Murray McCully’s attack on New Zealand’s foreign aid programme

band aid on globe

These days, much of our foreign aid should be being directed into providing a safety net for the poor. If you count the oil price rise in 2007 and the large hike in world food prices, the current financial meltdown is the third crisis in a row to hit poorer nations in less than 2 years. Logically, that should make it imperative to focus on the grassroots needs of vulnerable communities – especially in the South Pacific, right?

Wrong. Apparently, the New Zealand government sees these things differently. The same Key administration that is planning to cut jobs at social welfare in the face of the worst recession in 50 years is also shifting our focus away from relieving poverty abroad. Foreign Minister Murray McCully has just set in motion his long- nursed plans to scrap the semi-independence of the New Zealand aid programme, and tailor it more closely to our economic and diplomatic interests.

No matter that a major independent survey came out strongly in favour of NZAID’s semi-autonomy eight years ago, or that its workings were favourably peer reviewed by the OECD in 2005 and not uncritically in a ministerial review by former National MP Marilyn Waring at the same time Despite critical comments about NZAID by the auditor-general last year, there is no mandate for McCully to thoroughly transform our aid programme with virtually no consultation, parliamentary scrutiny or public discussion.

In particular, McCully has trashed NZAID’s emphasis on alleviating and eliminating poverty. That framework is something he has chosen to ridicule as a handout, not a hand-up. “You could ride around in a helicopter pushing hundred-dollar notes out the door and call that poverty elimination,” McCully said recently. As even the NZ Herald has noted, these comments must be particularly galling to the organisations that actually deliver this country’s aid, and who have been praised – by the OECD among others – for the value of much of their development work.

McCully’s aim appears to be to fold NZAID more closely into the Ministry of Foreign Affairs and Trade and to thereby give politicians more control over how the money is spent – a course that flatly runs counter to the review recommendations cited above. It runs the risk of making our aid programme less able to identify the needs of the recipients themselves and respond to them. It also risks turning our aid programme into a slush fund for diplomats. Especially now that the Key government has cracked down on the $621 million bounty that Winston Peters won for MFAT last year.

During a recession, the public need to be asked for their continued support for our aid programme – and aid NGOs need to be on board to ensure the money gets spent on effective programmes. McCully has done neither. Development NGOs and the public have been given no opportunity to contribute to what amounts a basic re-orientation of New Zealand’s entire overseas aid programme.

Secrecy and unilateral actions by the Minister have marked the process so far. McCully has chosen not to front up to the Foreign Affairs, Defence and Trade select committee to advise them of his plans for the aid programme. Also, government members on the committee last week voted down a request by Labour and Green members for a briefing by the Minister about his intentions. Amid this lack of transparency, actions are already being taken.

Last week for instance, McCully intervened to axe the $1.95 million annual programme of support for a Pacific aid foundation that assists hundreds of village communities across nine Pacific countries, advising them on issues like conflict resolution, good governance and natural resource management. The ending of this project came in the same week that China announced a series of aid projects in Fiji focussed on tackling poverty and natural resource management, and estimated to be worth a quarter of a billion dollars. As Fijilive reports :

From ethanol plants, seaweed factories, roads and low cost housing projects…. One of the latest Chinese projects to be approved for implementation is the $70 million low cost housing project planned for Tacirua, Raiwai and Raiwaqa.

Now, there are investors in Suva, Bua, Macuata and Cakaudrove and are said to be already into the implementation stages of their developments.

Department of Energy’s bio-fuel engineer Vilimone Vosarogo said some investors, particularly in ethanol and seaweed productions were already in Suva and Bua (on Vanua Levu) setting up their plants.

How it serves our diplomatic and defence interests in the Pacific to virtually abandon the field of poverty reduction to the mercies of China, is mystifying. The Pacific is supposed to be region in which we have special responsibilities. While New Zealand cannot win a cheque book war with China, the government’s stubborn stance towards the Fiji regime and McCully’s skepticism about the worth of NGO administered projects to alleviate poverty in the Pacific both seem bound to make it easier for China to prevail in the region. While we have been busily denouncing Commodore Bainimarama, China has been pouring in millions upon millions of aid money. Do we have a response ?

La Methode de Murray

One would have thought some of McCully’s associates might be feeling nervous about his tendency to run his portfolio like a feudal fiefdom. The last time McCully embarked on a process of unilateral decision-making – as Tourism Minister in the late 1990s – he ended up by resigning his portfolio, and the affair almost cost Prime Minister Jenny Shipley her job. Back at the time, Russell Brown provided this very useful and highly entertaining summary of the auditor-general’s investigation into the shenanigans that went in tourism on McCully’s watch. La methode de Murray has a habit of blowing up in the faces of his caucus colleagues.

Already, some of the actions taken arouse curiosity at least, if not cause for alarm. Last November for instance, RNZ International reported the New Zealand government’s ‘wise’ commercial judgement in underwriting ( to the tune of $US3 million dollars) Air New Zealand’s once a week link between Rarotonga and Los Angeles which brings in visitors who contribute substantially to the local economy. Similarly, in mid February, Samoa Online and RNZI reported that John Key and Murray McCully had written to the Samoan government to indicate their readiness to subsidise the weekly cost of maintaining the Apia – Los Angeles link by Air New Zealand.

