Inquiry into the Abolition of the Development Import Finance Facility

Chapter 3

The Government's Management of the Termination of DIFF

Introduction

3.1 In this chapter the Committee focuses on:

• the Government's preparations for the termination of the DIFF scheme;
• the Government's notification of the termination of the DIFF scheme to recipient countries and Australian companies involved with the scheme;
• the responses of the recipient governments and Australian companies; and
• the handling of the responses by the Government.

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Preparations for the Termination of the DIFF Scheme

3.2 The Committee refers in Chapter 2 to the Government's pre-election statements which foreshadowed its intention to terminate the DIFF scheme. Once in office, the Government was provided with advice about terminating the scheme.

3.3 In preparing advice for the Government, AusAID consulted the Department of Foreign Affairs and Trade (DFAT), the Department of Industry, Science and Tourism (DIST), the Export Finance and Insurance Corporation (EFIC) and Austrade. AusAID/DFAT submitted that:

AusAID, in consultation with the Department of Foreign Affairs and Trade, provided advice to the Government on how to implement its intended decision to terminate DIFF. This advice contained an analysis of the key issues, including the legal situation, the status of various categories of DIFF offers, the level of these commitments, and the amount of aid flows involved. It also covered the situation with respect to recipient governments and Australian companies. [1]

3.4 The Attorney-General's Department provided legal advice to AusAID that Letters of Advice were not binding on the Commonwealth because they did not contain an offer of funds. It also advised that it was debatable whether Letters of Formal Offer were binding on the Commonwealth. [2] The Committee requested a copy of the legal advice from AusAID/DFAT but this request was denied by the Minister for Foreign Affairs. In a letter to the Committee dated 20 August 1996, the Minister said:

I am unable to make this advice public or provide it in camera. As stated at the hearing by the Director General of AusAID, Mr Trevor Kanaley, providing a copy of this advice could be prejudicial to defending the Commonwealth's position in the event of any legal action against the Commonwealth. Mr Kanaley's statement reflected the advice he had received from the Attorney General's Department (AGs). I do not therefore consider that the release of AGs advice would be in the public interest. I should also add that the main features of the legal advice received from AGs were summarised in the joint submission from AusAID and DFAT (page 23) and also in the evidence provided by officials in the hearings (Hansard page 150). There is a well recognised public interest in maintaining the confidentiality of legal advice.

3.5 AusAID acknowledged that it had not sought advice from relevant Australian diplomatic posts overseas in preparing advice for the Government. DFAT said, however, that it provided advice on the foreign policy aspects of the termination of the DIFF scheme, which was formulated by relevant divisions within DFAT, after taking into account advice from posts within their areas of geographical responsibility.

3.6 A draft of AusAID's first submission to the Minister for Foreign Affairs was discussed informally with Australian Embassies in Indonesia and China. DFAT defended sending the draft submission to only two posts on the grounds that these two countries had been the main recipients of DIFF funding. [3] DFAT Deputy Secretary, Ms Joanna Hewitt, told the Committee that:

But, just to put it in context, we need to understand too that this was a matter of policy which was very clear when the Government came to office. What we were being asked for, broadly speaking, was how to manage the implementation of a decided government policy in a sensitive way and we provided advice along those lines. [4]

3.7 Mr Kanaley told the Committee that the submission, which was signed off on 13 March 1996, [5] discussed some options but that he was not at liberty, as a public servant, to discuss the nature of the options put to the Minister. [6]

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Notification of the Termination of DIFF

3.8 Following Mr Downer's formal decision to terminate the DIFF scheme on 8 May 1996, AusAID prepared for simultaneous notification of the terms of the decision to recipient governments and Australian companies.

3.9 On Thursday, 16 May 1996, all DFAT/AusAID posts were notified of the decision by cable and heads of mission and senior AusAID staff 'in countries where the DIFF was in operation were instructed to inform as soon as possible appropriate Ministers and senior officials in the host government of the Australian Government's decision'. [7] Each relevant mission was also faxed a list of individual projects that were going to be affected by the decision. [8] On the same day, AusAID told a number of embassies in Canberra of the decision and gave them an aide memoire. [9] It would be normal diplomatic practice for those missions in Canberra to notify their governments quickly of such a decision by the Australian Government. On 17 May 1996, AusAID held a meeting with representatives of overseas missions in Canberra to explain the Government's decision in more detail.

3.10 DFAT told the Committee that it was the responsibility of Australian heads of mission in DIFF recipient countries to decide how to handle the notification of host governments. The Committee was told that the Australian Ambassador in Manila wrote to four Philippine Cabinet Ministers, the Governor of the Philippine Central Bank and some other senior officials on 17 May 1996 [10] and the Australian Ambassador in Beijing called on Chinese authorities on Monday, 20 May to notify them of the termination of the DIFF scheme.

3.11 A Deputy Director General of AusAID, Dr Peter McCawley, visited 'three existing major DIFF recipient countries - Indonesia, China and the Philippines - from 9 to 16 June 1996' to explain in more detail the reasons for the termination of DIFF. [11]

3.12 Australian companies which had received a Letter of Advice or a Letter of Formal Offer were informed of the Government's decision by letter from the Parliamentary Secretary to the Minister for Foreign Affairs, Mr Andrew Thomson, MP, faxed on 16 May 1996. [12]

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Overseas Responses to the Termination of DIFF

3.13 At the time of the Government's decision to terminate DIFF, there were 50 projects in the pipeline for which Letters of Advice had been sent to relevant companies and seven projects for which Letters of Formal Offer had been sent to companies. These projects were designated for four countries - China, Indonesia, Philippines and Vietnam. The responses of those countries are set out below. At least some of these countries had expressed their concern to the Australian Government before the decision was made on 8 May 1996, even though they would not have known the details of termination or the fact that it would have excluded all projects other than the seven for which a Letter of Formal Offer had been issued.

