hart and Cliff Walsh, produced an excellent report
which was handed to me in May this year. This report has played a key role in
the Government's consideration of the principles, objective and future
directions of Australia's aid program. The Review Committee made a total of 79
recommendations. The Government has decided to accept 64 of the recommendations
fully, in part or in principle, reject nine, and note another six for further
consideration. The recommendations and the proposed Government responses are
being tabled along with this statement.

Objective of the Aid program

The Simons Committee confirmed my concern that the program had become
burdened down by a variety of competing short-term interests. A clear
development objective for the aid program is needed. Our aid efforts cannot, and
should not, be a vehicle for other purposes, such as short-term commercial
goals.

The Government has determined that the objective of the Australian overseas
aid program will be

'to advance Australia's national interest by assisting developing countries to reduce poverty and achieve sustainable development.'

This is consistent with the course set in the White Paper on Foreign and
Trade Policy.

The aid program, together with all other Government programs must work in the
national interest, playing its part in creating a prosperous and stable future
for Australia. As I have already stated, an effective and well-targeted aid
program, focusing on the alleviation of poverty and the promotion of sustainable
development is clearly in the national interest.

Principles of our Aid Program

In addition to the objective, six key principles will underpin Australia's
aid program.

Focus on Partnerships

The aid program will be determined and implemented in partnership with
developing countries. This will guarantee that the program remains focused on
meeting the priority needs of partner countries. Our aid will also forge
strategic partnerships with other key players in the development process - both
in Australia and overseas.

Responsive to Urgent Needs and Development Trends

A modern, effective aid program must provide rapid relief to victims of
natural disasters and emergencies and take account of changing pressures in
developing countries.

Practical Approaches

Australia's aid program will be realistic in assessing what can and cannot be
achieved. It will concentrate on practical efforts that can alleviate poverty
and promote sustainable development.

Greater Targeting

Our aid program cannot afford to be all things to all people - greater
definition and targeting is essential. Clear priorities have been identified,
and our efforts will be assessed against those priorities.

Australian Identity

Our aid program will remain identifiably Australian _ it is a reflection of
Australian values and is a projection of those values abroad.

Outward Looking

The aid program will be open to new ideas and approaches. It will look
outward and draw on the best ideas in Australia and overseas.

New Priorities for Australia's Aid

Each one of these principles is designed to bring about a more relevant,
higher quality aid program. Using the principles and new objective as a guide, I
have developed a set of core priorities for Australia's aid program.

Partnerships with Developing Countries

Our partnerships with developing countries form the core of Australia's aid
program and our aid efforts will be tailored specifically to their most pressing
development needs. Detailed country strategies will be prepared for all major
programs. These strategies will indicate how Australia's aid program can best
alleviate poverty and contribute to sustainable development in each country.
Sustainable development integrates economic, social and environmental goals to
achieve lasting improvements in peoples' lives.

The strategies will consider Australia's aid program in the broader context
of countries' own development efforts and take into account the roles of other
aid donors. Efforts will focus on promoting economic growth, investing in human
capital and protecting the most vulnerable groups in society. The exact mix of
activities will vary between partner countries. They will however, concentrate
on five sectors, which have the largest development impact.

Sectoral Priorities

Health, education, infrastructure, rural development and governance are the
five priority sectors for Australia's aid program.

Health

Australia's aid program will focus on simple, cost-effective methods of
prevention and treatment. We will concentrate on helping those people most in
need, particularly women and children. There will be a strong focus on primary
health care and disease prevention and our aid will give emphasis to:

• targeting major causes of child and maternal mortality and morbidity;
• making a strong contribution in the family planning and reproductive health
  sector on the basis of a voluntary and non-coercive policy; and
• HIV/AIDS prevention and care activities.

The aid program also needs to provide support in areas that underpin good
public health systems such as national health policy development and planning,
disease surveillance systems, and pharmaceutical supply and regulation

AusAID will develop a new health policy by the middle of 1998 to ensure that
our health assistance remains as relevant and effective as possible.

