As US pulls back, Southeast Asia is left in crisis

Over 300 students mid-degree are in limbo following Trump’s decision to block the USAID’s Development and Inclusive Scholarship Program (DISP) which had allowed marginalized Myanmar students, including refugees, to study in universities in Asia.

When Myat Noe Shwe Sin, 26, learned that she had been granted a DISP scholarship to study in India, she was relieved. She had seen nothing but uncertainty after spending the last four years at a refugee camp since fleeing Myanmar.

This sense of stability lasted only a semester. Myat fears a return to the camps if she drops out of her masters degree in English literature.

“We only depend on the scholarship for our education. If they cancel it, we are done. We might drop out. We feel hopeless,” Myat told Thibi.

Myanmar received the highest USAID funding in Southeast Asia last year at $185 million – over a quarter of the funds poured into the region.

The US is one of Southeast Asia’s largest development partners and the abrupt cancellation of aid is seen to have profound consequences to civil society. While China is seen to fill the foreign aid vacuum, experts believe that Beijing will not be pursuing programs that do not align with its agenda. If it does “replace” Washington, it may come at a cost.

Civil society hit the hardest

The sweeping freeze has sent shockwaves around the globe, hitting civil society groups relying on US funding for important humanitarian work in the poorest and most vulnerable countries.

Washington is the largest provider of grants in Southeast Asia and none of its official development assistance (ODA) to the region in the past decade are loans.

USAID, America’s main vehicle for the delivery of foreign aid, provides over half of the total US ODA in Southeast Asia. Of that figure, at least half of the aid agency’s funds went to health, humanitarian aid, education, and pro-democracy projects in 2023.

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While the Indonesian and the Philippine governments said they will not feel the pinch, civil society groups across the region are seen to bear the brunt of the impact as it receives about a third of USAID funding.

According to reports, the funding freeze was swiftly felt as patients in refugee camps at the Thai-Myanmar border had to be turned away while healthcare workers were furloughed. Demining programs in Laos and Cambodia have been shut down.

Grace Stanhope, a research associate at the Lowy Institute tracking development finance in Southeast Asia, said that the US has been the “largest provider of free money” which is really important for poorer countries and those in debt distress.

“What worries me is the really tiny micro-organizations, the women's groups, and the really small holding groups that will lose their funding and find it really tough to replace that because they just don't have the profile or the scale or the networks to attract other donors,” Stanhope told Thibi.

Days after the freeze, the US State Department issued a waiver on existing “life saving” humanitarian assistance programs. With the Trump administration either laying off or placing most of USAID employees on leave, Stanhope sees this as an indication that even the exemptions might not be immediately processed by the leaner aid agency.

No hope in sight?

The US has recently thawed $100 million in USAID funds, Reuters reported, but the list did not include programs for humanitarian crises in Sudan, Syria, Ukraine, Myanmar, or Afghanistan.

The US Supreme Court on Wednesday, March 5, rejected the Trump administration’s bid to freeze foreign aid, following the latter’s request to rein in a federal judge’s order to continue payments to existing awards to contractors and partners.

On Monday, March 10, US State Secretary Marco Rubio said 5,200 contracts have been terminated and the remaining programs will be moved under the State Department. It is still unclear how funds will start flowing following the High Court’s decision.

To date, Southeast Asia has over 200 ongoing USAID awards expected to end by 2031.

Trump’s anti-refugee and anti-diversity rhetoric that has turned into action might not be a good sign for education programs such as the DISP. The program was originally named with the words “diversity” and “inclusion,” which was speculated to be the reason why it has been immediately blocked by the Trump administration.

A source who requested anonymity due to security concerns said the DISP has provided a unique opportunity to refugees like Myat which was especially rare in the development space. Without any other source of funding, their group has been looking for other donors to cover Myat’s and a dozen other Myanmar students’ university fees and stipend.

They have until July when the funding dries up to figure out how to support the students.

