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RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE

UNCLAS SECTION 01 OF 03 WELLINGTON 000112 
 
SIPDIS 
SENSITIVE 
 
STATE FOR STATE FOR EAP/ANP 
PACOM FOR J01E/J2/J233/J5/SJFHQ 
 
E.O. 12958: N/A 
TAGS: EAID SOCI KDEM PREL NZ
SUBJECT: NEW ZEALAND'S FOREIGN MINISTER ANNOUNCES CHANGE IN AID 
FOCUS 
 
WELLINGTON 00000112  001.2 OF 003 
 
 
¶1. (SBU)  Summary.  In a stinging May 1 speech, New Zealand Foreign 
Minister Murray McCully signaled a course correction in New 
Zealand's aid program.  Chief among the National Government's 
intended changes is a shift away from poverty alleviation to 
developing economic sustainability.  McCully also announced that 
NZAID would be folded back into MFAT and its aid budget more closely 
aligned with GNZ foreign policy goals.  McCully's announcements were 
met with loud opposition from the Labour Party, NGOs and on-site 
protesters who all argued that Government's moves would politicize 
aid and adversely affect its delivery.  Despite some opposition, 
McCully is intent of charting a new course for New Zealand's aid 
program.  End Summary. 
 
New Zealand's Aid Program to be Overhauled 
------------------------------------------ 
 
¶2. (SBU)  In a May 1 speech to the New Zealand Institute of 
International Affairs before an audience of diplomats, academics and 
bureaucrats, Foreign Minister Murray McCully stated that New 
Zealand's aid program in the Pacific has failed and will be 
overhauled.  McCully's forceful speech, often delivered with blunt 
assessments to strengthen his argument, left few in the audience 
unconvinced of the seriousness of the National Government's 
intention to change New Zealand's aid program.  A full transcript of 
the speech can be found at: http://www.beehive.govt.nz/speech 
 
Aid Budget Increased 
-------------------- 
 
¶3. (SBU)  A central aspect of the McCully's speech was his 
announcement that the aid budget will increase to NZD 500 million 
for the 2009/10 financial year, rising to NZD 525 million in 
2010/11, NZD 550 million in 2011/12 and to NZD 600 million in 
2012/13.  The 2008-09 aid budget was set at NZD 471.9 million. 
McCully also stated that there would be "prudent increases over the 
next few years" that would see the aid budget reach NZD 600 million 
in 2012/13.  McCully readily acknowledged that the announced budget 
increase would not match that promised by the previous Labour 
government.  However, he defended the funding as "realistic and 
sustainable in the current global economic situation" and the yearly 
increases as "prudent." 
 
McCully Labels Existing Aid Strategy a Failure 
--------------------------------------------- - 
 
¶4. (SBU)  McCully argued the existing aid strategy has not helped 
recipient nations and asserted that the current focus on poverty 
alleviation was "too lazy and incoherent" to make the best use of 
the funding.  Payments, McCully declared, had become "a handout 
rather than a hand up."  McCully stated that a key objective of the 
new aid strategy is to reverse the negative trends in New Zealand's 
Pacific neighborhood.  He argued that by any objective measurement, 
current aid policies have simply not succeeded.  NZ's aid dollars, 
McCully asserted, have "done little to build sustainable economies 
providing employment prospects and the promise of a brighter 
future." 
 
New Focus - Pacific Economic Sustainability 
------------------------------------------- 
 
¶5. (SBU)  McCully announced that the aid mandate would now shift 
focus from poverty alleviation to sustainable economic growth with 
objective measures such as trade and tourism statistics as 
indicators of success.  McCully said that priority will be given to 
allocating aid in the Pacific region with an aim to improve the 
trade capacity of Pacific Island economies.  McCully noted that NZ's 
billion dollar export trade into the Pacific has been reciprocated 
by imports from Pacific nations "so miserly that they should be a 
source of national embarrassment." 
 
¶6. (SBU)  Presently, the Pacific region gets 53 per cent of New 
Zealand's aid.  McCully said the region would get "a greater share 
 
WELLINGTON 00000112  002.2 OF 003 
 
 
of the total aid budget" and that share would be more targeted.  He 
asserted that too much money was being spent on "unproductive 
bureaucracies clipping the ticket, and when aid money was really 
needed - such as after the riots in Tonga in 2006, it had been 
missing in action."  McCully emphasized that "in too many locations 
around the Pacific, others from outside the region have moved into 
the space that we have unwisely vacated."  (Comment:  Ministers and 
officials have been clear that China is the other power in the 
region that most worries them.  End Comment.) 
 
