Sustaining a state in conflict: Politics of foreign aid in Sri Lanka Sunil Bastian This study focuses on the politics of foreign aid to Sri Lanka from developed capitalist countries of the West, Japan and multilateral agencies during the period Making Ends Meet: Women’s 1977 to the end of the armed conflict between Sri Lankan security forces and the Sustaining a state in conflict: Liberation Tigers of Tamil Eelam. This period is characterised by economic policies Livelihoods in Post-War Sri Lanka that emphasised openness to global capitalism, markets and the private sector, Politics of foreign aid in Sri Lanka and an armed conflict resulting from the demand by the Tamil minority for a separate state. The study seeks to unpack the role played by foreign aid within this political economy. The approach taken by the study looks at foreign aid as a political factor within Sri Lanka having a complex relationship with the state and the ruling elite. The study shows that foreign aid was an essential element in sustaining the Sri Lankan state while it engaged in an expensive war. It provided resources and legitimacy within the structures of global governance. The primary reasons for this were the liberal economic policies followed by the country. But, at the same time, it was also a force that sought a political solution to the conflict, highlighted violations of human rights, and supported various initiatives in finding a solution. In short, it was neither the do-gooder that many liberals believe in, nor the foreign devil that Sinhala nationalists like to see. ISBN 978-955-580-219-2 9 789555 802192 VasukiSunil BastianJeyasankar Printed by Horizon Printing (Pvt) Ltd. Savini Ganhewa Sustaining a state in conflict: Politics of foreign aid in Sri Lanka Sunil Bastian International Centre for Ethnic Studies September 2018 Sustaining a state in conflict: Politics of foreign aid in Sri Lanka 2018 © International Centre for Ethnic Studies and Sunil Bastian 2, Kynsey Terrace, Colombo 8, Sri Lanka E-mail: [email protected] URL: www.ices.lk ISBN 978-955-580-219-2 Printed By: Horizon Printing (Pvt.) Ltd. 1616/6, Hatharaman Handiya, Malabe Road, Kottawa, Pannipitiya Front Cover design by Horizon Printing (Pvt) Ltd. Sustaining a state in conflict: Politics of foreign aid in Sri Lanka Sunil Bastian* * Sunil Bastian works in the area of political economy. His current research interests are the politics of state formation and development of capitalism in Sri Lanka. He has published widely and is the editor of Devolution and Development in Sri Lanka (1994). He co-edited with Nicola Bastian, Assessing Participation, A debate from South Asia (1996), and with Robin Luckham, Can Democracy be Designed? The Politics of Institutional Choice in Conflict- torn Societies (2003) published by Zed Press, London. In 2007, he authored (,) The Politics of Foreign Aid in Sri Lanka. Promoting Markets and Supporting Peace (2007). He has been a Senior Research Fellow at the International Centre for Ethnic Studies, Colombo and was the chairperson of the Centre for Poverty Analysis. He has more than two decades of consultancy experience with a range of donor agencies. iv Sustaining a state in conflict: Politics of foreign aid in Sri Lanka Contents List of Tables ...................................................................................................... vi List of Figures ................................................................................................... vii Acknowledgements ............................................................................................ ix Introduction ....................................................................................................... xi 1. The challenges of state formation in a multi-ethnic society ........................1 2. Politics and the history of foreign aid in Sri Lanka .................................. 24 3. Liberal capitalism, a separatist challenge and foreign aid ...................... 55 4. Foreign aid responding to the conflict ......................................................89 5. Foreign aid and the collapse of neoliberal peace ....................................125 6. The hegemony of Sinhala nationalism, capitalism and foreign aid ........159 Bibliography ....................................................................................................195 v List of Tables Table I National security periods and distribution of American foreign aid (%) xiv Table 1.1 Transition from the Kandyan kingdom to Ceylon under the British 2 Table 1.2 Land alienation by the state 1953-1985 (ha) 17 Table 1.3 Percentage of Sinhalese and Sri Lankan Tamils – Eastern Province 19 Table 2.1 Aid commitments from selected countries (1970-1977) (US$ mln) 41 Table 2.2 Net Receipts of Development Assistance 1978-1987-Key Donors 47 (in US$ mln) Table 2.3 IMF loans 48 Table 2.4 Integrated Rural Development Projects (1977-1987) 50 Table 3.1 Defence expenditure (selected years) 77 Table 3.2 Project aid disbursements as a share of public investment (per cent) 77 Table 3.3 