“We’re not planning on abandoning them but fundraising has been really hard. The worst case scenario is that they would drop out and then they would need to go back to the camps. Then they would be more vulnerable to things like being pushed back to Myanmar or drawn into the informal market,” the source said.

Southeast Asia aid

Southeast Asia has received $11 billion in ODA funds in 2023, latest data from the Organization for Economic Cooperation and Development (OECD) showed.

US is the largest grant provider in Southeast Asia

Meanwhile, Japan is the unrivaled top donor in 2023, providing over one-third of the total disbursed foreign aid in the region.

While the US provided the biggest grant funding, Japan was overall the largest donor to Southeast Asia.

In 2023, Japan has provided a total of $4.2 billion or equivalent to $3.50 in every $10 of the region’s development assistance. Tokyo heavily supports building rail infrastructure, which accounts to a third of all the ODA it has provided. These are mostly through loan agreements with partner countries.

OECD data, however, does not include funding that comes from China. Beijing maintains its developing country status and defines its “aid” outside of OECD standards, hinged on the framework of “South-South cooperation.” This approach, it said in a 2021 white paper, is “a form of mutual assistance between developing countries.”

Lowy Institute’s Southeast Asia aid map, which tracks overall official development finance including ODA and other official flows (OOF) from various sources, shows that Beijing has provided around $53 billion in development funding to the region between 2015 and 2022. OOFs are financial flows that do not meet the conditions for ODA, either because they are not primarily aimed at development or do not meet OECD concessionality standards.

This makes China the largest partner in that period, providing 1.5 times more funding than Japan and five times more than the US. From this data, China is the top development partner of Brunei, Cambodia, Indonesia, Laos, Malaysia, and Thailand.

Though disbursements from Beijing have sharply declined in recent years – from $9.8 billion in 2017 to a third of that at $3 billion five years later – falling behind Tokyo.

China, like Japan, mostly provides loans with an emphasis on infrastructure. Grants take up a very small amount which only peaked when Beijing donated COVID-19 vaccines in 2021. Therefore, the nature of projects make China more in competition with Japan in the development funding space.

Alvin Camba, an expert on Chinese foreign capital, said Beijing’s assistance is not “aid” in the traditional altruistic sense, rather a vehicle to drive its own economic growth.

“The Chinese economic strategy and the Chinese development strategy is actually tied to donating out these loans,” he said. China-funded projects are usually implemented by Chinese contractors in the recipient country, which ensures that the money flows back to them.

China has since been criticized for leveraging economic statecraft, where foreign aid and loans do not purely serve humanitarian interests but also China’s strategic and commercial interests.

“They're willing to work with [anyone] whether it's a democracy or an autocracy so long as you adhere to their interests,” Camba told Thibi.

Waning US soft power may leave China unchecked

For several years, Southeast Asia has been a battleground for the US and China as they fight for political dominance in the region. Critics of the foreign aid freeze see it as tantamount to ceding US soft power over Southeast Asia to China but the experts interviewed for this story believe otherwise.

Stanhope said that the Chinese domestic economy currently does not give any indicators that it could support growth in overseas development financing. China’s economy grew 5% in 2024 – one of its slowest rates of economic growth in decades – as it so far failed to rebound from the pandemic.

China spent 5 times more than US, most are loans

Between 2015 and 2022, China is the largest provider of official development finance

China can easily cover the billion-dollar gap left by the US, Camba argued, given its funding for much costlier large-scale projects. In fact, the Chinese embassy in Phnom Penh has informed the Cambodian government it will again fund a mine clearance project worth $4.4 million, just a week after Trump froze foreign funding.

But he doubts Beijing will fund all of the programs Washington historically supports and those projects might die without other external funding coming in.

“There are things the Chinese government will do like building clinics or disaster relief but there are things they will never do. They will never promote journalists in terms of independent reporting. They will never give money to an organization that will oppose them. If the Chinese government gives you money, they expect absolute and total loyalty from you,” he said.

