UNPUBLISHED REPORT – FOR PRIVATE CIRCULATION ONLY SRI LANKA: STRATEGIC POLICY ASSESSMENT February 2011 Jonathan Goodhand, David Rampton, Rajesh Venugopal, and Nishan de Mel 1 UNPUBLISHED REPORT – FOR PRIVATE CIRCULATION ONLY TABLE OF CONTENTS Acronyms 3 EXECUTIVE SUMMARY 5 INTRODUCTION 11 SECTION ONE: THE POLITICAL LANDSCAPE 13 1.1 A Political Trinity 13 1.2 The Return of Sinhala Nationalism: 2000 to 2005 13 1.3 Assuming the Nationalist Mantle: Mahinda Chintana I and the Return to War 14 1.4 Nationalism, Militarization, Securitised Development and the Shifting Paradigm of International Space 15 1.5 Sinhala Nationalism and the Government’s State ‘Reform’ Agenda 17 1.6 The Consolidation of the Rajapaksa Dynasty 20 1.7 Political Opposition, Civil Society and Diaspora Forces 22 SECTION TWO: THE ECONOMIC LANDSCAPE 28 2.1 Introduction 28 2.2 Historical Context of Economic Policy 28 2.3 Economic Policy and Management 2005-2010 30 2.4 Employment and Poverty 33 2.5 Post-war challenges and an agenda for the economy in the north and east 37 SECTION THREE: INTERNATIONAL ENGAGEMENT 41 3.1 Overview 41 3.2 An Eastwards Turn? 41 3.3 The changing context of external engagement 43 3.4 International donor engagement 46 3.5 Key Trends and Drivers of Engagement 50 3.6 Taxonomy of Donors 53 3.7 Sovereignty Bargains: unpacking engagement, influence and ownership 55 3.8 Aid, Conflict and the State 56 SECTION FOUR: DRIVERS OF CHANGE 61 4.1 Overview 61 4.2 Domestic Political Drivers of Change 62 4.3 Economic Drivers of Change 64 4.4 Risks of a Resurgence of Violent Conflict 65 SECTION FIVE: CONCLUSIONS AND RECOMMENDATIONS 69 5.1 Wider Lessons 69 5.2 A ‘steady state’ external environment? 70 5.3 Development Donors 70 5.4 Recommendations 71 5.5 Data gathering, analysis and learning 73 5.6 Coordination and communications 73 ANNEXURE: CURRENT MACROECONOMIC POSITION AND BUDGET ANALYSIS 75 BIBLIOGRAPHY AND SOURCES 80 2 UNPUBLISHED REPORT – FOR PRIVATE CIRCULATION ONLY ACRONYMS ADB Asia Development Bank APRC All Party Representative Committee ASEAN Association of South East Asian Nations ASPI All Share Price Index BDG Bilateral Donor Group BTF British Tamil Forum CBO Community Based Organisation CBSL Central Bank of Sri Lanka CCHA Coordination Committee for Humanitarian Assistance CCPI ColomBo Consumer Price Index CCPI (N) ColomBo Consumer Price Index (New) CEPA Centre for Poverty Analysis CHA Consortium for Humanitarian Affairs CFA Ceasefire Agreement CFS Consumer Finance and Socio-Economic Survey CHAP Common Humanitarian Action Plan COI Commission of Inquiry to Investigate and Inquire into Serious Violations of Human Rights CORE Connecting Regional Economies CPA Centre for Policy Alternatives CSIS Centre for Strategic and International Studies CWC Ceylon Worker’s Congress DFID Department for International Development DNA Democratic National Alliance ECHO Humanitarian Aid department of the European Commission (formerly European Community Humanitarian Aid Office) EU European Union GDP Gross Domestic Product GoSL Government of Sri Lanka GTF GloBal Tamil Forum GTZ Deutsche Gesellschaft für Technische ZusammenarBeit GSP General System of Preferences FDI Foreign Direct Investment HIES Household Income and Expenditure Survey ICG International Crisis Group ICRC International Committee of the Red Cross IDP Internally Displaced Person IFRC International Federation of the Red Cross IHL International Humanitarian Law IHRL International Human Rights Law IIGEP International Group of Eminent Persons IMF International Monetary Fund INGO International Non-Governmental Organisation JVP Janatha Vimukthi Peramuna JHU Jathika Hela Urumaya LLRC Lessons Learned and Reconciliation Committee LSSP Lanka Sama Samaja Party LTTE LiBeration Tigers of Tamil Eelam MDGs Millennium Development Goals MOU Memorandum of Understanding NGO Non-Governmental Organisation OCHA Office for the Coordination of Humanitarian Affairs ODA Official Development Assistance 3 UNPUBLISHED REPORT – FOR PRIVATE CIRCULATION ONLY OECD/DAC Organisation for Economic Cooperation and Development /Development Assistance Committee PA People’s Alliance PERC PuBlic Enterprise Reform Commission PNG Persona Non Grata PR Proportional Representation RDS Rural Development Society SAARC South Asian Association for Regional Cooperation SBA Stand-By Agreement SCA Strategic Conflict Assessment SPA Strategic Policy Assessment SLMC Sri Lanka Muslim Congress TGTE Transnational Government of Tamil Eelam TMVP Tamil Makkal Viduthalai Pulikal TNA Tamil National Alliance UN United Nations UNF United National Front UNHCR UN High Commission for Refugees UNHRC UN Human Rights Council UNOPS UN Office for Project Services UNSC UN Security Council UPFA United People’s Freedom Alliance USAID United States Agency for International