China

3.14 China expressed its concern about the termination of DIFF before the formal announcement of the ending of the scheme. The Vice-Minister of the Chinese Ministry of Foreign Trade and Economic Cooperation, Mr Sun Zhenyu, wrote to Mr Downer on 24 April 1996 to express his concerns and those of his Minister, Madame Wu Yi, to the Australian Government about the proposed termination of DIFF:

For a long time AusAID has established a relationship of cooperation with my Ministry and that assured soft loan projects would be completed smoothly. But recently AusAID has been waiting for the new Government's policy that (sic) withhold the normal operations of soft loan projects and for this we express our strong concern. Because both sides on the agreed projects have invested a lot of man hours and capital if those projects cannot be started by the 30th of June this year it will cause the project companies on both sides a substantial financial loss. I believe you can understand this from the China side that the companies taking on these projects cannot wait any longer for uncertainties. Some of these projects might have to be forced to seek the technology and equipment from other countries, particularly at the moment as Australian soft loan future is unclear. For the above stated reasons I hope your Government will give continuous support with the agreed listed projects so these projects can be executed on time.

3.15 The Committee was told that, at first, DFAT believed Mr Sun was writing on his own behalf but later, in July 1996, it was clarified at a meeting in Beijing in a conversation with Australian Embassy officials, that he was also writing on behalf of the Chinese Government. [13] Considerable discussion took place in the House of Representatives and the Committee's hearings about the comparable level in the Australian system of a Chinese vice minister. Although there is no equivalent position in Australia, DFAT considered that the closest comparable position was that of a departmental deputy secretary. It should be noted that it was Mr Sun and then Australian Minister, Mr Michael Duffy, MP, who signed the Memorandum of Understanding in relation to DIFF funding on behalf of their respective governments.

3.16 In an article in The Australian Financial Review of 7 August 1996, Michael Dwyer wrote:

Further Chinese concerns are contained in a confidential cable from the Australian Embassy in Beijing, which was leaked from the Department of Foreign Affairs and Trade yesterday.

The confidential cable was sent to Canberra after a meeting in May between embassy officials and Mr Sun Zhenyu, a vice-minister in the Chinese Ministry of Foreign Trade and Economic Co-operation.

It contains strong comments on the DIFF issue from the Ambassador in Beijing, Mr Ric Smith, over China's view of the cancellation of the loan scheme.

It is in our view very important for Australia's image and standing here [in Beijing] that careful attention be given to how these decisions are conveyed to the Chinese, and in particular to avoid breaking, or being seen to break, any commitments,' the cable said.

3.17 When questioned about the above cable, Ms Hewitt told the Committee that it was departmental policy not to comment on reported material that had been leaked. [14]

3.18 Later in the hearing, DFAT was asked whether Mr Sun made 'representations concerning DIFF to the Australian embassy in Beijing saying that, while China knew the Australian government faced certain difficulties, it hoped the projects in the DIFF pipeline could be implemented'. Acting DFAT Deputy Secretary, Ms Penny Wensley, replied: 'There have certainly been exchanges with him in Beijing and it is my recollection that that is right'. [15]

3.19 DFAT also acknowledged that, in relation to the termination of DIFF, there had been 'a considerable number of exchanges right across the levels that I have described to you - middle levels and senior levels - in the system'. [16] The Committee sought details of all representations made by China and other countries but Mr Downer refused to provide such details to the Committee. Later in the same hearing, Ms Wensley told the Committee that:

I indicated that we have had input from our embassy in Beijing to our deliberations here and that we have factored advice from Beijing into the ongoing communications and discussions we have had about the management of this issue. These are views that are well known. It was recognised from the outset that there would be an impact on the aid program in China.

It was recognised at the outset that we would need to manage the implementation of the Government's decision with care in response to what would clearly be registered with us by China as concerns about the decision. That is what we have been doing since we advised them of that. The views that the Chinese government have conveyed to us through a variety of channels are well understood, have been taken into account and were taken into account in particular in the letter that Mr Downer wrote to the government of China and to other governments inviting them to consider possibilities of funding particular priority projects. [17]

3.20 Earlier, Ms Wensley had told the Committee:

As I say, we have always acknowledged that there would be concerns. It does, after all, represent 54.2 per cent of our total aid program to China.

We all understand that there would be concern and disappointment and that there would need to be a process of managing this. That was what led to the decision for Dr McCawley to travel to Beijing. That was what led to the decision to invite missions in Canberra to come in, as I understand it, to AusAID for a briefing. There has been a steady, measured process of briefing the governments concerned and of engaging in a dialogue with those governments in recognition that this is an issue of concern to them. [18]

3.21 During a visit to China, the Minister for the Environment, Senator Robert Hill, told a press conference on 15 July 1996 that 'Well, actually this might surprise you, but no-one raised it [the termination of DIFF] and I suspect it's because of the good work of the Embassy here which has been explaining to the Chinese it is a policy response based on the need for fiscal restraint'. [19] On 16 July 1996, a news item in The Australian was headed 'Beijing accepts aid cut: Hill', which was based on comments by Senator Hill at the press conference.