Education

Education is development's most basic building block and is vital for
alleviating poverty. It will remain a priority for Australian assistance. Our
education efforts will concentrate on providing a broad range of education
assistance, with a particular focus on basic and technical education. Selective
assistance for institutional strengthening, distance education and higher
education are also priorities for Australian aid

Agriculture and Rural Development

Programs to promote agriculture and rural development are perhaps the most
difficult to implement. Amongst other things, their success is often dependent
on resolving issues of land tenure and on creating effective markets through
appropriate economic policy settings. Australia's expenditure on agriculture and
rural development has been declining over the past decade. Yet this sector is
critical in alleviating poverty and achieving sustainable development in
developing countries, where there are often large, under-productive agricultural
sectors. AusAID and the Australian Centre for International Agricultural
Research (ACIAR) will undertake a review of our assistance in this area to
ensure our policies and priorities are effective.

Agricultural Research

A particularly crucial component of Australia's support for agricultural
development is international agricultural research managed by ACIAR. ACIAR
promotes research into improving sustainable agricultural production and natural
resource management in developing countries, in collaboration with partner
countries. The returns to developing countries from agricultural research and
development are very high and include social and economic benefits beyond the
agricultural sector. The benefits to Australia from international agricultural
research are also enormous, estimated at $3 billion over the last 20 years. This
is a tangible demonstration of how effective development is in our national
interest.

Infrastructure

Essential infrastructure, such as water supply and sanitation, energy,
transport and communications is fundamental to sustainable development. Private
capital flows, rather than aid will be the main source of capital to finance
infrastructure demands in developing countries. Privately funded infrastructure
is, however, unlikely to be sufficient to meet all of the needs of the very poor
and marginalised. Nor is it available for all countries or where it is difficult
to levy user charges and achieve cost recovery. Aid resources, carefully
targeted to ensure they are not displacing private funds, are important for
ensuring vital infrastructure services reach all the people who need them. Aid
can also play an important role in assisting developing countries prepare
infrastructure projects for private sector financing.

Governance

We will make governance a specific focus for Australia's aid program, for the
first time. Effective governance means competent management of a country's
resources in a manner that is open, transparent, accountable, equitable and
responsive to people's needs.

A Dynamic Private Sector

Effective governance ensures that sound fiscal, monetary and trade policies
are instituted to create an environment for private sector development. A
dynamic private sector creates jobs and incomes, generates wealth and ensures
resources are used efficiently. The importance of appropriate economic policies
and institutional arrangements in maintaining the confidence of investors is
well known, including in recent times in regional financial markets. Transparent
decision making and effective institutions can ensure these countries can best
respond to rapid movements of international capital and ensure that they
continue to attract long-term investment.

As a major initiative, AusAID will develop a policy paper on private sector
development for the Australian aid program. Such a policy would not be an
attempt to pick winners in the private sector, rather it would focus on creating
the conditions for private sector growth in developing countries. Such a focus
will include:

• encouraging responsible fiscal and monetary policies and creating the
  environment for efficient production, through appropriate trade, exchange rate
  and pricing policies;
• promoting deregulation and competition; and
• improving the appropriate legal, judiciary and regulatory environment.

Australian aid will assist developing countries to undertake structural
reforms to encourage the private sector to flourish. Particular attention will
be given to privatisation of state-owned enterprises, an area where Australia
has considerable experience, and making credit more accessible to entrepreneurs
- particularly the very poor. By providing small amounts of credit to the poor,
the majority of whom are women, they can escape poverty through their own
efforts and thus enjoy a fuller and more dignified life.

Civil and Political Rights

Respect for and promotion of civil and political rights are also vital
elements of governance and sustainable development. Respect for human rights and
participatory principles is generally a force for stability. It moderates
political behaviour and helps ensure government accountability and
effectiveness.

Capacity Building

Developing countries often lack the capacities and resources to ensure that
necessary institutional frameworks are made and maintained. The aid program can
play a valuable role. The Australian aid program will increase its support for
practical measures aimed at building capacity in partner countries to institute
necessary reforms.