Development 4 UNPUBLISHED REPORT – FOR PRIVATE CIRCULATION ONLY EXECUTIVE SUMMARY Introduction This Strategic Policy Assessment addresses the following questions: • What changes have taken place in Sri Lanka’s political and economic landscape since 2005? • How has the nature of, and environment for international assistance changed? In what ways have international policies interacted with Sri Lanka’s changing political and economic landscape? • What are the key drivers of change? What are the risks of a return to large-scale violence in Sri Lanka, and what circumstances would increase or decrease those risks? • To what extent and in what ways can aid donors effectively contriBute to long-term development and the consolidation of peace in Sri Lanka? Section One: The Political Landscape The UPFA’s rise to power followed a familiar pattern in which the loss of power By one of the mainstream parties was followed By the other’s ‘shock therapy’ measures, to consolidate and centralise control. Mahinda Rajapaksa moBilised around a nationalist platform and forged a domestic power Base through a ‘rainBow coalition’ of parties and actors. However, the consolidation of power and a military end to the conflict was not an easy or inevitaBle outcome, as the administration had to contend with internal divisions, an economic crisis in 2008 and growing international pressure to Bring the war to an end. The UPFA navigated these hazards By drawing upon nationalism, patronage and securitized development to Bind together diverse groupings and deal with potential threats. The President gained huge popularity through winning the war – there was almost universal relief that the conflict was over and there has Been a trend towards improved security throughout the country. However, though the military victory Bought the Rajapaksas a great deal of political capital and policy space, it also came at a cost in terms of Sri Lanka’s democratic institutions and the likelihood of a just political settlement to the conflict. First, there are strong continuities Between wartime and peacetime politics and the powers grasped to win the war have Been retained and further centralized to ‘win the peace’. Second, Sinhala nationalism, largely on the periphery Between 1994 and 2004, has once more entered the political mainstream. Nationalism provides the ideological glue that Binds the coalition together and limits the potential for a just political settlement as the normative and political climate seem to Be no longer conducive for a suBstantive devolution of power. Third, whilst Sri Lankan politics has always Been coloured By dynastic rivalries and clientelism, these appear to have reached new levels under the current administration and have Become a primary tool for maintaining political cohesion, dividing opposition and containing threats to power. Fourth, securitized development programmes (development efforts with the explicit or implicit aim of preventing future security threats from emerging) are Being rolled out, particularly in the north and east. The goal of such programmes is to secure, incorporate and integrate the north and east politically, socially and economically, to Blunt the secessionist impulse and to oBviate the need for a political settlement. Taken together, these shifts have profoundly changed the nature of the state-minority relationship in Sri Lanka, which is reflected in the diminishing spaces and options for minority political parties. Tamil and Muslim parties, notaBly the TNA and SLMC, are in consideraBle disarray in this new political landscape. Essentially they are faced with a stark choice in a patronage Based political marketplace – of whether to align themselves pragmatically with the current administration in order to access patronage and protection for their constituencies (and there are significant upwards pressures on them to do this) or to consign themselves to opposition, risking long-term exclusion, not to say political irrelevance. However, the novelty and coherence of the current administration should not Be overstated. First, the current administration is following an old political game, drawing upon familiar idioms and tactics to consolidate power. This is not to under-estimate the huge impact of the end of the war, many effects of which are still Being played out and on which it is too early to make judgments. Second, the coherence and hegemonic power of this 5 UNPUBLISHED REPORT – FOR PRIVATE CIRCULATION ONLY administration can Be overstated – there are various fissiparous tendencies within the coalition and the challenges of maintaining a cohesive unity are likely to grow over time. It is also not inconceivaBle that the drift towards authoritarianism may also produce countervailing challenges and opposition