3.22 This article provoked a letter to the editor from the Minister Counsellor (Economic & Commercial), Mr Zhu Zhen Yuan, at the Chinese Embassy in Canberra, which was published in The Australian on 17 July 1996. In his letter he said:

The Chinese Government has, both prior and after the decision of the Australian government, expressed many times and through various channels its grave concern over the termination of DIFF. Deputy Minister Mr Sun Zhen Yu of the Ministry of Foreign Trade and Economic Cooperation has purposely, and on behalf of the Chinese Government, sent a letter to the Minister for Foreign Affairs Mr Alexander Downer to make clear the grave concern and position of our Government.

The Chinese Government still hope that the Australian Government can abide by the Agreement reached by our two Sides, work out an appropriate solution to the problems we both sides are confronting in the DIFF projects and TC program, so as to ensure a more healthy development of economic cooperation and trade between our two countries.

3.23 It is clear from information provided by DFAT officers and by the Chinese Embassy that the Chinese Government has conveyed its 'grave concern', to use the words of Mr Zhu, to the Australian Government on many occasions concerning the termination of the DIFF scheme.

Indonesia

3.24 The Indonesian Government also raised the cancellation of DIFF with Mr Downer before the formal termination of the scheme. During Mr Downer's visit to Indonesia in mid April 1996, the Indonesian Minister for National Development and Planning, Professor Ginandjar, expressed concern about the proposed termination of the DIFF scheme. The next day, the Minister of State for Research and Technology, Dr Habibie, spoke to Mr Downer about a proposed DIFF project, which he was keen to see succeed. On the same day, the Minister for Industry and Trade, Tungky Ariwibowo, referred to the heavy marine engineering training centre project, which Mr Downer did not know was a DIFF project until 26 June 1996. [20]

3.25 Correspondence available to the Committee also shows that the cancellation of DIFF projects was raised by at least one Indonesian Minister with the Australian Ambassador in Jakarta. On 4 April 1996, the Minister for Education and Culture wrote to Ambassador Taylor seeking continued Australian support for the 'Quality Improvement of Vocational Senior Schools Project'. On 14 May 1996, the Secretary General of the Indonesian Ministry of Education and Culture, Professor Hasan Walinono, also wrote directly to Mr Downer concerning a special education project for handicapped children which was to be funded by DIFF.

3.26 Dr Habibie sent Mr Downer a letter dated 13 June 1996 to express his concern about the termination of DIFF which was received in Mr Downer's office on 19 June 1996.

Philippines

3.27 On 22 April 1996, the proposed termination of DIFF was raised indirectly with the Deputy Prime Minister, Mr Tim Fischer, MP, by the Philippines Foreign Secretary, Mr Domingo Siazon, and directly by the Philippine President Ramos. [21] Mr Fischer told the House of Representatives that a summary of his discussions with both men were cabled to Canberra in the normal way. [22] Mr Downer acknowledged that, 'I saw through the cable summaries records of the Deputy Prime Minister's meetings. There is no question of that. My remarks referred to my own experience, not the experience of the Deputy Prime Minister.' [23]

3.28 Two days later, the Philippines Secretary of Agrarian Reform, Mr Ernesto D. Garilao, wrote to Mr Downer about DIFF. This letter was received in the Minister's office on 9 May 1996 but was passed to AusAID without Mr Downer seeing it. [24] A proposed reply, accompanied by the original letter, was submitted to Mr Downer's office on 11 June 1996. The delay in the preparation of the reply was due to a breakdown in AusAID systems. [25] The draft reply was not signed by Mr Downer until two weeks later, on the morning of 25 June 1996. [26] Mr Downer claims that he did not see Secretary Garilao's letter until he signed the reply. A further letter from Mr Garilao, dated 13 May 1996, was only drawn to Mr Downer's attention by AusAID on 28 June 1996, after its existence had been discovered by the media. Mr Downer drew this letter to the attention of the Parliament by writing to the Speaker of the House of Representatives on 19 July 1996.

3.29 On 6 May 1996, the Philippine Ambassador raised on behalf of President Ramos a particular DIFF-funded project. [27]

3.30 On 13 May 1996, Senator Michael Baume wrote to Mr Downer enclosing copies of two letters, one from the Secretary of Socio-Economic Planning, Mr Habito, addressed to the Australian Ambassador to the Philippines, and the other from the Chief of Staff, Office of the Philippines Vice President, Mr Rolando Ramirez, addressed to Mr Downer, about two DIFF projects. Mr Downer said in his letter of 19 July 1996 to the Speaker of the House of Representatives that he had not received the original of that letter, and neither had his Department nor AusAID. The Committee does not know when Senator Baume's letter (and attached correspondence) was drawn to Mr Downer's attention or when any reply to either Senator Baume or Mr Ramirez was signed. The Committee also noted that Mr Downer had not indicated what inquiries had been made to determine how the letter from Mr Ramirez had been conveyed to him and how and where it had gone missing.

3.31 Foreign Minister Siazon raised the issue of DIFF with Mr Downer during the ASEAN post-ministerial conference in Jakarta on 22 July 1996, the day on which Mr Downer's DIFF policy reversal was announced publicly.

