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Home > Tamils - a Nation without a State > Struggle for Tamil Eelam > Foreign Aid & Sri Lanka's Military Expenditure > International Aid to Sri Lanka
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Foreign Aid & Sri Lanka's Military Expenditure International Aid to Sri Lanka
1. On 25 June 1987 the Sri Lanka Aid consortium will meet in Paris under the auspices of the world Bank to determine levels of official development assistance to the country for the coming year. There have been suggestions, made with increasing vigour in recent years, that donor countries and institutions should reconsider their policy an aid to Sri Lanka in the light of the state of near civil war currently prevailing in the North and East of the country, and the evidence of widespread violations of human rights by both the government's security forces and the Tamil militant organizations. Aid is intended to promote economic and social development, and major violations of human rights are evidently incompatible with development in any reasonable sense of the term. This paper considers the current aid position, and its significance for the Sri Lankan economy and arguments for and against making aid policy dependent an conditions internal to the country. It is argued that there is a need for some redirection of aid towards the victims of ethnic violence (of all communities), and for involving the international community more closely in ensuring that aid contributes to peaceful development. First some details of existing aid will be outlined for reference purposes (fn1): 2. The amount of aid committed to Sri Lanka for 1987 is US $593 million. Aid commitment has averaged approximately $500 million per annum since the present government came to power in 1977, a five-fold increase compared to the average for 1960-77. In per capita terms Sri Lankans receive over six times as much aid as the average for the countries classified as 'low income' by the World Bank. Approximately 70% of this aid is in the fare of concessionary loans, the remainder as grants. Although in the 1760's and early 1970's only 23% of ill aid commitments were project-linked - the remainder comprising food aid and commodity aid - by 1987 this figure had risen to 80%. 3. In 1986-97, 64% of all aid came from bilateral donors and the remainder from multilateral institutions, principally the World Bank and the Asian Development Bank. Of bilateral donors Japan is far the most significant, with 481 of commitments in 1986-87, followed by West Germany with 15%, the United States with 8Z, Sweden with 6%, and the Netherlands, Canada, France, the United Kingdom, Norway and Finland as the other main donors. Denmark, Switzerland and Australia also give small amounts of aid (less than $5m per annum). In past years the centrally planned economies and OPEC countries have contributed, though not in 1986-87. 4. United Kingdom aid, which totaled £4.5 million in 1970 and £2.7 million in 1975, rose dramatically in the late 1970's to reach £32.9 million in 1980, declining somewhat after 1992 to £17.3 million in 1905. This decline was due to budgetary stringency and the natural end of a period of high commitment to the Victoria dam project, not to any curtailment on political grounds. Indeed, the UK government has stated that it will not impose conditions on its aid that would lead to interference in the internal affairs of Sri Lanka. 5. Aid has become Sri Lanka's largest source of foreign exchange. Since 1981 the Government of Sri Lanka's net foreign finance has exceeded the country's earnings from tea in every year except 1984 when world tea prices enjoyed a temporary boom. This has enabled it to run a very large budget deficit indeed (equal to 80% of government revenue, and 20.4% of gross national product, in 1985) - and as a consequence, a foreign trade deficit equal to approximately $940 million in 1985, or 15.6% of GNP. 48% of the government's net cash deficit in that year was financed by foreign funds. For a small deficit this would be unremarkable, but the deficit is extremely large. The economy has become structurally dependent on foreign aid. 6. A number of arguments are from time to time advanced in support of the view that, in current circumstances, aid to Sri Lanka should be curtailed, reduced or made subject to stringent conditions on its use. These include the arguments:
7. On the other hand arguments are advanced:
8. All of these arguments have some degree of force, but there is undoubtedly a case for donors to take the political crisis into consideration in deciding their aid policy. 9. There is no serious doubt that in the list few years the Sri Lankan security forces have been involved in some major violations of human rights (fn2), principally involving extra-judicial killings, disappearances, torture and detention without trial, nor that these violations are continuing. The victims are mainly Tamil civilians, but have also included members of other communities suspected of sympathy with separatism or with left-wing movements. Tamil militant groups have also themselves been responsible for many gross violations of civilian human rights; these groups do not receive official aid, which is the subject of this paper, but an the other hand do benefit from informal international support in the form of arms which governments could do more to curb. Many people feel that sufficiently severe, prolonged and deliberate human rights violations would justify stopping aid altogether, without further consideration of what such a move would achieve. But in Sri Lanka, the deterioration has occurred relatively rapidly, recently and no doubt to the distress of many members of the government. In these circumstances, a consideration should be given of whether making aid conditional on improvement would have a beneficial effect on the situation. 