Cross-Cutting Issues

In addition to focusing on specific sectors, Australia's aid program needs to
take account of critical issues that cut across the development process.

Gender and Development

Men and women have not shared equally in the benefits of development. Telling
proof of this is that girls are twice as likely to die from malnutrition and
preventable childhood diseases as boys. Women are more likely to be poorer, less
educated, less healthy and subjected to more violence and human rights abuses
than men. Australia's aid program, will place a strong emphasis on ensuring that
men and women have equal access to resources and opportunities.

Women's needs and perspectives will be considered in the planning and
delivery of all Australian aid activities, with new gender awareness guidelines
recently introduced into our aid program. They are designed to focus our aid
more clearly on women's access to education, health care and economic resources,
their participation in leadership and decision making, and women's human rights
and the elimination of discrimination against women.

Separate programs addressing the specific needs of women will also be
supported. In order to strengthen our approach to gender issues, AusAID will be
contracting additional gender expertise into the aid program.

The Environment

Preventing environmental degradation is essential to alleviation of poverty
and ensuring development is sustainable. It is about maintaining environmental
assets for future generations while improving standards of living today.

Very poor people concentrate on day to day survival. They often have no
option but to overuse their natural resources. These same people are also the
most vulnerable victims of environmental damage. They are often exposed to
contaminated water and water-borne diseases. The resulting poor health prohibits
them from earning income and overcoming their poverty.

Poor people are also the most vulnerable to environmental disasters - which
are exacerbated by unsustainable practices - excessive logging and its impact on
forest fires and land slides is a telling example.

Australia's aid program has a two pronged approach to environment issues. The
first is to ensure that the possible impact on the environment is considered in
the design and implementation of all of our aid activities. Second is the
building of a portfolio of projects that directly target environmental issues.
The aid program will invest in sustainable agricultural practices, improved
sanitation, clean water and better management of natural resources.

The aid program also plays a role in addressing global environmental issues.
These issues are critical to the alleviation of poverty. For example, the
preservation of biological diversity, through our contributions to the Global
Environment Facility can have far-reaching implications for sustainable food
production. Considerable funds are also being channelled into reducing
greenhouse gas emissions and managing the effects of global warming.

Neglecting the environment today can significantly handicap efforts to
address poverty in the future.

Geographic Focus

Australia's aid program is heavily concentrated on the Asia Pacific. This
will continue. Papua New Guinea, the Pacific and East Asia will all be high
priorities for Australian assistance. Australia will also continue to
concentrate selectively on development needs in South Asia, Africa and the
Middle East.

The Asia Pacific is a region facing enormous development challenges. Despite
impressive grown in the past two decades there remain over 800 million poor
people in the region. This is the largest concentration of poor in the world. I
strongly believe, however, that the Asia Pacific is a region with great
potential. Through a well-targeted aid program, Australia can help these
countries realise their development potential.

In order for the program to maximise its impact, Australian aid dollars will
have a focus on the poorest regions in the countries of the Asia Pacific, for
example, in eastern Indonesia and southern Philippines.

We are part of the region - not simply because of our geography - but because
of our shared interests in its stability and prosperity. As stated in the
Government's White Paper on Foreign and Trade Policy, the Asia Pacific is the
region of highest foreign and trade policy priority for Australia. The aid
program is a practical tool for promoting Australia's place in the region and
demonstrating our confidence in its future.

While the program will continue to focus on the Asia Pacific region, we will
not provide assistance there exclusively. There will always be calls on
Australia to assist in regions such as Africa and the Middle East. The aid
program will respond where it can to these calls for assistance. It will also
respond through contributions to international organisations, such as the World
Bank. Australia's aid program has a global reach through these organisations.
Funding international organisations allows us to make a useful contribution by
delivering aid where Australia would have difficulty working directly.

Australia will also respond flexibly to humanitarian and emergency relief
situations - these events are not limited to particular geographic regions. Our
efforts in such circumstances are a visible expression of Australia's
humanitarian values. We must be able to move quickly to help alleviate the
suffering of those who are the victims of disasters.