Vietnam

3.32 During Mr Downer's visit to Vietnam on 4 and 5 July 1996, the Minister for Planning and Investment, Mr Do Quoc Sam, and the Foreign Minister, Mr Nguyen Manh Cam, expressed their disappointment to him about the termination of DIFF. [28]

General Comments

3.33 DFAT on a number of occasions during the public hearings referred to the decision to terminate DIFF as not causing substantial damage to the overall bilateral relationship with any of the DIFF recipient countries. However, Ms Hewitt, who, at one point, was concerned with the Committee's characterisation of the Department's evidence, said:

We did not refer simply to disappointment. We did recognise that there was concern in the region, that these concerns had been expressed and it was not a question but there would be a large number of projects which would not proceed.

We do not want to minimise the degree of concern; we want to be very clear and correct about that and express it objectively. So I would like to make sure that in your own thinking about that point you do not perceive our reaction as being one of understatement. [29]

3.34 The Committee sought details of all representations made to the Australian Government about the termination of DIFF, although it did not ask for the content of those representations. This information would have provided the Committee with an overview of responses from recipient countries. Mr Downer refused to provide this information. In a letter to the Committee dated 20 August 1996, Mr Downer said:

I am unable to provide this information as it could be harmful to Australia's foreign relations and would therefore not be in the public interest. It is the Government's view that the well established convention of confidentiality in high level government-to-government exchanges should be preserved.

3.35 The Committee is at a loss to understand Mr Downer's reasoning for withholding this information from the Committee. The Committee merely requested a list of the representations, not the contents of them. The Committee understands that the contents might contain sensitive information, the disclosure of which might not be in the public interest, and, accordingly, did not request to see the text of the representations. Moreover, all the ministerial representations, which would normally be regarded as the most sensitive of the representations received by the Government, have been identified by Mr Downer in the Parliament. It should be noted that the Committee has the power to receive information or take evidence in camera should any of the information be diplomatically sensitive.

3.36 The Committee also asked for a list of all cables received concerning representations made on the termination of DIFF, including those which reported discussions which Dr McCawley had with several governments in June 1996. The Committee also asked for details of their distribution to the Prime Minister and other Ministers and whether those Ministers responded to those cabled representations. In his letter to the Committee of 20 August 1996, Mr Downer said:

I regret that I am unable to make a list available as this has the potential to harm Australia's foreign relations and therefore its release would not be in the public interest. In relation to the request for details of the cable distribution, I am unable to make this information available as it concerns the deliberative processes of government and release of this would not be in the public interest. For this reason also, I am unable to indicate whether there were responses to cables from Ministers' offices.

3.37 Again, the Committee cannot understand Mr Downer's reasoning. As Mr Downer has already identified all the ministerial representations made directly to him, or at least claims to have done so, it appears odd that a list of the remaining representations has the potential to harm Australia's foreign relations with the four recipient countries over and above the harm which the decision to terminate DIFF has already caused. Should public identification of any particular representation pose a foreign relations problem, the Committee could receive details of that representation in camera. The Committee believes that, otherwise, it would be in the public interest to identify the range of representations made to the Australian Government on its decision to terminate DIFF.

3.38 The Committee understands that it is normal practice for cables, which are of any substance, received through the diplomatic cable network to be distributed to the Prime Minister and other Ministers who have an interest in the subject of the cable. The cables are also distributed to their departments and relevant agencies. The distribution of some highly sensitive cables might be restricted to fewer recipients. As most, if not all, of the cables conveying representations of foreign governments on the subject of the termination of DIFF would probably have been distributed in accordance with the normal distribution of substantive cables, the Committee can reasonably conclude that the Prime Minister and other Ministers with an interest in DIFF, and their departments and relevant agencies, would have received copies of those cables. The Committee would be astonished if this were not the case.

3.39 Mr Downer argued against disclosure of the distribution of cables on the grounds that it concerns the deliberative processes of government and that disclosure would therefore not be in the public interest. The Committee does not agree with Mr Downer's reasoning. The processes of government are not secret and should not be kept secret in a parliamentary democracy. Within those processes, it is accepted that it would not be within the public interest for deliberations of government, the advice generated by public servants and certain information protected by statute not be disclosed publicly. The Committee does not believe that the fact that a Minister received a particular cable is a matter which should, as a matter of principle, not be disclosed in the public interest. Similarly, it is hard to see why it would be contrary to the public interest for the simple fact that a particular Minister responded to foreign representations, without disclosing the nature of the response, to be provided to the Committee.

3.40 The refusal of Mr Downer to provide such basic factual information can only encourage speculation as to the real reasons for withholding it from the Committee.

3.41 At least three of the four main DIFF recipient countries had drawn their concern about the foreshadowed termination of DIFF to the attention of the Government prior to the formal decision on 8 May 1996. Some Ministers and at least one Head of State of those countries pointed out the importance they placed on particular high-priority projects. Despite being made aware of that concern, the Government decided to disregard those expressions of concern about the proposed termination of the scheme generally and the consequential cessation of high-priority projects of recipient countries, and still proceed to the termination of DIFF without any transitional arrangements, except for companies that had already been given Letters of Formal Offer.

