Pacific foreign aid in doubt as budget looms

There are fears foreign aid to Australia's South Pacific neighbours could be in for a chop in next week's budget and experts say that would leave the door open to an ever increasing Chinese influence in the region.

Australia has committed to a doubling of its aid budget to about $8 billion by 2015, but there is concern that next week's budget could slash that target.

Professor Stephen Howes, director of International and Development Economics at ANU, says the Government could even scrap the plan altogether.

"There is also speculation that the Government, if it hits the pause button this year, will push back the 2015 target or that they might abandon it altogether," he said.

Regional experts fear that could give China's growing influence even more room to move.

From the tiniest atolls to the bigger island states of the South Pacific, China is throwing its largesse around.

In East Timor it is a multi-million dollar defence headquarters; in the Cook Islands an impressive sporting complex and in Vanuatu the regional centre of the Melanesian spearhead group, just to name a few.

Fergus Hanson, from the Brookings Institute in Washington, has done four reports into China's aid program in the region.

"If we take a starting point of about 2005 to the present, China has increased aid from a relatively modest amount - roundabout $30 million a year - up to around a level of around $200 million a year," he said.

"It's got quite a large diplomatic presence.

There's different reports that say it's got the most number of diplomats on the ground in the countries that it covers." Playing by their own rules Professor Richard Herr is the director for the Centre of International and Regional Affairs at the University of Fiji and says China plays by its own rules.

"They're not particularly good at working multilaterally and yet in the South Pacific area a lot of our relationships are multilateral," he said.

"And it doesn't have an effective aid coordination arrangement so that aid comes out of a number of different baskets in Beijing and so they don't actually have an aid policy that can coordinate effectively with regional or indeed even international efforts." What also worries regional observers is that much of China's engagement is now delivered in the form of soft loans.

Fergus Hanson says this can hamper development rather than promote it.

"In the case of a country like Tonga, for example, you're talking about 30 per cent of the country's GDP is actually accounted for in soft loans pledged by China," he said.

"One consequence could be we're pushed to help these countries get out of their debt situation.

So I think that would certainly be something we'd want to avoid; having to help repay Chinese loans." Professor Howes led the Government-commissioned review into foreign aid last year.

He concluded that the South Pacific had the highest strategic value for Australia and recommended significant aid increases.

"For PNG and Solomon's we recommended a fairly small increase on the grounds that we weren't confident that we'd get a high value for a major expansion of those aid programs because of the underlying governance problems," he said.

"South Pacific microstates we recommended a doubling of aid." To keep the Pacific in Australia's sphere of influence and aid delivery transparent, Professor Herr says the Federal Government needs to stay on track with its aid commitments.

"These are people that need education, health, job opportunities [and they're] all on our doorstep," he said.

"These are Papua New Guinea, Solomon Islands, Vanuatu, Fiji and these are the states that have the most resources and in that sense our aid, and the effectiveness of our aid, will certainly be an issue with these states."

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