Southeast Asia

Dr Vu Lam

The Department of Foreign Affairs and Trade’s (DFAT) Portfolio budget statements 2023–24: budget related paper no. 1.8: foreign affairs and trade portfolio (p. 13) notes:

Australia now faces the most challenging strategic circumstances of the post-war period, circumstances which require unprecedented coordination and ambition in our statecraft. Our region – the Indo-Pacific – is being reshaped amid rapid strategic and economic change, with increasing risk of miscalculation or conflict. Australia’s objective is to contribute to a regional balance of power that bolsters peace and stability, by shaping an open, stable and prosperous Indo-Pacific.

The Defence strategic review recommended more funding for DFAT to lead a whole-of-government diplomatic effort in the region. To that end, the 2023–24 Budget provides an additional $457 million to DFAT, which is intended for maintaining an effective foreign service, enhancing diplomatic engagement with Southeast Asia, and improving DFAT’s strategic capability. Collectively, countries in Southeast Asia continue to be the second-largest recipient of Australian official development assistance (ODA) after the Pacific. ODA refers to government aid that targets economic development and welfare in developing countries. Australian ODA is generally focused on several sectors, including education, health, humanitarian assistance, economic development, and governance and civil society development in recipient countries.

Deepening engagement with Southeast Asia

DFAT’s strategic direction statement (p. 13) confirms:

DFAT is deepening Australia’s engagement in Southeast Asia. We are facilitating a high tempo of ministerial visits, increasing official development assistance, and developing a Southeast Asia Economic Strategy to 2040 to drive prosperity. We are upgrading several major bilateral relationships and our web of trade agreements with the region. As a Comprehensive Strategic Partner, Australia supports the Association of Southeast Asian Nations (ASEAN) holding the centre of our region and is practically supporting implementation of the ASEAN Outlook on the Indo-Pacific.

To enhance the nation’s diplomatic and business engagement with Southeast Asia and Timor-Leste, the Government has allocated $55.7 million over 4 years, beginning in 2023–24, with ongoing annual funding of $11.9 million, to both DFAT and the Department of Industry, Science, and Resources (see Table 1). The funding will contribute to the Government’s Southeast Asia economic strategy to 2040 to be released later in 2023. The strategy will aim to identify emerging economic opportunities in Southeast Asia and strengthen Australia’s economic engagement with the region.

Table 1 Australian engagement in Southeast Asia

Payments ($m)	2022–23	2023–24	2024–25	2025–26	2026–27
Department of Foreign Affairs and Trade	-	7.8	10.3	10.8	11.9
Department of Industry, Science and Resources	-	3.7	3.6	3.7	3.8
Total – payments	-	11.6	13.9	14.5	15.7

Source: Australian Government, Budget Measures: Budget Paper No. 2: 2023–24, 116

The $55.7 million funding comprises:

$35.7 million over 4 years, along with an ongoing annual budget of $10.4 million, to strengthen diplomatic and economic ties with Southeast Asia. The funding will be used to improve diplomatic capability, facilitate high-level visits and provide study opportunities for Southeast Asian citizens.
the National Centre for Asia Capability (Asialink Business) will receive an extension of funding worth $14.9 million for a further 4 years. This extension will enable Australian businesses to further deepen their engagement within the region. Established in 2013, Asialink provides customised solutions to assist Australian businesses in tapping into the potential of the Asian and Indo-Pacific markets. It receives support from DFAT, Department of Industry, Science, Energy & Resources and the University of Melbourne. Ten additional staff will be hired in Southeast Asia.
$5.2 million over 4 years, as well as an ongoing annual budget of $1.5 million, to boost diplomatic engagement with Timor-Leste.

Additionally, the Government has allocated $31.9 million (p. 21) in the forward estimates towards the Indo-Pacific Economic Framework (IPEF), an initiative led by the US that aims to build cooperation and economic integration in the Indo-Pacific region, with a focus on digital and environmentally sustainable sectors and regional supply chains. The IPEF has 14 members so far, including Brunei Darussalam, Fiji, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Republic of Korea, Singapore, Thailand, the US, Vietnam and Australia.

