Australia Offers Indonesia $1 Billion to Aid COVID-19 Recovery

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Australia Offers Indonesia $1 Billion to Aid COVID-19 Recovery

The goodwill pledge is set to arrest a steady decline of Canberra’s aid to Southeast Asia’s most populous country.

Australia Offers Indonesia $1 Billion to Aid COVID-19 Recovery

Prime Minister Scott Morrison and Indonesian President Joko Widodo laugh during a photo op in Jakarta on October 20, 2019.

Credit: Flickr/Australian Embassy Jakarta

Australia has agreed to lend up to $1 billion to Indonesia to aid the country’s COVID-19 recovery, the latest in a line of measures designed to bolster Canberra’s relationships with its Southeast Asian and Pacific neighbors.

According to a report in The Australian newspaper, the loan is intended as a goodwill gesture that will help forestall a serious financial crisis in Southeast Asia’s largest economy. It comes after a decade in which Australia’s aid to Indonesia has fallen by more than half, dropping from 515 million Australian dollars ($374.9 million) in the 2014-15 financial year to 255 million Australian dollars ($185.6 million) in 2020-21.

The standby loan, which is expected to be officially announced in the coming weeks, could be drawn on as needed by the government of President Joko “Jokowi” Widodo, which is currently weathering a severe outbreak of COVID-19.

In recent months, the contagion has scythed its way across the Indonesian archipelago, racking up 440,569 infections and 14,689 deaths as of publication, the highest numbers in Southeast Asia. However, many experts believe that the official figures understate the true extent of the disease’s spread given Indonesia’s halting public health response and glacial rates of testing, which are among the lowest in the world.

Last week, Indonesia’s economy fell into recession for the first time since the Asian financial crash of 1997-98, the political aftershocks of which brought down the 32-year New Order dictatorship of President Suharto. According to Statistics Indonesia, the central statistics agency, Indonesia’s economy contracted at a 3.5 percent annual pace in July-September, the second consecutive quarterly contraction, after a 5.3 percent contraction in April-June.

The Indonesian government has earmarked more than $90 billion for COVID-19 recovery, but sluggish disbursement and continuing spot fire outbreaks of the disease, especially in densely populated Java, have hindered the country’s recovery.

Australia’s Department of Foreign Affairs and Trade said the two nations were working closely together to deepen the country’s COVID-19 response and recovery effort. “Australia will continue to work in partnership with Indonesia, as well as bilateral donors and international financial institutions, on options for further assistance,” a DFAT spokesperson told The Australian.

The pledge by Canberra follows the granting of a $1 billion loan from the China-backed Asian Infrastructure Invest­ment Bank (AIIB) in June. Co-financed with the Asian Development Bank and World Bank, the AIIB loan consists of $750 million in economic aid for businesses and households, and an additional $250 million to support the country’s immediate public health response.

During his visit to Jakarta last month, Japanese Prime Minister Suga Yoshihide offered Indonesia 50 billion yen ($473 million) in low-interest loans to help fight the deadly contagion. The pledge followed 32 billion yen in loans that Tokyo pledged in February.

Coming amid this flurry of funding commitments, the Australian pledge is a smart move: a low-risk play that telegraphs a message of goodwill to Australia’s populous northern neighbor, while helping to counteract Beijing’s robust COVID-19 diplomacy. It is just the latest of such pledges to partners in Southeast Asia in the Pacific. Last month, The Age reported that Australia is in the process of finalizing a Southeast Asian aid package worth hundreds of millions of dollars over four years, reversing a steady decline in Australia’s aid to the Southeast Asian nations.

Indonesia will also have access to potential COVID-19 vaccines under Australia’s $500 million commitment to the global COVAX Facility scheme, which aims to ensure rapid and fair global access to COVID-19 vaccines. As the virus continues its deadly spread, Jokowi’s government has also sought to secure access to potential COVID-19 vaccines from pharmaceutical firms in China and the United Kingdom.

These dueling pledges demonstrate the extent to which COVID-19 recovery has become a strategic battleground in Southeast Asia. As this latest pledge shows, this is a competition in which Australia is shaping as an increasingly important player.