Strings attached in foreign aid programs

By Daryl Guppy

Government-led foreign aid is rarely charity. It usually comes with strings attached despite earnest claims to the contrary.

Australian Foreign Minister Penny Wong has visited Papua New Guinea (PNG) and Timor-Leste with claims of delivering "no strings attached" aid. This rings a false note in Timor-Leste where discussions include the development of the joint gas resource between Australia and Timor-Leste.

Australia's sincerity is suspect as the government continues to pursue whistleblowers who revealed the Australian government had bugged the Timor-Leste cabinet meeting room during the initial negotiations over the Timor Gap.

The reversal and expansion of Australia's foreign aid budget is welcome and overdue, but it is not driven by charity. It is a clear weaponization of aid and is recognized as such by recipients even if this is not acknowledged by Australia.

China is more honest when it talks of win-win aid and development and makes no claims that aid is a form of charity.

The claim to have no strings attached casts foreign aid as a charitable exercise bestowed by an affluent West on developing nations.

To be clear, elements of foreign aid may be directed through humanitarian non-governmental organization (NGO) agencies and this has aspects of charity because often the donor is at arm's length from the way the assistance is delivered and expended. Some NGOs have been used for political purposes, but the level of foreign aid funding allocated to NGOs is just a small part of the overall government aid budget.

Foreign aid budget components directed to the United Nations may have a more charitable aspect in that the distribution of the aid is largely beyond the control of any individual donor. But it's not always the case, as the withholding of WHO funding by the United States illustrates.

The reality is that government-led foreign aid is a primary method of expanding soft power. Aid is provided in the expectation that the recipient will become and remain friends with the donor. Unfortunately, in the Pacific, aid has become a weapon for foreign policy.

Aid can be used as a method of hard power, and effectively foreign interference in sovereign decisions. Australian intervention in 2018 to prevent Huawei winning undersea cable contacts is but one example.

A pedestrian walks past a Huawei store in Sydney, Australia, May 23, 2019. [Photo/Xinhua]

Aid can also be used to counter the influence of other nations. America made barely-veiled threats along these lines to the Solomon Islands with aid delivery dependent on the Solomons taking decisions that do not disadvantage the interests of the United States. Visiting PNG this week, Wong said Pacific nations need to determine if closer ties and investment with China is in their sovereign interest.

It's a question that needs to be more broadly applied to all countries offering aid.

Aid can be used to counter instability and protect the strategic interests of the donor country. It is so easy for aid to slide from the provision of civilian advisors, to military advisors and military support. The Vietnam War remains one of the finest examples of this type of mission-creep in foreign aid.

Aid is used to shape the political and social environment to meet the donor's aspirations or domestic political agenda. Former U.S. President Donald Trump withdrew aid funding for UN contraception programs. Aid often comes with very bureaucratic and time-consuming requirements. Developing countries which often have less developed administrative capacity, have to follow increasingly complex Western regulations which include many compliance factors which, while relevant to Western economies, often impose an unfair burden on developing countries.

Aid can be used coercively in so-called debt diplomacy. This is a common allegation against China, but it is largely a false narrative. Sri Lanka is often singled out as the prime example. But in reality, Western firms and their allies Japan and India own 81 percent of Sri Lanka's foreign debt – more than three-quarters of its international obligations. By contrast, China owns just one-tenth of Sri Lanka's foreign debt.

With the exception of some disaster aid, government-led foreign aid programs are designed to deliver benefits to the donor and the recipient. This does not nullify the good that foreign aid delivers, but the idea that foreign aid comes "with no strings" attached is a comfortable falsehood. Government-led foreign aid is essential for the survival and development of many smaller nations. In accepting such aid they must be aware that there are always strings attached, but such strings are not automatically bad.

For foreign aid to be truly successful in achieving lasting long-term benefits, it needs to be accompanied by better education around governance and management of the aid, its delivery and implementation.

Rather than touting government-led foreign aid as coming with no strings attached, it would be more honest to acknowledge the benefits brought to both the donor and the recipient. This enables a more realistic and informed assessment of the benefits and risks.

Daryl Guppy is an international financial technical analysis expert. He has provided a weekly Shanghai Index analysis for media for the Chinese mainland for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a national board member of the Australia China Business Council.