Stanhope shares the same assessment on China’s emphasis on “hard” infrastructure. “The US is quite specialized in its civil society support and transnational threats support, and China has done a very different aid. I find it pretty unlikely that China would be able to replace the US. I'm pretty skeptical of the kind of hysteria that is being felt in a few Western countries about China replacing the US.”

“But if we are confronting a world where the US isn't giving any aid, we can't be picky about who does give aid. We will need it all. It's a word of caution, I guess, about thinking too much about ‘China might come in and it will be terrible.’ We'll probably need them,” she said.

If China’s previous assistance are any indication, then it may not be merely a question of Beijing’s capacity to help, rather its willingness. Camba said that countries like Cambodia and Laos are already “neatly tied to the Chinese political orbit” and that leaves other lower and upper middle income countries at a higher risk of long-term political entrenchment of Chinese interest.

“They are only willing to do something if we’re willing to give up something significant in return. In the Philippines’ case, that’s the South China Sea. If the government is very non-compliant and not willing to give up things geopolitically, then that's not going to happen,” Camba said.

“I would expect places in the region where you actually need to support journalists and independent researchers – these places will probably be much more vulnerable to autocracy,” he said.

And if China steps in and decides to take advantage of waning US soft power, Camba warns that Beijing will do whatever it wants – from South China Sea aggression to environmentally destructive activities to funding disinformation actors to promote pro-China propaganda – as long as it serves its interests.

“We can agree that Chinese power will expand, but not necessarily soft power,” he said.

It remains to be seen whether Trump will increase military aid or presence in lieu of the soft infrastructure programs. But some Asian countries including the Philippines were informed that a portion of their military aid has been exempted from the freeze.

Over half of US military aid in the region goes to the Philippines

Washington seems to have largely frozen foreign aid for Southeast Asia, except for a portion of Manila's military financing according to reports

Data from 2015-2024

Source: foreignassistance.gov • This shows the total foreign assistance from all US agencies, which includes USAID. In constant US$.

Where does that leave us?

Overall foreign aid funding has been declining in recent years. Vanishing of most US aid makes that pool smaller.

In Australia, there is a growing recognition that Southeast Asia is an important region, Stanhope said, but there’s “little appetite” to increase aid budget.

“We're seeing that in a lot of Western democratic countries. There's a really troubling reluctance to move heavily and quickly on aid,” she said.

Stanhope also looks at major donor Japan or maybe Thailand, which also provides foreign aid to its neighbors, if not philanthropy and the private sector. But the outlook is currently bleak.

“There is a real possibility that no one replaces the US and that we will just live in a world where there is a lot less aid going around,” she said.

But for those cut off from US aid, it would mean shattered dreams, deepened suffering, or worse, death sentence.

Methodology

Granular data on US foreign aid disbursements to Southeast Asia and country aggregates from 2015 to 2024, as of February 19, came from the Foreign Assistance data portal. We looked at the “Funding Agency” column to know which activities are funded by the USAID and “Activity Project Number” and “Activity End Date” to determine the number of ongoing awards. According to the status of reports, USAID reporting for 2024 has been completed while other agencies have missing quarterly reports. This limited most of our analysis to 2023 data.

Official development finance is a combination of ODA and OOF. To understand the total ODA disbursements into the region, we referred to the Creditor Reporting System on the OECD Data Explorer. As OOFs are voluntarily reported and the OECD does not list China as a “donor,” we sourced this data instead from Lowy Institute’s Southeast Asia Aid map. This, however, limited our analysis of Chinese assistance between 2015 to 2022, the latest data available.

Credits

Reporting by Aika Rey
Edited by Eva Constantaras
Visualization by Yan Naung Oak, Aika Rey
Design by Yan Naung Oak
Code by Yan Naung Oak, Zin Min Htut Oo