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Mr Downer's Parliamentary Responses to Foreign Representations on the Termination of DIFF

3.42 Mr Downer was first asked a question in the House of Representatives on Tuesday, 18 June 1996 about foreign government responses to the termination of DIFF. The Shadow Minister for Foreign Affairs, Mr Laurie Brereton, MP, asked:

Can the minister confirm that China, Indonesia, the Philippines and Vietnam have all made official protests against the government's decision to axe development projects to be funded by the Development Import Finance Facility? Has the Chinese Ambassador stated that your decision will 'do no good to the Australian side in terms of our credibility and business interests? In addition, has the Chinese government now made at least four representations at vice-ministerial level seeking a reversal of the decision to scrap DIFF? How do you reconcile your stated commitment to extend and develop Australia's engagement with Asia with the serious regional backlash you are provoking, to the detriment of our international reputation?

3.43 In his answer, Mr Downer said that:

As I have travelled around South-East Asia and North-East Asia and met foreign ministers and other ministers from those countries there and here, not one minister - be he a foreign minister or an economic development minister - has expressed any concern to me about the abolition of the DIFF program. Not one! They would be writing me letters. They would be expressing their concerns to me. There has been not one raised.

...

The fact is that of course some officials who are involved in the details of these programs have raised issues with my department, and you would not expect otherwise. But if this was a serious issue in our relationships they would raise it at the ministerial level. [30]

3.44 On Monday 24 June 1996, Mr Downer acknowledged in the Parliament that Chinese Vice Minister Sun Zhenyu in the Ministry of Foreign Trade and Economic Cooperation wrote to him on 24 April 1996 expressing the concern of the Chinese Government about the then proposed termination of DIFF. Mr Downer defended his answer of 18 June 1996 that he had not received any ministerial representations on DIFF by saying that Mr Sun was not a minister; he was equivalent to a departmental secretary. He said he would check his records about any ministerial representations on DIFF but he had no recollections of any.

3.45 The Committee considers the fact that Mr Downer attempted to defend his answer of 18 June 1996 by resorting to a reflection upon the status of Mr Sun only served to emphasise how tenuous and unconvincing was his answer. The Committee noted that Mr Sun had signed the Memorandum of Understanding in respect of DIFF on behalf of the Chinese Government while an Australian Minister, Mr Michael Duffy, MP, signed for the Australian Government.

3.46 That evening, Mr Downer made a brief statement to the House of Representatives in which he confirmed that he had not received any ministerial representations on DIFF since the Government announced the termination of the scheme. He said, however, that:

So that the record is complete, I have had records checked back to 11 March, when the government came into office, to establish whether this issue was discussed at all by me with any minister prior to the abolition of the DIFF program. On 16 April, a month before the abolition of the DIFF program, the program was briefly referred to in a discussion with me in Jakarta by Professor Ginandjar, the Indonesian Minister for national Development Planning; and Dr Habibie, the Minister of State for Research and Technology. I tell the House this so that the record is complete. [31]

3.47 On the morning of 25 June 1996, Mr Downer signed a reply to the letter from the Philippines Secretary of Agrarian Reform which had been submitted to his office two weeks earlier. [32] In question time on the afternoon of 25 June 1996, however, Mr Downer made no mention of Mr Garilao's letter - in spite of the fact that it was a further ministerial representation in addition to those disclosed on the previous evening. In reply to a question on 25 June 1996 he said: 'I gave an undertaking to the House during my answer to questions yesterday and during the censure debate that I would check the records in my department on this matter and was quite happy to come back to the House and add anything, and indeed I did that. Frankly, Mr Speaker, I have nothing else to add.'

3.48 Later in the afternoon of 25 June 1996, Mr Downer's office was obliged to acknowledge that Dr Habibie had written to Mr Downer concerning DIFF. Mr Downer did not disclose the existence of Mr Garilao's letter until his statement on the following day, 26 June 1996.

3.49 On 26 June 1996, Mr Downer made a statement to the House of Representatives admitting that he had inadvertently misled the House. He confirmed that Professor Ginandjar had expressed concern about the proposed abolition of DIFF and that Dr Habibie had raised the matter of a specific DIFF project. He said that he knew before 18 June 1996 that Dr Habibie was writing to him about DIFF but this letter was not received in his office until 19 June 1996 and not read by him until the afternoon of 24 June 1996. He added that the Indonesian Minister for Industry and Trade, Tungky Ariwibowo, made no reference to DIFF but referred to a heavy marine engineering training centre in a conversation with him in April 1996. Mr Downer said that he was told only that morning that the centre was a DIFF project. Mr Downer also said that he had been shown that morning a record of a conversation on 6 May 1996 with the Ambassador of the Philippines in which she had raised with him on behalf of the President of the Philippines a particular DIFF-funded project. [33]

3.50 The Committee examined during the public hearings why information, which was held in AusAID or DFAT, was not used by Mr Downer before 26 June 1996.

3.51 In DFAT/AusAID, as in other departments, there is a system of 'possible parliamentary questions' (PPQs) which 'provide our portfolio Ministers with accurate, succinct and timely information on significant issues of current portfolio concern for use in Parliamentary question time'. [34] The Committee sought to establish whether the PPQs prepared by AusAID during the second half of June 1996 provided Mr Downer and other portfolio ministers with accurate advice on the termination of DIFF, especially in relation to the representations made by recipient countries.

3.52 AusAID told the Committee that:

There were five PPQs on DIFF issues as at 17 June 1996 ... These were not updated throughout the period in question. Four additional PPQs were added on 27 June. Any further advice from AusAID and DFAT was provided direct to the minister not in PPQ format. [35]

Mr Downer subsequently advised the Committee that one of the PPQs referred to representations from Dr Habibie, but curiously he did not indicate whether this was one of the five PPQs on DIFF issues in his brief on 18 June or whether it was one of the four additional PPQs added on 27 June 1996.

