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Enter the Dragon: Australia, China and the New Pacific Development Agenda


Proposed New Pacific Infrastructure Initiative is Chasing Mythical Dragons, Report Finds

Jubilee Australia, Caritas Australia and UNSW released a new report today, Enter the Dragon: Australia, China and the New Pacific Development Agenda, about the proposed new infrastructure fund for the Pacific.

The report is strongly critical of the proposed Australian Infrastructure Financing Facility for the Pacific (AIFFP), arguing that the rationale for the scheme has been made on faulty premises, that the proposed architecture is inadequate and that the process in bringing legislation to make the scheme a reality has been rushed.

Summary of findings:
● No complete assessment of the infrastructure needs of Pacific island nations yet exists. The only projections that have been done (by the Asian Development Bank) are generic and suffer from serious shortcomings, largely to do with the methodology used.
● The initiative appears to be motivated by anxiety about the increased presence of Chinese aid and investment in the region, despite the fact that Australia remains at present the largest Pacific donor and that China is behaving like a fairly traditional aid donor.
● The program appears worryingly similar to a joint scheme between Efic and AusAID in the 1980s and 1990s, which was abandoned in 1996 after a lack of compelling evidence that it was delivering sustainable development in the most needy countries or populations
● The new loans program risks increasing debt problems to a region that is already suffering from severe debt distress. This risk of increasing indebtedness will be greatest if the loans are given to or guaranteed by Pacific governments. But loans to private corporations still could produce debt and foreign exchange headaches ,and are less likely to bring sustainable, pro-poor development.
● The AIFFP is premised upon a growth-based development model, even though no clear and proven recipe exists for creating economic growth, especially for the small-island nations of the Pacific.

The report recommends that no further steps be taken to progress the AIFFP until after the upcoming Federal election, until a more complete and public assessment of infrastructure needs in the Pacific is done, and until a more complete and thorough investigation of the appropriate mechanisms for an infrastructure financing program can be explored.

Report co-author and Executive Director of Jubilee Australia Dr Luke Fletcher said:
‘Rather than worry about mythical Chinese dragons, the real threat here is the danger that we will be releasing the dragon of unsustainable debt into the Pacific.’

‘The AIFFP is a solution to a crisis that is largely exaggerated and to a problem that has yet to be carefully and sufficiently demonstrated. China is not taking over the region, its aid program is still smaller than Australia’s, and it is largely acting like any other aid donor. Moreover, there is no clear data demonstrating how much Pacific infrastructure is needed, what it is needed for, and what countries it should be focused on.’

‘For an initiative that would fundamentally reshape Australia’s aid program in profound ways, there has been scandalously little public debate, the consultation process has been rushed, and parliamentary consideration has been limited. This legislation should not be waved through in parliament next week.’

Report co-author Dr Pichamon Yeophantong said:
‘Inadequately-regulated Australian infrastructure schemes have the potential to result in the same bad outcomes as the Chinese ‘low quality’ projects that give rise to long-term financial and reputational costs. Should Australia seek to occupy both the strategic and moral high ground in the region, then Canberra's foremost priority in the Pacific should be building trust and enhancing its reputation as a constructive partner in Pacific nations’ sustainable development. Money might be able to buy influence, but influence without legitimacy and a degree of trust will invariably be short-lived.’

Paul O’Callaghan, Executive Director of Caritas Australia said:
‘Basing Australia’s new pivot to the region on a concessional loan model which was rejected by previous Australian governments because that model was found to cause debt traps for the most vulnerable countries is not an ideal policy approach.’

About the AIFFP
The AIFFP would combine $500 million in grants from DFAT with $1.5 billion in loans from Efic—Australia’s export credit agency—to create a $2 billion concessional finance mechanism for infrastructure for the fourteen Pacific nations and Timor-Leste.

Legislative amendments to the Efic Act—reforms that are seen as the first step in creating the mechanism for the AIFFP—are due to be discussed in the Senate next week. Earlier this week, a Senate Inquiry released its report on AIFFP, recommending that the program proceed.