10. The main way in which it is suggested that aid contributes to human rights violations is by enabling the government to increase its military expenditure. The Sri Lankan government's defence expenditure has roughly quadrupled in little over two years, to reach approximately 8% of GNP this year. Almost none of the aid it receives is defence-related, and indeed project aid (unlike commodity or food aid) is closely tied to particular items of non-defence expenditure. But to the extent that it frees resources that would otherwise be spent upon these projects, it enables the government to run a larger defence budget than would otherwise be possible, though this effect is hard to quantify. The effect is certainly less significant in the case of project aid than food or commodity aid any government will buy food or commodities from abroad, and the aid usually just replaces the expenditure it would have undertaken anyway. This is true of a somewhat smaller percentage of project finance, some of which could not have been undertaken in the absence of aid. Aid to Sri Lanka now consists of a much higher proportion of project aid than was true in the past (see para 2 above), so a smaller percentage of its total aid can be considered as enabling the government to increase expenditure elsewhere. 11. More indirectly but no less importantly, aid enables a given defence budget to be sustained at less cost to the overall economy in terms of inflation and consumer shortages, and may thus diminish the political unattractiveness of pursuing a military solution to the problem. This effect is also hard to quantify, but is certainly significant. The most notable proponent of a political solution in the Sri Lankan cabinet has been Mr. Ronnie de Mel, the Finance Minister, who has most clearly understood the economic costs of the conflict. But he has persistently been undermined by others who prefer a more military option. This has undoubtedly been facilitated by the fact that aid inflows have enabled at least the inflationary costs of the crisis, and thus the gravity with which it appears to the bulk of the Sinhalese population, to be postponed to the long term. 12. A sudden cessation of aid would have an immediate and calamitous effect an the Sri Lankan economy. In these circumstances the aid donor countries have a major potential for influence on the government. This influence has been evident in the manner in which the government has tended in the past to mount its most constructive political initiatives (such as the cease-fire of June 1986) at times shortly before Aid Group meetings, and to avoid military offensives at such times. There are good reasons why donors should be very wary of deliberately exercising influence of this kind. Nevertheless, if there is good reason to believe that donors could influence the Sri Lankan government towards taking a more constructive political approach to the problem, and if a more constructive approach would have a significant chance of improving the situation, these would constitute powerful reasons for some initiative on the part of donors. 13. At present a very small proportion of the government’s resources finds its way as effective relief or rehabilitation to the victims of’ ethnic violence, of whatever ethnic community. This has two implications: first, that aid is not reaching the neediest, in spite of intentions to this effect implicit or explicit in many countries' aid programs. Secondly, any conditions that required aid to be directed to the victims of violence would help to ensure that the international community did not unwittingly subsidise the pursuit of a potentially disastrous military approach to a fundamentally political problem. It mould also make it harder for the government to underplay the real costs of the crisis. The redirection of aid to the victims of violence Would need to be explained to the people of Sri Lanka. Aid funding could well be used for an educational program on the need for peace and a negotiated political settlement, 14. It is argued, usually though not always by governments, that donor countries should not use aid as a means to interfere in the internal affairs of other Countries, even if aid giver, them the opportunity to do so. In many circumstances such a claim can be understood as expressing an admirable reluctance to allow a country's policy to be made by outside agencies. But considered as an absolute principle such a claim is not credible, and no donor country has ever seriously maintained it. First of all, the very selection of countries to receive aid involves a judgment that the aid will be used to further policies that the donor country would commend. It is usually felt that donor governments owe such a judgment to their own taxpayers who provide the funds. Sri Lanka owes its current highly favoured status to a perception in the 1960's and especially the late 1970's, particularly in international institutions such as the World Bank, that it was a well-managed country using its resources responsibly to promote humane development among the poor, in conditions few would think applicable now. 15. Secondly, the use of aid to determine the economic policies of a recipient country is not only accepted but explicitly applauded by many donor countries. Britain's Minister for Overseas Development announced in March 1987 that one of the main purposes of British aid was the promotion of 'virtuous' economic policies by recipients.(fn3) He went on to describe a 'clear obligation' affecting the UK's external relations that it should 'join the other sure fortunate nations of the world in fighting deprivation, disease and squalor and in working to overcome the poverty, degradation and drudgery from which tens of millions still suffer today'. He furthermore granted that 'political factors do count' in determining aid priorities, and said: 'While I concede that history is littered with some unhappy examples of the consequences of do-gooding, (do-gooding itself seems a preferable and less calamitous pursuit than do-badding'. 