3.53 Earlier, Mr Kanaley told the Committee, 'there is a PPQ brief, and it is updated as sensitive topics arise that might be raised in parliament. As days go on, if the topic changes for some reason or there is need for modification, the brief is then updated.' [36] Mr Kanaley's statement is in accord with the DFAT Administrative Circular dealing with PPQs, which states, 'It is essential that PPQs prepared for our Ministers contain the most up-to-date information. PPQs therefore can require regular, even daily, revision when Parliament is sitting.' [37]

3.54 On 18 June 1996, Mr Downer answered a question about recipient country representations on the termination of DIFF. The Committee does not know whether any of the five DIFF PPQs then in Mr Downer's brief covered this particular topic. As discussed above, Mr Downer has not advised the Committee whether or not one of these five PPQs referred to representations by Dr Habibie. Nor has he indicated whether any PPQs referred to ministerial representations from any country other than Indonesia. Given the fact that one week earlier, on 11 June 1996, AusAID had submitted to Mr Downer's office a draft reply to the first letter of the Philippines Secretary of Agrarian Reform, it would be a serious omission if no reference was made to that ministerial representation in the PPQ briefing available to Mr Downer on 18 June 1996. In any event, Mr Downer, in his answer to the question, misled the Parliament.

3.55 On 18 June 1996, Mr Downer's office was in possession of the first letter to Mr Downer from the Philippines Secretary of Agrarian Reform, Mr Garilao, and the draft reply had been submitted to Mr Downer's office by AusAID on 11 June 1996. The presence of this letter in Mr Downer's office proves that his answer to the question on 18 June misled the Parliament.

3.56 On 20 June 1996, Dr Habibie's letter, which had been received the previous day, was referred to by AusAID officials in briefing Mr Downer. With the receipt of this letter, Mr Downer would have to change the answer he gave to the Parliament on 18 June 1996 should he be asked a similar question. However, the PPQs were not changed to reflect this significant new development.

3.57 On 21 June 1996, AusAID passed to Mr Downer's Canberra office a record of conversation he had had with Indonesian Minister for National Development and Planning, Professor Ginandjar. This record proved that Mr Downer had misled the Parliament.

3.58 In the morning of Monday, 24 June 1996, AusAID faxed to Mr Downer's office the record of conversation which Mr Downer had had with the Indonesian Minister of State for Research and Technology, Dr Habibie. Leaving aside the question of whether or not the PPQs available to Mr Downer on 18 June 1996 contained any reference to any representation by Dr Habibie, this record of conversation also showed that Mr Downer had misled the Parliament.

3.59 Yet, inexplicably, PPQs were not updated to reflect Dr Habibie's letter or the records of conversation with Professor Ginandjar and Dr Habibie. Other documents might have been provided to Mr Downer but these, by his own admission, were not read until after question time on Monday, 24 June 1996. The PPQs, which are the documents referred to by Ministers in answering parliamentary questions, did not reflect these developments. That afternoon, Mr Downer was asked two further questions about foreign representations on DIFF and was subject to a censure motion.

3.60 Later that day, Mr Downer read AusAID's material on this subject. He made a statement to the House of Representatives that evening in which he admitted that two Indonesian Ministers had spoken to him about the termination of DIFF contrary to his answer in the Parliament on 18 June 1996. Despite these very significant developments, the DIFF PPQs were not altered in any way. Mr Downer's failure to require the preparation of up to date and accurate briefing for question time is extraordinary. Such an omission can only lead to speculation that the Minister for Foreign Affairs was not anxious to learn of further material which contradicted his statement to the House of Representatives on 18 June 1996.

3.61 On 25 June 1996, Mr Downer was subjected to a barrage of nine questions without notice during question time and a second censure motion. The PPQs were still not changed.

3.62 On 26 June 1996, Mr Downer made a statement to the House of Representatives admitting that he had inadvertently misled the Parliament in his answer to a question on 18 June 1996. A further eight questions without notice were directed to him on DIFF and he was again subjected to a censure motion.

3.63 Four new PPQs on DIFF were added to Mr Downer's brief for question time on 27 June 1996.

3.64 There was discussion during the public hearings about the Administrative Circular's requirement for the preparation of fewer PPQs than before. The Circular stated:

Ministers require fewer PPQs. As both Ministers are in the House of Representatives it is expected that fewer questions will be directed towards them.

Last year the Department, Austrade and AusAID produced over 2,000 new and updated PPQs. The Ministers are keen to reduce this figure by 75% to about 500 or fewer.

The Ministers would also like to see a reduction in the number of briefing updates required. The greater use of generic briefing should avoid the need for overlapping PPQs and constant updating. [38]

3.65 The question of Ministers wanting less information and whether this had any bearing on the fact that the DIFF PPQs were not updated between 17 and 27 June 1996 was discussed at some length during the Committee's hearings. Ms Hewitt told the Committee, in relation to the requirement for fewer PPQs generally, that:

I think that that is a matter for professional judgement and I would not put it in terms of information either being provided or not being provided. If there is an unrestricted idea about the volume of paper that can flow, you have desk officers at a very junior level wanting to change a document perhaps on a daily basis to make some minor adjustment in a background factual point that may or may not be pertinent to the sort of response the minister might be interested in providing.