Major donors and the component of the Mahaweli funded by them 82 Table 4.1 Election Violence (1999-2004) 95 Table 4.2 Net Receipts of Development Assistance 1988-2001 - 109 Key Donors (in US$ mln) Table 4.3 IMF loans 110 Table 4.4 Commitments by Donors to Humanitarian Assistance (at the end of 2000) (US$ mln) 114 Table 4.5 Selected economic indicators (1999 – 2003) 122 Table 4.6 Performance of the UNP in PR elections 124 Table 5.1 Selected indicators of foreign aid 2000-2003 (in LKR mln) 142 Table 5.2 UNP/UNF electoral performance (% of valid votes) 155 Table 6.1 Total loans and grants 2006 - 2015 (US$ mln) 181 vi Sustaining a state in conflict: Politics of foreign aid in Sri Lanka List of Figures Figure I Areas won by each party in the 1977 election xxix Figure 2.1: Net Receipts of Development Assistance from 1960/61 to 1969/70 (in US$ mln) 35 Figure 2.2 Net receipts of development assistance 1978 – 1987 (in US$ mln) 46 Figure 2.3 Total aid commitments from the Aid Group and the socialist block 1970-1987 (US$ mln) 52 Figure 3. 1 Map of the Mahaweli Development Programme 84 Figure 4.1 Defence Expenditure (1981 – 1996) 99 Figure 4.2 Net Receipts of Development Assistance (US$ mln) 110 Figure 5.1 Net receipts of development assistance 2002-2005 (in US$ mln) 142 Figure 6.1 Net receipts of development assistance 2006-2015 (in US$ mln) 180 vii viii Sustaining a state in conflict: Politics of foreign aid in Sri Lanka Acknowledgements I published a monograph with the title ‘The Politics of Foreign Aid in Sri Lanka: Promoting markets and supporting peace’ in 2007, while I was working at the International Centre for Ethnic Studies. Part of the title indicates my long-term research interest – the relationship between opening up the economy and the national question of Sri Lanka. The guiding concepts in analysing political fall- out from the unresolved national question were the notions of conflict and peace. I looked at politics of foreign aid primarily through their role in conflict, conflict resolution and peace. This was also a time when I worked in a number of consultancies funded by aid agencies in the area of peace and conflict. My consultancy assignments rapidly moved from the earlier focus on poverty and development to conflict issues. I was often referred to as a ‘conflict specialist’ in these assignments, a term that could be interpreted in many ways. This was also a period of dramatic political developments in Sri Lanka, marked by trying to engage in direct negotiations with the LTTE, followed by a military victory over LTTE and consolidation of the territory of the Sinhala nationalist state. It was this experience of working with aid agencies in the context of significant political developments in Sri Lanka and continuous reflection as a researcher that prompted me to question the notion of conflict as the key concept to approach what is happening in Sri Lanka. I realised the importance of going back to focus on the state, which had earlier my interest. What happened in Sri Lanka from 1977 to 2009 can be interpreted as consolidation of a state in the context of the new period of the economy. My objective became to study the role of foreign aid in this context. I could only give my attention to the study after June 2016. Up to that point, for a period of five years, I was kept busy in a consultancy that covered the war affected North and East. It was also not easy to reflect on foreign aid as a subject of research, while trying to use it as a means of achieving various things in the field. My task got complicated by the fact that by then, I was spending part of time in the UK in order to ix be with my family. On one hand it created practical problems, because my secondary material was scattered in two countries. On the other side, the distance helped me to get away from the instrumentalist discussions on foreign aid and created space for me to treat foreign aid purely as a subject of research. As usual my wife, Nicky, who has previously worked with agencies supported by foreign aid and is also a professional copy-editor, went through the text. Her contribution was not just in terms of copy-editing, but also on substantial issues. Her constant encouragement to give up consultancies and get on to my own writing was certainly a factor that motivated me all along. I am thankful to her for this support. I am also thankful to Ms. Samurdhika Sylva, from the English Department, University of Colombo, for taking a final look at the text. Finally, I would like to thank the International Centre for Ethnic Studies for agreeing to publish this study. I would like to dedicate this to the memory of Neelan Thiruchelvam, who was one of the founders of ICES and created the space for many of us to engage in research on subjects that motivated us. x Sustaining a state in conflict: Politics of foreign aid in Sri Lanka Introduction The subject of this study is the politics of foreign aid to Sri Lanka from developed capitalist countries of the West, Japan and multilateral agencies during the period from 1977 to 2009.