Now, this is good news for Air New Zealand, in which the Crown has an overwhelming stake. Certainly, Air New Zealand’s Rob Fyfe was a prominent player at the recent jobs summit. IMHO though, this sort of subsidy – and Samoa has promised to put resources into Los Angeles to promote the weekly flights – shouldn’t be any sort of replacement for poverty elimination projects. Especially not on the basis of any ancient belief in the virtue of ‘trickle down economics.

There is a further issue. A subsidy from government for Air New Zealand on its Los Angeles to Apia route erodes any incentive for Samoa or Air New Zealand to create an economical and efficient service .on what is a monopoly route. Logically, the subsidy will also strengthen Air New Zealand ‘s grip on any onwards traffic from Apia to Auckland, on which Pacific Blue runs a competing service. Pacific Blue also competes on the Rarotonga to Auckland run, and in services out of Tonga.

Shouldn’t the likes of Pacific Blue be allowed and invited by Key and McCully to bid for the government subsidies that are now skewing the competitive playing field on some of Pacific aviation’s main routes ? It looks like unfair treatment for our government to be subsidizing a service by one player, to the competitive disadvantage of others in the same market. ‘We’re opposed to any form of Air New Zealand being able to go running cap in hand to John Key for extra cash,’ Adrian Hamilton-Mains commercial head of Pacific Blue told Scoop. ‘We can’t do that. But Air New Zealand has a history of doing this sort of thing. ”

As Hamilton-Mains says, airlines in Polynesia have just emerged from an era of being run as charity cases, into being efficiently run enterprises. This subsidy policy, in his view, runs in the opposite direction. Sure, he agrees, retaining the services does benefit the regional economies in the Pacific. Yet running services into Hamilton or some other cities in New Zealand would benefit the economies in those regions as well, he points out, and yet Air New Zealand has played hard ball on those arguments. Ultimately, Hamilton-Mains says, the costs of subsidizing Air New Zealand’s Pacific airline routes will ‘boomerang’ back into the aid programme. “New Zealanders… you and I, will pay, by proxy, in the end.”

So he expects the subsidies for Air New Zealand routes in the Pacific that Key and McCully have arranged, to eventually come out of the aid programme ? ‘Well, the Cooks Islands government has no money, “ he replies wryly. “So I’m sure they will ask [for the subsidy as aid.] They’d be fools not to.”

Essentially this example underlines why politicians and diplomats should not be making aid decisions. Our aid programme is not something to be placed at the beck and call of the political and diplomatic fashions of the day. For decades for instance, New Zealand’s aid programme made a virtue out of not being the sort of ‘ tied aid’ in which projects demand that the recipients must purchase goods from the aid donor countries. Ten years ago, the UK and other European countries made a public renunciation of ‘tied aid’ on the basis that the donor’s economic and strategic interests should not allowed to skew the delivery of aid to the poor. Similarly, our diplomatic goals in the Pacific shouldn’t be allowed to taint the effective delivery of aid. Samoa for instance, has just issued a stern reprimand to Fiji. Was this genuine, or something of a quid pro quo for the airline subsidy ?

It is not only sandal wearing leftists who claim that the poor should take priority in the global crisis. Very recently, the International Monetary Fund handed down a ringing endorsement of the focus on poverty relief that McCully so despises. Given the global recession, aid flows should be increased according to IMF Managing Director Dominique Strauss-Kahn, who added that spending on targeted social safety-net programmes should be ramped up to protect the poor. “Bilateral donors must ensure that aid flows are scaled up, not trimmed back,” he said.

Last week, on pages 28-29 of a report called ‘The Implications of the Global Financial Crisis for Low-Income Countries’ the IMF authors spell this out.

‘Most low income countries [LICs], “ they begin, “have little room for countercyclical policies to address the impact of the global crisis.’ So, they continue :

This highlights the importance of donor support, which will need to be stepped up to enable LICs to attenuate the effects of the crisis on poverty. Important domestic policy responses include targeted spending to protect the poor, exchange rate flexibility to facilitate adjustment, and vigilant financial supervision….

Targeted spending to protect the poor ? Handouts, clearly. What a bunch of bleeding hearts. Would McCully be quite so willing to criticize the IMF as being in favour of handouts, or of advocating the chucking of money from helicopters ? Unlikely. The IMF continues :

In formulating spending policies, priority should be given to protecting or expanding social programs or bringing forward approved investments….Most LICs have pressing infrastructure needs, and protecting or increasing spending in Millenium Development Goal -related sectors such as health, education, water and sanitation, and social protection can help cushion the impact of the crisis on vulnerable households. These countries may also want to reorient their spending composition in favor of programs that stimulate domestic economic activity. Spending that is intensive in domestic goods and services is likely to be more effective in supporting domestic activity…”

Got that ? Protecting or expanding social programmes. Assisting with programmes that support spending in domestic goods and services, not in major infrastructural or import dependent schemes. Increased spending on health, education, water and sanitation projects to cushion the impact of the crisis on vulnerable households. Overall, the IMF is issuing a call to step up to the challenge of poverty elimination in the face of the economic crisis.

True, Tonga, Samoa and Fiji do not feature in the IMF’s list of LICs. Yet Papua New Guinea does, and the same arguments apply to its smaller Pacific neighbours. Who do you think has a better handle on what the IMF is saying are the aid needs of vulnerable countries ? Right now, it is the current NZ AID programme, and not Murray McCully. Perhaps he can tell us – or Parliament – where exactly the IMF has got it wrong.


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