NZAID Brought Back into Foreign Ministry 
---------------------------------------- 
 
¶7. (SBU)  McCully announced that NZAID, New Zealand's international 
aid agency, will merge back into the Ministry of Foreign Affairs and 
Trade (MFAT).  After he ordered two reviews into NZAID in March, 
McCully now wants to take steps to take more political control of 
NZ's aid program.  McCully stated the change recognized aid was a 
key component of the Foreign Affairs portfolio, "and thus needs to 
align, as much as possible, with New Zealand's wider foreign policy 
interests."  McCully forcefully asserted that aid money was 
taxpayers money and "its expenditure should be overseen by elected 
office holders able to be held to account at the ballot box -- not 
by faceless, unelected, unaccountable aid bureaucrats."  He also 
expressed concern about aid ending up funding NGO overheads, 
administrative costs at NZAID, and being soaked up by bureaucracy. 
NZAID's functions and its 200 staff will be folded back into the 
operations of the Foreign Ministry, reversing the previous Labour 
Government's decision to separate the entities in 2002.  McCully 
cautioned that it was too early to say what shape structural changes 
would take and the timing of any such changes. 
 
Labour Criticize New Aid Direction 
---------------------------------- 
 
¶8. (SBU)  The opposition Labour Party's associate foreign affairs 
spokesman Phil Twyford said the Government's aid strategy ran 
contrary to what other countries recognized as best practice and it 
risks turning aid into a "diplomatic slush fund."  Twyford called 
the Government's move to take more political control of the aid 
program by re-integrating NZAID into MFAT as "tampering in secret." 
After the speech, McCully was greeted by protesting students as he 
spoke with media.  The protesters noisily claimed that McCully was 
to trying to corrupt and politicize aid. 
 
NGO Fears Re-Integration Could Impact Aid Delivery 
--------------------------------------------- ----- 
 
¶9. (SBU)  Oxfam's New Zealand executive director Barry Coates 
expressed concern at the NZAID re-integration move.  Coates fears 
that NZ's overseas aid will be at risk of becoming a political tool 
and the underlying reason behind the 2002 NZAID-MFAT spill was to 
avoid such a possibility.  Coates, who is also board chairman of the 
Council for International Development, drew attention to reports of 
considerable failings of aid delivery when NZAID was previously part 
of MFAT.  He believes that there will be the very real risk of 
potentially reinstating problems that existed until NZAID was 
divested from MFAT. 
 
Other Donor Thoughts 
-------------------- 
 
¶10.  A western diplomat who attended McCully's speech questioned the 
use of economic indicators as measures of aid effectiveness.  The 
diplomat expressed concern that economic growth, in particular, is 
not a precise determinant of aid effectiveness as it is possible for 
a country's per capita GDP to increase with no impact on poverty. 
The Millennium Development Goals, the diplomat argued, are superior 
underpinning measures of development achievement.  (Note:  McCully 
did not once refer to the Millennium Development Goals in his 
speech.  End Note).  Australian officials were not surprised by the 
remarks, as McCully had discussed his views on NZAID with Australian 
 
WELLINGTON 00000112  003.2 OF 003 
 
 
Ministers as well as the High Commissioner.  MFAT wants to pursue 
"seamless" aid delivery through NZAID in the Pacific with Australia, 
says the High Commission. 
 
Comment 
------- 
 
¶11. (SBU)  Although some in the audience were surprised at the tone 
and substance of McCully's speech, National in opposition had voiced 
strong concerns over GNZ aid programs to the Pacific.  A more 
politically accountable and targeted aid program is a long-held 
National Party position.  Additionally, National's "hand-up, not 
hand-out" approach is a central tenet of the center-right party. 
The move to re-integrate NZAID with MFAT is consistent with the 
Government's wider program of creating a more efficient and 
streamlined public sector.  The Government likely has the political 
and popular support to modify New Zealand aid program.  It is too 
early, however, to know how profound these changes will be.  End 
Comment. 
 
Keegan