16. Many countries' economic policies are not only influenced made in considerable detail by such institutions as the World Bank and the International Monetary Fund. Prior to 1977 the World Bank decided to make no further commitments in aid to Sri Lanka unless there were a change in the economic policies of the SLFP government. Since 1977 aid to Sri Lanka has increased by 350%. There is no basis whatsoever for maintaining that policies determining the availability of food to the population are legitimate concerns for donor governments, but that policies affecting their physical security are not. If donors are right to care that people should not starve, they will also care that people should not be killed or disappear. Nor is the 'degradation' of poverty acre o6viously a legitimate concern than the degradation of torture. It is worth repeating that a certain reticence an the part of donor governments is often laudable where there is doubt about their ability to make a constructive contribution. But where a crisis is sufficiently grave, and the role of donors potentially sore positive, there is no warrant for treating a sensible pragmatic maxim as though it were a completely universal rule. 17. It is sometimes maintained that donor countries have no effective influence anyway, because any reduction in aid would only lead to other donors stepping in, thus making it ineffective even as a threat. In its pure form such an argument makes aid sound as though it is entirely a favour extended by the recipient to the donor, and the obtaining of extra aid an entirely costless and easy exercise. Nevertheless, there are certain countries in strategic locations for which such an argument contains a significant element of truth. But it is doubtful whether this is true of Sri Lanka. Nearly all of Sri Lanka's aid is channeled through the Aid Group, so that changes in aid by the group collectively would leave little scope for other countries to step in. Furthermore, the Government of India has itself sought to bring pressure to bear on the Government of Sri Lanka to undertake a more substantial commitment to a political solution to the crisis, and would be likely to view with disfavour any attempts by third countries to counteract such pressure. 18. A more serious anxiety concerns the possibility that aid reduction, or even attachment of conditions to existing aid, would lead to further destablisation of the situation. While it is true that the Sri Lankan government has seemingly failed to pursue a political settlement with vigour, this is a sign not of the government's strength but of its weakness, and in particular its vulnerability to the anger of opposition and extremist Sinhalese opinion. An imposition of conditions an aid, including a possible threat of future reduction if efforts to find a political solution are not made, might help to make clear to the government that a combination of military action and political inaction is at least as dangerous to its position as positive political action. More positively, a degree of international pressure might make it easier for the government to underline to its own supporters the need for a political rather than a military breakthrough, a message it has been very ineffective at conveying so far. 19. So far it has been assumed that more positive political action by the government would have a significant chance of bringing about a solution to the crisis. Until recently such an assumption was almost certainly justified. But in recent months there has been a hardening of attitudes among the militant groups that might prevent a peaceful solution whatever moves the government makes. It is argued that pressure on the government by the international community might have the effect simply of strengthening the hand of the Tamil militants. This is a matter of political judgments but although such a fear is not fanciful it would be premature to conclude that the only possible future for Sri Lanka is a full-scale civil war. To the extent that the hardening of Militants attitudes is based on a profound mistrust of the government's willingness or ability to deliver a genuine negotiated settlement it is possible that visible pressure from outside countries could help to add credibility to a new initiative and provide guarantees that any settlement would be implemented. The monitoring of a cease-fire by some third party such as the United Nations is by now an imperative as is the involvement in the negotiations of representatives of all parties to the dispute, including the opposition movements likely to contest elections. The militant groups have repeatedly opposed unmonitored cease-fires, but it is likely that international monitoring would be acceptable and that international pressure on the Government of Sri Lanka will also make it easier for the Government of India to influence militant organizations to negotiate. In the past such pressure has been viewed, both by the organizations themselves and by the large Tamil population as one-sided given the perceived lack of commitment to negotiation on the part of the Sri Lankan government. 20. It is also claimed that cuts in aid hurt precisely those needy groups whom it is most desired to help. This argument is often used, for example, in opposition to sanctions against South Africa. It applies with sate force to a cessation of aid to Sri Lanka, but not to an imposition of conditions, if these were aimed at redirecting the aid to those victims of the current violence who are indeed the neediest groups in the present circumstances. If the failure of government to meet imposed conditions were to lead to a reduction in aid in the future, undoubtedly some of the needy would be hit - but the crisis itself would be their greatest threat. If the imposition of conditions can contribute to peace, these groups would be the beneficiaries. 21. To sum up, the case for some alteration of the Aid Group's program for Sri Lanka to reflect current political realities is very strong. Current conditions in Sri Lanka are such that action by the international aid donor community has fairly good prospects of playing a constructive role in any peaceful resolution of the ethnic crisis. The state of mutual distrust between the conflicting communities has reached such a pitch that if international action cannot contribute to peace, this may mean that peace is simply unattainable in the foreseeable future. In these circumstances, the normally compelling arguments for donors to refrain from involvement in conditions in Sri Lanka are no longer valid. A combination of requirements that aid be directed towards the victims of ethnic violence, and that future aid be conditional upon clearly demonstrated efforts in good faith to bring about a peaceful solution, would be a major constructive action in the current impasse. The gravity of the crisis requires that any possibly constructive action be given the most serious consideration.
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