The Government also aims to expand the Emerging Markets Impact Investment Fund (EMIIF) by lifting its financial cap from $40 million to $250 million over the next 4 years. Established in 2020 with a $40 million budget, the EMIIF offers a combination of financial solutions and expert guidance to facilitate access to capital for small and medium-sized enterprises, with the aim of enhancing investments in climate and gender-positive outcomes. As noted in Budget paper no. 2, the expenses associated with this initiative will be covered using Australia’s current official development assistance funding (p. 120). Since a significant portion of the funding will be allocated towards equity and loan financing instead of grants, this measure will have a positive effect on the overall cash balance.

It is worth noting, however, that the Government has decided to wind back the Export Market Development Grants (EMDG) scheme, saving $61 million in 2023–24 and redirecting those savings to other priorities (p. 115). The EMDG scheme is administered by Austrade and provides grants that incentivise small and medium enterprises (SME) to expand their international presence by marketing and promoting their products and services worldwide.

Also relevant to Southeast Asia is $80 million funding to enhance strategic capability over the next 4 years. The funding will ‘enhance the Department of Foreign Affairs and Trade’s ability to communicate Australia’s story about who we are and promote our vision for the region’ (p. 118). In other words, this funding will serve DFAT’s people-to-people efforts, including public diplomacy.

Also of note is an additional $23.8 million funding in 2023–24 to modernise and improve Australia’s international trade system, and $90.2 million over 3 years from 2023–24 to reinforce DFAT’s international communications network against the risk of cyber attacks (pp. 121–22).

Increasing official development aid for Southeast Asia

Building on the $1.4 billion boost announced in the October 2022–23 Budget for ODA (including $470 million for Southeast Asia, $900 million for the Pacific and $30 million for Australian NGOs over 4 years), the Government will provide $4.77 billion in ODA for 2023–24, an increase of $120 million compared to 2022-23. The Government also commits to a 2.5% indexation rate from 2026–27 to enable sustainable growth over the longer term.

The Government will provide an estimated $775.4 million in ODA for Southeast Asia in 2023–24 – the second-largest regional aid package after $1,433.4 million for the Pacific. Australia will assist partners in areas such as climate change, gender equality, health, digitalisation, and infrastructure. Australia will also establish a Government-to-Government Partnerships program to share knowledge and build capabilities.

A key commitment to Southeast Asia is private investment in climate and gender. With the expansion of the Emerging Markets Impact Investment Fund (EMIIF), DFAT estimates that ‘each dollar invested in the EMIIF portfolio is expected to mobilise an additional three dollars of investment from the private sector towards Australia’s development partners’ priorities’.

Other initiatives for the region include:

Through Partnerships for Infrastructure (P4I), Australia is investing in a number of climate and clean energy infrastructure initiatives across Laos, Vietnam, Indonesia, Cambodia, Malaysia, the Philippines and Thailand.
The Investing in Women program will advance women’s economic empowerment and workplace gender equality in Southeast Asia in its new phase from 2023–2027.
The Water for Women program will receive an additional $36 million in 2022–25, which will help communities across 15 Indo-Pacific nations to access sustainable, climate-resilient water, sanitation, and hygiene services.

Commentary

Commentators have generally welcomed the additional funding for diplomacy and development aid, including for stepping up engagement with Southeast Asia. Melissa Conley Tyler (University of Melbourne) notes that increased investment in diplomacy and international development is a positive move, citing foreign policy expert, Allan Gyngell’s comment that DFAT’s instruments of foreign policy had been ‘underfunded and, at times, marginalised’. The Australian Council for International Development (ACFID) describes the 2023–24 Budget’s ODA measures as ‘responsible and sustainable’. This funding boost is in line with the suggestion in the Defence strategic review that a whole-of-government approach to statecraft will necessitate ‘the reversal of a long-term reduction in diplomatic resources, increasing our diplomatic efforts in areas of core national interest. Our diplomatic capability must be resourced, directed and focused’ (p. 34).

However, some commentators and stakeholders have expressed concern about the reallocation and reprioritisation of funds for several Southeast Asian-related initiatives. For example, the Export Consultants Association criticises the EMDG program’s budget cut as downplaying export support, while the Tech Council of Australia suggests investing more in the program to create more ‘success stories’ for Australian businesses. This program has supported more than 51,000 SMEs in exploring international markets since 1974.

Greg Earl (formerly of the Australian Financial Review) notes that savings from the EMDG program’s budget cut have been reallocated to the Indo-Pacific Economic Framework (IPEF), a US-led economic diplomacy initiative that arguably has been viewed as a successor to the Trans-Pacific Partnership (TPP) and is designed to counter China’s increasing influence in South and Southeast Asia. He also highlights that the National Centre for Asian Capability is considered part of DFAT’s Southeast Asian economic strategy, but that its $14.9 million funding over 4 years actually comes from the Department of Industry, Science and Resources.

