Australia can't miss chance to strengthen south-east Asia ties

Australia's foreign policy elite are plagued by anxieties about our status in south-east Asia and fear a future where the region we once neglected will, at its economic zenith, abandon us. It doesn't have to be this way.

New Lowy Institute research shows international development partners across the globe are letting south-east Asia down.

China's financial support has diminished by two-thirds, driven by contractions in its infrastructure investment. Four of the region's top five donors (China, Japan, Korea and the Asian Development Bank) spent less in 2022 than they did in 2019, dispelling the myth the recent decline is just a course correction after COVID-era largesse.

The United States and European Union have also scaled back support.

There is ample space for Australia to be a decisive, valued partner to south-east Asia. We don't need to muscle in - we need to step up.

Australia is south-east Asia's eighth-largest development partner. While the volume of our support can't match the weight of Asia's economic behemoths, the composition of that support matters.

We are the third-largest provider of grants, and our rapid scale-up of support in 2020 displayed a responsiveness and preparedness out of reach for many other donors. We specialise in the soft governance, health and education sectors, despite the constant temptation of foraying into the seductive - and geopolitically loaded - hard infrastructure competition space.

Canberra's renewed focus on south-east Asia is clear. The Australia-ASEAN summit in March this year was a success, DFAT has established an office of south-east Asia, and Foreign Minister Penny Wong's visits to every south-east Asian state (except Myanmar) have not gone unnoticed.

And although there's been no marked increase in Australia's official development assistance to south-east Asia, there's been plenty of tinkering at the edges to make it clear that the government is pushing private sector engagement.

A raft of measures to incentivise Australian investment in the region have been implemented, and a $2 billion south-east Asia Infrastructure Financing Facility established.

But those measures are not substitutes for more foreign aid, and are likely to operate primarily in the region's largest economies. Poorer south-east Asian countries will require a different approach, and with the new country strategies due for release, the allocation of Australia's aid is ripe for adjustment.

The lower-income countries of Cambodia, Laos and Timor-Leste, not to mention war-ravaged Myanmar, are much less likely destinations of Australian private investment.

As architecture to enable commercial links in scaled up in the big emerging markets, the smaller economies will barely register. DFAT should consider a more active dual-track strategy for south-east Asia, whereby the aid budget is increasingly weighted to economies less able to take advantage of Australia's private investment.

Indonesia, the region's largest economy, has been receiving more than half of Australia's aid to the region. But it graduated to an upper-middle income country last year. There's no question Indonesia is still in need of development assistance, but smarter allocation could mean more impact from the same resources.

In places where Canberra has reason to be more concerned about its lighter footprint on less fertile ground, like less developed Cambodia and Laos, the pull back of other partners like China means the return on Australia's investment could be higher than ever.

On climate change, we can trust our instincts. While the rest of the world is falling short in supporting south-east Asia's energy transition, with climate finance down 15 per cent, Australia is standing firm.

Australia's commitments to rejoin the Green Climate Fund, albeit with a "modest contribution" of $50 million, and replenish the Asian Development Fund with $492 million, are welcome demonstrations of Canberra's intention to bolster multilateral solutions. And Australian bilateral climate contributions to south-east Asia have more than tripled in eight years.

On education, the ASEAN Awards and other scholarship programs have been instrumental in establishing deep and broad ties. If government can resist the siren call of pre-election immigration cuts and stay the course, we will continue to reap the benefits of a network of influential alumni throughout the region.

Canberra's anxieties about Australia's place as a partner to south-east Asia are inflated by an outdated perception that the donor space is crowded.

It's not, and in fact it's increasingly deserted. There is room enough for us.