What we were seeking to do was to have officers exercise more professional judgment. What was important was what needed to be adjusted and to make sure that information was correct and focused but not necessarily hugely voluminous. Ministers, in my experience, do have different appetites for paper and it was really a question of making sure we put some further effort into focusing that material to make it as useful as possible. [39]

3.66 The Committee appreciated the need for PPQs to be focused and relevant but noted that, as PPQs were required to be approved by at least branch or division heads, there was little likelihood that junior desk officers would deluge the system with unnecessary new or updated PPQs. In relation to the period in question, AusAID told the Committee that:

the potential range of information you could provide in PPQs is almost infinite. You are always making judgements as to which ones you should provide, particularly in a situation where you are trying to keep those numbers within reasonable bounds. It that was an error of judgment on AusAID's part, then that was an error of judgment. [40]

3.67 AusAID confirmed, however, that it 'certainly was not the case that the circular which spoke of trying to reduce the number of PPQs had any impact whatsoever on the flow of papers on this subject'. [41]

3.68 The Committee noted that there were other forms of communication available to AusAID to brief the Minister on DIFF matters and officers during the hearings referred to some of those other forms. Nevertheless, it was in question time that the Minister came to grief and it is the PPQ which is the main reference tool available to the Minister in answering questions without notice.

3.69 The Committee sought to obtain copies of the AusAID PPQs for the period from 18 to 27 June 1996. The Minister refused to provide them to the Committee. In his letter to the Committee of 20 August 1996, he said:

I am unable to agree to the provision of the PPQs as these papers represent advice to the Minister on the public presentation of sensitive policy. I consider that it is in the public interest that the important relationship of confidence between officials and Ministers in such matters be protected.

3.70 Ms Hewitt told the Committee that:

while all arms of the portfolio prepare these possible parliamentary questions and prepare possible responses, these documents are provided without necessarily carrying the status of having been approved like government policy lines are. They are suggested lines from departments to the minister. Their precise status as documents is difficult to pinpoint. [42]

3.71 The Committee notes, however, that the Administrative Circular relating to the preparation of PPQs, which was distributed by Ms Hewitt, states:

PPQs promote and defend Government policy. Following approval by Ministers, they become fundamental public policy documents, whether or not they are used in Parliament. Once approved they are used as media talking points in Ministers' offices and by Departmental spokespersons, they can be used as briefing in other forums such as Senate Estimates hearings, and are sometimes sent to posts as policy guidance documents. [43]

3.72 The circular also states that, 'Once PPQs are approved by Ministers they are retained in briefing folders ... in Ministerial offices for as long as necessary'.

3.73 The Committee acknowledges that PPQs would be regarded simply as departmental advisory documents until they are approved by the Minister. However, once approved, it is obvious from the Administrative Circular that approved PPQs have a wide use by officers as well as the Minister. They are clearly intended to serve as authoritative statements of fact and government policy.

3.74 It would be a reasonable presumption on the part of the Committee that the five PPQs as at 17 June 1996 were in the Minister's briefing folders and were therefore approved by him. Consequently, the Committee cannot understand why the Minister will not provide copies of the PPQs prepared by AusAID during the period in question. Such reluctance to co-operate with the Committee only serves to encourage speculation as to the real reason for withholding such documents from the Committee.

3.75 The Committee asked AusAID and DFAT: 'Was Mr Downer's statement in parliament on 18 June that he had received no ministerial representations whatsoever concerning DIFF consistent with the PPQ brief on the subject provided to him? [44] Neither AusAID, DFAT nor Mr Downer have answered this question.

3.76 AusAID told the Committee that Mr Downer's statement of 26 June 1996 and his letter to the Speaker of the House of Representatives of 19 July 1996 were accurate and complete. [45] AusAID also said that the Minister's statement of 26 June 1996 was consistent with what the PPQs contained. The Director General of AusAID said 'There are no elements of those PPQs which in any way contradict the minister's statement to the House. There were other elements of those PPQs, certainly, but none of them were in any way in conflict with the Minister's statement to the House.' [46] Mr Downer has also written 'I would emphasise the point made by the Director General of AusAID during the hearings that the information contained in the PPQs is entirely consistent with my statement to Parliament' [47] (on 26 June 1996).

3.77 The Committee would make the point that the statements above do not answer its question concerning the consistency between the PPQ briefing available to Mr Downer at question time on 18 June 1996 and his statement about representations concerning DIFF on that day. AusAID and Mr Downer have said that the PPQs do not contradict the Minister's statement of 26 June 1996. The same PPQs were available to the Minister when he answered the question on DIFF on 18 June 1996. As his answer on 18 June 1996 was contradictory to his statement on 26 June 1996, did the Minister contradict the information contained in the PPQs on 18 June 1996? Without seeing the PPQs, the Committee is not in a position to answer this question, but Mr Downer's refusal to make the PPQs available to the Committee can only encourage speculation that he is attempting to conceal evidence of deliberate deceit.

[Contents]

The Government's Response to Foreign Representations on the Termination of DIFF

3.78 Although Mr Downer told the House of Representatives on 25 June 1996 that the Government would not be reviewing the decision to terminate the DIFF scheme, [48] he made a partial policy reversal on 17 July 1996 by agreeing to consider funding some high priority individual DIFF projects within AusAID's bilateral program allocation for 1996-97. [49] This embarrassing policy reversal reflects both the strength of the responses from recipient countries, which were obviously more than just 'disappointment' and 'concern', and the lack of understanding on the part of Mr Downer and the Government of the implications of the Government's original decision.

