POLITICS-SRI LANKA: Polls Cast Pall Over Foreign Aid

By Feizal Samath Reprint | | Print |

Feizal Samath

COLOMBO, Feb 23 2004 (IPS) - Sri Lanka’s aid donors face the prospect of renegotiating billions of dollars in loans and grants with a new, possibly left-leaning government after snap polls called as the ruling coalition disintegrates.

In June 2003, the donors agreed to 4.5 billion U.S. dollars in aid aimed at helping the country to recover from 20 years of ethnic bloodshed. Also agreed were the economic reforms the government would undertake in exchange for the money.

Less than a year later – and nearly four years earlier than normal elections would have been held – President Chandrika Kumaratunga has called snap elections on Apr. 2 amid deteriorating relations between the Freedom Alliance (FA), which she leads, and Prime Minister Ranil Wickremesinghe’s United National Party (UNP), which swept the last parliamentary polls.

The FA is made up of the main opposition Sri Lanka Freedom Party and the People’s Liberation Front, or JVP, which pundits have said could secure more seats in the 225-seat parliament than the UNP. But to form a government, both still have to rely on support from Tamil rebel-backed political parties in the northeast and from Muslim parties. These have yet to declare their allegiance but appear to tilt toward the UNP.

With the FA now showing signs of having a slight edge over the UNP due the latter’s inability to rein in the rising cost of living and to create more jobs as promised, donors said that for them, it did not matter who takes power so long as decisions are taken and things start moving.

”We are politically neutral. We can work with governments of all colours,” said Peter Harrold, the World Bank’s country director for Sri Lanka. ”Who is in power is irrelevant.”

Donors have preferred to deal with the UNP because of its pro-business policies, free market thinking and heavy support for the United States and Europe. The JVP, a former militant group, has shifted from its professed policy of negotiating with the rebel Liberation Tigers of Tamil Eelam only after it is militarily weakened by government forces, to a continuation of the current peace talks, albeit under fresh ceasefire terms.

The leftist JVP also has accepted a liberal economic framework with emphasis on local agriculture and industry – an issue that would resonate among the country’s struggling rice farmers and thousands of small manufacturers plagued by cheap imports.

Donors said disbursements of the 4.5 billion dollar aid package have been delayed by the Tamil Tigers’ temporary withdrawal from peace talks last April and by the political crisis in Colombo. But they rejected statements by government ministers, including cabinet spokesman G.L. Peiris, that aid flows have got stuck due to a spat last November between Kumaratunga and Wickremesinghe, over portfolios.

”The Asian Development Bank is disbursing funds, the World Bank is disbursing money, the IMF (International Monetary Fund) is disbursing money and even the Japanese government is providing funds,” said Jeremy Carter, the IMF’s senior representative in Colombo.

The World Bank’s Harrold said the government statements likely were made for political gain.

”To suggest that the money is stopped is to not fully understand the nature of how aid is delivered,” Harrold said.

Close to one billion dollars was delivered last year from the bank, the ADB, the Japanese Bank for International Cooperation, the IMF and bilateral donors. Harrold said disbursements in 2004 could reach 1.2-1.3 billion dollars.

However, he added, while project aid was unlikely to be affected by the politics, support for the government’s budget could be threatened.

The IMF announced in December that the second tranche of a 567 million dollar concessionary loan has been delayed due to the political impasse in the country and because of delays in meeting budget targets.

Harrold said while the political crisis had not yet affected aid because what was already in the pipeline continued to flow, the slowdown in government decision-making would threaten future disbursements.

”If we do not see change (in resolving the uncertainty), all the 4.5 billion dollars would not arrive, that’s very clear,” he said.

Harrold added that 176 million dollars in World Bank aid has also been held up due to political developments. ”We’ll have to wait for the outcome of the election to see who the new government is and what it wants to do, what their economic policy is going to be,” he said.

Sarath Fernando, coordinator of the non-governmental Movement for National Land and Agricultural Reform, welcomed donors’ stated willingness to renegotiate aid terms with the JVP or any new government.

”The UNP government’s economic reforms package under a document titled ‘Regaining Sri Lanka’ was heavily titled towards big business and foreign investment and ignored the needs of farmers and small industry,” he said.

”The people’s views were ignored,” the veteran activist added. ”There was no consultative process in preparing this document though the World Bank says the people were consulted.”

Fernando said his group planned to ask political parties whether they were ready to renegotiate the aid package.

The aid package has been pledged on donor conditions of progress in the peace process and economic reforms including labour policies favourable to investors, trimming the budget deficit, cutting subsidies and reducing government expenditure and selling off loss-making state assets.