How significant is Australia’s $238.9 million aid cut to Indonesia?

Australia has cut 40 per cent of its foreign aid budget to near neighbour and, in the post-execution hangover, estranged friend Indonesia.

Announced in the Federal Government’s 2015-2016 Budget Tuesday night, the scale back sees aid drop from $605.3 million to $366.4 million. It’s no small chunk of change for what was once Australia’s largest foreign aid destination.

While cuts were forecast in December, the sheer scale has taken some by surprise. The amount of money, or lack of it, takes Australia’s aid to Indonesian back a decade or more.

They form part of a record $1 billion reduction of Australia’s overall foreign aid budget, what Australian National University development expert Stephen Howes labels as “unfair to the world’s poor”.

It is reported that some of the 40 per cent cut is attributable to the expiration of funding for some of the long-term Australian aid projects established in Indonesia following the 2004 Boxing Day tsunami.

But, according to long-time Indonesia watcher Professor Greg Fealy, the cuts shouldn’t and most likely won’t be viewed as retaliation for the shooting by firing squad of convicted Australian drug smugglers Andrew Chan and Myuran Sukumaran last month.

“I don’t think it is going to be a huge problem in Jakarta and for the relationship,” says Fealy, who is based at The Australian National University’s Coral Bell School of Asia Pacific Affairs.

“The Jokowi government is unlikely to be perturbed by Australia’s aid cuts for several reasons. First, Australian aid is worth just a small fraction of 1 per cent of Indonesia’s total budget, so while the cutbacks affect particular segments of society, their overall impact is small. Second, Jokowi is promoting the idea of Indonesian self-sufficiency and rising power status, so aid from abroad is not a high priority for him.

“There will be some disappointment in some circles; the parts of government that have lots to do with the Australian aid program. Some of those ministries will be waiting to see where the actual cuts will fall.

“But in general, this Indonesian government under Jokowi has been far less exercised about aid, and that’s partly because it now sees Indonesia as being a donor.”

Two years ago Indonesia made a donation of US$ 500 million to the IMF.

Jakarta also gave US$ 2 million to Solomon Islands in the wake of Cyclone Pam and much-needed support to Nepal after its recent devastating earthquake.

For its part, Jakarta has already downplayed the cuts, insisting it had nothing to do with the deaths of Chan and Sukumaran.

According to Foreign Ministry spokesman Arrmanatha Nasir, cuts were across the board and the government appreciated the reasons provided by Foreign Minister Julie Bishop.

“We emphasise that Indonesia is now able to finance its own development by using its internal revenue,” Mr Nasir told Australia’s Fairfax Media.

This internal revenue is worth about $190 million in development spending so far this year.

That isn’t to say that the cuts won’t be without consequence. Fealy is quick to point out that it will be the most vulnerable in Indonesian society who will be most affected.

“In terms of GDP, Indonesia is now 16th in the world,” says Fealy. “But those figures are misleading. It hides the enormous and growing disparities in wealth.

“So while one set of figures gives the impression that Indonesia is now quite a wealthy country, which is indeed true for the upper reaches of society, we still have a vast number of people living below the poverty line.”

According to the World Bank, Indonesia’s gross national income per capita grew from around US$ 2,200 in 2000 to over US$ 3,500 in 2014. But at the same time, of 252 million Indonesians, more than 28 million live below the poverty line.

And almost half of all households remain clustered around the national poverty line set at 292,951 rupiahs per month (US$ 24).

“You only need small things like a rise in petrol prices, a rise in rice prices and suddenly you get millions more who are below that poverty line,” says Fealy.

There’s also the flow on effects to basic but essential services like education and vaccinations for children; small costs in the greater scheme of things (particularly for a country as wealthy but evidently miserly as Australia which has marched to the beat of 24 years of uninterrupted economic growth), but potentially life-changing and life-saving for those in extreme poverty.

Another major impact, with real potential blowback for Australia, is in building Indonesia’s capabilities. As Fealy points out, this is particularly the case with improving and strengthening Indonesian institutions.

“For example, Australia has a deep knowledge sector initiative which is designed to improve research capabilities and that is very important for Indonesia in coming decades,” says Fealy. “Because often that is one capability that is lacking.

“So it would be a great pity if those sorts of programs were cut because they are helping Indonesians to help themselves.”

Also take for example the areas of governance and law. Transparency International’s annual corruption perceptions index ranks Indonesia as 118 of 174 countries worldwide, making it clear that there’s a lot of hard graft left to dispense with graft.

Added to this is the very real and acute problems with Indonesia’s judicial system; its almost healthy disdain for the rule of law, shambolic ineptitude and propensity for corruption highlighted by the tragi-comic ups and downs of the Chan and Sukumaran case (including investigations into bribery allegations that saw no-one interviewed). These allegations have since been withdrawn.

Between 2011 and 2015 Australia spent $55 million on judicial development. In the same period Canberra provided more than $22 million in electoral reform.

Outraged Australians would say that it was money poorly spent. But how much worse might cases like Chan and Sukumaran’s be without such foreign aid? Unfortunately, it’s too late to ask them. But it may stop others facing the firing squad, and Canberra having to make the same last-ditch efforts to save its citizens again.

One thing is certain; these latest cuts may also re-set how Canberra does diplomacy with Jakarta, which in the context of turned back boats, beef over beef, hacking scandals and death squads for drug smugglers might not be such a bad thing after all.

As Fealy points out, aid has traditionally been used for diplomatic purposes. One practice that many Australian Prime Ministers and other ministers going to Jakarta used was the aid announceable – new initiative to build more schools, or provide more clean water to villages for example.

“Australian politicians will be much less able to do that now,” says Fealy.

“And in one way that is a good thing, because many countries that receive aid see it as condescending; it’s not a position they like to be in but they know they need the aid for particular purposes.

“If that makes our politicians think of other ways in which they can conduct their diplomacy that’s a good thing, as often aid has been used to offset other decisions that have been unpopular.”

As Prime Minister Tony Abbott’s remarks about tsunami aid to Aceh and the subsequent ‘Coins for Australia’ backlash shows, money can’t always buy you friends or love.

But it can help save lives.