In relation to foreign aid, experts note that when adjusted for inflation, the increased foreign aid is minimal and will likely decline in the longer term with the annual 2.5% indexation rate from 2026–27. The Australian National University’s Development Policy Centre has observed that Labor has increased foreign aid modestly, but that it drops over the forward estimates, adjusted for inflation, from $4.8 billion in 2023–24 to $4.7 billion in 2025–26. Some commentators also highlight that development measures appear to be shuffled and reallocated within and outside of DFAT, which may be challenging for coordination and policy cohesion.

The Development Policy Centre has also noted that Australia’s foreign aid budget peaked in 2013–14 at just over $5 billion, but has since witnessed a substantial decline. Although the COVID-19 pandemic led to a temporary surge in aid, projections indicate a reduction below pre-pandemic levels.

Australia aid over time

Source: data compiled by the Development Policy Centre.

ACFID notes that in 2023–24 Australia’s ODA/GNI ratio will fall to 0.19%, a historic low. In 2022, out of the 31 OECD countries that are foreign aid donors, Australia was ranked 27th in terms of ODA/GNI ratio, even though Australia was the 9th largest economy in this group.

In relation to Southeast Asia, commentators and experts generally welcome Labor’s election promise of an additional $470 million to development cooperation with the region, which was introduced in the October 2022–23 Budget. The increased measures for Southeast Asia in the 2023–24 Budget are further evidence of Australia’s commitment to a region that is vital to Australia’s national interest. Previously, the Coalition Government reduced aid to the region by 30% from nearly $1.3 billion in 2014–15 to just $900 million in 2021 – excluding COVID-19 measures. This decrease can possibly be attributed to the Coalition Government’s prioritisation of other regions, particularly the Pacific area, which has witnessed a consistent growth in aid allocation in accordance with the ‘Pacific Step-up’ initiative. For further detail on the Government’s current aid package to the Pacific, see the Budget review 2023–24 article, ‘The Pacific investment package’.

However, the general declining trends for foreign aid can be observed in Southeast Asia. As shown in Table 2 below, the year-on-year nominal increase in total ODA for these Southeast Asian countries is modest. When inflation is taken into account, Australia’s ODA to several Southeast Asian countries has actually declined in real terms.

For example, Australia’s projected ODA to Indonesia in 2023–24 ($326.1 million) has declined in real terms compared with the $323.8 million actual expenditure in 2021–22, considering Australia’s inflation rate from March 2022 to March 2023 was 7% (roughly against a 6.12% year-on-year increase in ODA). Even in nominal terms, Australia’s ODA to Indonesia has declined significantly from its peak of $613.7 million in 2014–15. The aid program to Indonesia is Australia’s second-largest bilateral aid program, behind that for Papua New Guinea (an estimated $616.2 million in 2023–24).

Table 2 Total ODA for Southeast Asian countries

Country	Total ODA 2022–23 ($ million)	Total ODA 2023–24 ($ million)	% increase
Cambodia	80.8	83.6	3.47
Indonesia	307.3	326.1	6.12
Laos	46.5	47.7	2.58
Myanmar	120.6	121	0.33
Philippines	85.8	89.9	4.78
Timor-Leste	114	118	3.51
Vietnam	92.8	95.1	2.48

Source: Parliamentary Library calculations using DFAT’s country briefs.

Historical ODA data (see interactive dashboard below) shows that Southeast Asia has been the second-largest recipient by region.

Australia’s official development assistance

Source: Australia’s official development assistance statistics.

However, foreign aid is not everything. There have long been calls for an improved strategic engagement and a higher focus on Southeast Asia in policy conversations. Hervé Lemahieu (Lowy Institute) suggests that Australia needs to engage with Southeast Asian middle powers on their terms and bridge strategic priorities in its geographic theatres. Teesta Prakash (Lowy Institute) notes that aid alone cannot bridge the trust deficit between Australia and Southeast Asia or be a substitute for active foreign policy. The AUKUS issue has incited varied reactions among ASEAN members. As Melissa Conley Tyler notes, ASEAN members are most concerned about the prospects of an arms race in the region and the implications of the AUKUS issue for ‘ASEAN centrality’.

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