International and Community Partners

While programs delivered directly from Australia to partner countries will
remain the backbone of Australia's development assistance, the aid program will
also play a key role in fostering links between Australian community
organisations and the peoples of developing countries, and be involved in
multilateral efforts to tackle poverty.

NGOs

Non-government organisations (NGOs) play a vital role in development and in
the Australian aid program. For many Australians, NGOs are their link with the
developing world and the means through which their desire for the alleviation of
poverty is expressed. The Government recognises the valuable role of NGOs and
works with them to deliver around seven percent of the aid program.

Australian NGOs bring particular strengths to the Australian aid program.
They mobilise public support and voluntary contributions for aid. They often
have strong links with community groups in developing countries. They may work
in areas where government to government aid is not possible. Many have
particular expertise in providing assistance to meet people's basic needs,
particularly in emergency situations where quick and flexible responses are
required.

In view of these qualities, NGOs will be able to seek funding within
individual country programs to undertake agreed activities. They will not have
to contribute to costs in such cases. However, I believe it is reasonable to
expect that organisations seeking funding as community organisations should be
able to demonstrate tangible community support for their development activities.

The Government now requires NGOs seeking funding from AusAID to have a
recognised development expenditure of at least $30,000 annually. This is part of
a rigorous accreditation process to ensure Government funds are channelled
through NGOs that have substantial community support and are of sufficient size
and professionalism to be able to deliver aid programs overseas. The
appropriateness of the $30,000 threshold will be kept under review, in
consultation with the NGO community. Such reforms will not result in a
diminished role for NGOs, rather they will ensure that our relationship with
NGOs remains focused on achieving maximum results.

There has never before been a formal statement of policy principles outlining
the role of NGOs in the aid program. I support such a statement, and have asked
AusAID to develop a statement in consultation with the NGO community. The main
purpose of the statement will be to:

• set out the basis for the relationship between NGOs and the aid program;
  and
• make explicit the reasons for government support of NGOs.

International Organisations

Multilateral development agencies are important development partners for
Australia, particularly as many development problems are of a global or regional
nature. Australia engages with a range of international organisations,
multilateral development banks, United Nations development agencies,
Commonwealth organisations, international environment, agriculture and health
agencies, and regional organisations.

In a number of key areas, multilateral agencies complement Australia's
bilateral aid.

• Support for multilaterals extends the reach and efficiency of Australia's
  aid program through the delivery of aid to areas where Australia would have
  difficulty implementing projects directly.
• They can undertake projects of a scale that would not be possible for a
  single bilateral donor.
• They have a neutrality that allows greater scope for policy dialogue with
  recipient countries.
• They have the capacity and the standing to play a role in the coordination
  of donor efforts.
• They address global problems that require the concerted effort of the
  international community.
• They have strong capacity for research and analysis, and provide leadership
  on a range of emerging policy issues.

I believe that Australia should continue to provide significant support to
multilateral development agencies. However, consistent with a more targeted aid
program, and to ensure that Australia's funds do, in fact, take advantage of the
strengths of multilaterals, the Government is taking a more strategic approach
to their funding. The Government has already reduced the number of multilateral
agencies supported under the aid program and decisions on future support for
agencies will take account of the extent to which each agency's mandate
contributes to the meeting of Australia's aid objective, and the efficiency and
effectiveness of the agency.

Grants and Loans

The Australian aid program currently provides bilateral assistance in the
form of grants only, regardless of the country, sector and project involved.
This is not the only way to deliver aid. Soft loans would be a useful instrument
for aid delivery in some cases. Loans would leverage the aid dollar and allow
the undertaking of some larger projects (eg. a $1 aid grant can be used to
create a much larger concessional loan); better encourage financial discipline
on the part of recipient governments (unlike a grant a loan has to be repaid);
and allow some flexibility in the level of aid concessionality for different
countries and sectors.