3.79 Following Mr Downer's decision on 17 July 1996 to consider some high-priority projects, he signed letters to relevant Ministers in the four countries most affected by the termination of DIFF - China, Indonesia, the Philippines and Vietnam - the next day and these were faxed to Australian embassies in those countries on 19 July 1996. On the same day, AusAID staff also notified relevant embassies in Canberra of the dispatch of the letter to their governments. The decision was released publicly in Australia on Monday, 22 July 1996.

3.80 Mr Downer has made it clear that only projects with a 'strong humanitarian, poverty alleviation and environmental focus' would be considered. [50] AusAID was unable to provide any definition of the types of projects that might be covered by such terms. [51] AusAID went on to say:

I think you have to stay away from specific definitions and look at the actual particular projects concerned. You can fall far too easily into the trap of saying, 'A water project is humanitarian and another sort of project is not'. The reality is that you need to look at these things project by project and see the impact they have on the quality of people's lives. That is what defines a humanitarian project. [52]

3.81 In the letters dispatched on 19 July 1996 to Ministers of the four DIFF recipient countries, Mr Downer asked each of those countries to nominate their very high priority projects for funding consideration within the relevant bilateral aid programs. Once the nominated priorities have been received, they would be appraised if this had not already been done. This would enable an assessment to be made regarding the humanitarian focus of the project. AusAID ruled out drawing up a check list for the nominated projects to be assessed against when being considered by the Australian Government. Only projects for which letters of advice had been issued would be considered by the Government under this arrangement.

3.82 AusAID told the Committee that the number of projects that might be approved by the Australian Government in respect of individual countries would depend on the amount of funds allocated to the respective bilateral aid programs in the August 1996 Budget and the size of the projects. It might be only one project approved, or two or even more but for no country would many projects be approved. Decisions would be made after discussions with the governments of the respective countries. The Budget figures are detailed in Chapter 6.

Footnotes

[1] AusAID/DFAT, submission, p. 22.

[2] AusAID/DFAT, submission, p. 23.

[3] Committee Hansard, pp 151-52.

[4] Committee Hansard, p. 152.

[5] Committee Hansard, p. 175.

[6] Committee Hansard, p. 174.

[7] AusAID/DFAT, submission, p. 25.

[8] Committee Hansard, p. 177.

[9] Committee Hansard, p. 461.

[10] Committee Hansard, p. 461.

[11] AusAID/DFAT, submission, p. 25.

[12] AusAID/DFAT, submission, p. 25.

[13] Committee Hansard, p. 334.

[14] Committee Hansard, p. 331.

[15] Committee Hansard, p. 342.

[16] Ms Penny Wensley, Acting Deputy Secretary, DFAT, Committee Hansard, p. 335.

[17] Committee Hansard, pp 342-43.

[18] Committee Hansard, p.157.

[19] Transcript of press conference attached to letter of 21 August 1996 from AusAID and DFAT to the Committee.

[20] House of Representatives Hansard, 26 June 1996, p. 2782.

[21] House of Representatives Hansard, 26 June 1996, p. 2788.

[22] House of Representatives Hansard, 26 June 1996, p. 2789.

[23] House of Representatives Hansard, 26 June 1996, p. 2791.

[24] Committee Hansard, p. 118.

[25] Committee Hansard, p. 14.

[26] House of Representatives Hansard, 26 June 1996, p. 2782.

[27] House of Representatives Hansard, 26 June 1996, p. 2782.

[28] Committee Hansard, p. 10.

[29] Committee Hansard, p. 27.

[30] House of Representatives Hansard, 18 June 1996, p. 2064, emphasis added.

[31] House of Representatives Hansard, 24 June 1996, p. 2591.

[32] House of Representatives Hansard, 26 June 1996, p. 2781.

[33] House of Representatives Hansard, 26 June 1996, pp 2781-82.

[34] DFAT, Handbook, Possible Parliamentary Questions, 1.1, DFAT Administrative Circular No. 58/96 dated 12 April 1996.

[35] Committee Hansard, p. 118.

[36] Committee Hansard, p. 17.

[37] DFAT, Handbook, Possible Parliamentary Questions, 7.1, DFAT Administrative Circular No. 58/96 dated 12 April 1996.

[38] DFAT Administrative Circular No. 58/96 dated 12 April 1996, p. 1.

[39] Committee Hansard, p. 127.

[40] Committee Hansard, p. 125.

[41] Committee Hansard, p. 133.

[42] Committee Hansard, p. 122.

[43] DFAT, Handbook, Possible Parliamentary Questions, 1.2, DFAT Administrative Circular No. 58/96 dated 12 April 1996.

[44] Committee Hansard, p. 18.

[45] Committee Hansard, p. 118.

[46] Committee Hansard, p. 119.

[47] Letter to the Committee dated 20 August 1996, from the Minister for Foreign Affairs, Mr Alexander Downer, MP.

[48] House of Representatives Hansard, 25 June 1996, p. 2627.

[49] AusAID/DFAT, submission, p. 25.

[50] AusAID/DFAT, submission, p. 25.

[51] Committee Hansard, p. 139.

[52] Committee Hansard, p. 139.