The Simons Report recommended that a new, untied soft loans scheme with a
clear development focus be created for use within AusAID country programs
to rapidly developing nations.

Any decision to introduce a loans scheme would have significant funding
implications. A high proportion of the aid budget is already committed to
projects extending over several years, or to our multilateral obligations. At
this stage, there is simply not the scope within the aid program to introduce a
loans scheme. Consequently, introducing soft loans into the program will depend
on future aid budget outcomes.

Any new soft loans scheme would not be an imitation of the discredited DIFF
scheme, which the Simons Committee considered flawed as both aid and industry
assistance. If introduced, a new scheme would be driven by recipient country
needs, rather than Australian industry proposals. It would be integrated with
our bilateral aid strategies, require competitive tendering, and be designed,
monitored and evaluated to ensure development quality.

Refocusing Aid Management

A permanent advisory committee will be established to advise me on aid and
development issues. Such a committee will enable me to hear directly from the
broader community about Australia's aid efforts.

In order to ensure that our aid is administered as efficiently as possible
and with maximum results, AusAID is undertaking a major review of its operations
and structures. This is taking into account issues raised in the Simons Report
and the opportunities provided by the Government's workplace and APS reforms.

Significant changes will be introduced shortly. Initiatives will include:

• Advisory groups will be established for key sectors. They will assist
  AusAID in considering sectoral policy and program implementation issues.
• Additional sectoral expertise will be contracted by AusAID and integrated
  with existing sectoral policy and project design specialists.
• AusAID will establish an Office of Review and Evaluation to provide more
  frequent and transparent reporting on aid outcomes. This Office will also
  critically review and develop aid delivery arrangements.
• The contract management function in AusAID will be strengthened, reflecting
  the need for a strong focus on the major means by which Australia's bilateral
  aid is delivered.
• Current development education activities will be evaluated and new
  approaches considered in light of available funding.

These initiatives will ensure that Australia's aid efforts are innovative and
responsive to the changing needs of developing countries.

Australian Identity

Australia's aid program must remain identifiably Australian - it is a
reflection of Australian values and interlinked with our national interest. The
simplest and most effective method of guaranteeing Australian identity relates
to how we use Australians in the delivery of the aid program.

Approximately one-third of Australia's aid program is currently tied to
Australian goods and services. Nevertheless, around three-quarters of the total
aid program is in fact spent on Australian goods and services. While I believe
that there is some scope for increasing the quality of the aid program by some
minor adjustments in the current tying arrangements, I do not believe that
significant changes are required.

In particular, I intend that AusAID continue only to engage firms that are
registered with the Australian Securities Commission or have a head office in
Australia or New Zealand to manage Australian aid projects. This will ensure a
strong Australian identity to the aid program and minimise contractual and legal
risks, and contractor selection costs.

I do propose, however, to introduce some flexibility in the procurement of
consultancy services, in order to encourage the participation of recipient
country personnel in the delivery of Australian aid. This should reduce costs in
the delivery of Australian aid, build capacities in developing countries and
encourage links between Australian firms and those in developing countries.

Limited provision will also be made to allow for the greater use of
international experts where there is a shortage of expertise in Australia or New
Zealand. Australian companies bidding for AusAID work are seeking this
flexibility.

Conclusion

The volume of aid spending will always be a difficult issue. Australia
provides significant amounts of overseas aid, consistently spending more than
the international donor average. Future levels of aid funding, like all aspects
of government expenditure, will be subject to budget considerations. We will
continue to support the UN's 0.7 per cent ODA/GNP target and endeavour to
maintain our aid at the highest level, consistent with the needs of partner
countries and our own economic circumstances and capacity to assist.

While there will always be debates over the size of the aid program, it is
important that we make the most of the aid dollar. With over $1.4 billion
invested annually in Australia's aid program, the Australian community and our
developing country partners have the right to demand excellence in our aid
efforts. I believe that Australians can be proud of our development efforts. The
new principles and priorities I have outlined today will result in a
better-targeted and focused aid program and a better and more productive world
around us.