Economy, Politics and Governance

The Aid Game and the Politics of Humanitarianism

The US government, which wields considerable influence at the International Monetary Fund (IMF), has sought to delay Sri Lanka’s USD 1.9 billion loan appeal. Washington’s hesitance is tied to the context of the humanitarian crisis that preceded the defeat and destruction of the LTTE and the killing of its leader, Velupillai Prabhakaran. Sri Lanka needs the IMF loan to service its external debt, which has accumulated as a result of soaring defence expenditure as well as borrowing related to controversial oil-hedging deals. The government is also seeking funds for the reconstruction of the conflict-affected northeast.

The disbursement of the funds has also been a somewhat controversial issue outside Washington, DC. Initially, the United Nations Security Council had determined that it would not block the loan, when the subject came up during informal discussion. The UN Office of the High Commissioner for Human Rights (OHCHR), Britain and France have, however, asked for an investigation into war crimes and violations of the Law of War by both sides. Earlier, the Security Council president, Mexican Ambassador Claude Heller, stated that “all 15 members agreed that such a move or other steps to punish Sri Lanka were unnecessary.” The island’s two main donors, China and Japan, along with Russia and Vietnam on the Security Council, regard the conflict between the government and LTTE as an internal matter.

Beyond the politics, the pending IMF loan to Sri Lanka re-opens an old debate on international aid, its relevance and effectiveness, both within and beyond the island. Before the current global crisis, the IMF and many supra-national banks had almost run out of relevance – and, more significantly, clients – in the developing world. Many countries had started borrowing in private capital markets. This was partly due to the unpopularity of the Structural Adjustment Programmes and other conditionalities imposed by the body. The institution had also lost considerable credibility for its response to the East Asian financial crisis during the late 1990s, and its handling of the Argentina economic collapse, from 1999 until 2002. This was particularly true in the wake of World Bank Chief Economist Joseph Stiglitz’s critique that IMF policies actually exacerbated these crises. Stiglitz subsequently lost his job at the World Bank, but won the Nobel Prize for Economics in 2001.

The IMF’s diminished relevance prior to the current financial crisis was also due to the emergence of new Asian donors such as China and India moving into Africa and Asia with billions of dollars, to secure the natural resources needed to sustain growth at home. Following the financial crisis, the IMF gained a new lease of life, with a revitalised mandate to assist poor countries affected by the downturn. The G20 Summit in London in April was a particular turning point, as the IMF garnered pledges in the billions to help economic recovery. However, at the same meeting, British Prime Minister Gordon Brown also declared, “the Washington Consensus is dead.” (Perhaps he was following in the English tradition of announcing, “The king is dead! Long live the king!”) In any event, it appears that the IMF, at least in Sri Lanka, may now step in where the World Bank once trod – the latter being the Bretton Woods twin once tasked with post-conflict reconstruction. Going off of the Sri Lanka’s most recent aid experiences, however, perhaps it will make little difference: despite promises in 2003 of some USD 4.5 billion by the four co-chairs of the peace process (Norway, Japan, the US and the EU), much of that aid turned out to be ‘phantom aid’, with some 70 percent being given in the form of loans rather than grants.

Recently there have been investigations into the large bonuses and salaries that CEOs, experts and executives in the international financial system paid themselves over the years and Pres. Obama has asked for a cap on salaries and perks, likewise there is a scandal of improper payments made by British Parliamentarians to themselves. Similar inquiries may be raised with regard to the international development and humanitarian aid industry, particularly UN agencies and INGOs which is lacking in transparency, whose CEOs, representatives and “experts” are paid enormous salaries, per diems and “hardship allowances” while claiming to be doing poverty alleviation while living in extraordinary comfort in disaster affected countries..

For instance, the Red Cross brought 183 foreign delegates to Lanka after the tsunami (they were Red cross volunteers from the different RC countries with no particular technical expertise), and each delegate cost over 120,000 USD per annum. Just as the international financial system’s and politician’s excesses are being exposed at this time the international aid system too needs scrutiny, transparency and regulation. In short ETHICS need to be re-inserted into the international aid business and it seems that now is the time to do begin the process of cleaning up the aid industry.

New donors
Resurgent as the IMF may be, it has not reduced the importance of India and China as newly established donor countries. Indeed, there has been a shift in the structural dynamics of the international development architecture, as the current aid configuration in Sri Lanka reflects. In the context of a general critique of the Western aid system taking root in the Global South, there has been an emergence of new Asian donors, particularly China and India. What is more, the stepped-up power of these two donors may also be increasingly rendering the established international aid architecture irrelevant. While these Asian donors tend to have a more state-centric approach to aid, they do not attach many policy conditionalities, and offer cheaper technical assistance. The new donors also tend to be less concerned about paying lip service to human-rights requirements, as was clearly demonstrated by New Delhi and Beijing’s recent stance in Sri Lanka.

Such nonchalance is quite in contrast to many Western donors, many of which have a significant Tamil diaspora in their capitals that was troubled by the humanitarian situation as the war drew to a close. Tied in with this concern has the question of the exchangeability of the aid. As the areas in which the aid can be used are rather flexible, there were fears for many donors that Colombo could be redirecting some of the funds to its war effort, for instance, rather than using it for development projects. Given such concerns, many had been arguing that conditionalities on an IMF loan should relate not only to immediate humanitarian assistance, but also extend to a sustainable solution – demilitarisation and good governance for conflict de-escalation.

India, always a significant political force in Sri Lanka, has now taken on a development role previously alien to it. To begin with, it has pledged post-conflict reconstruction assistance, and has sent emergency humanitarian assistance to the conflict zones in northern Sri Lanka, including teams of navy doctors. Of course, New Delhi also supplied intelligence to Colombo and provided defence equipment, principally radar equipment to detect LTTE planes. In the commercial arena, it has also leased oil terminals in Sri Lanka’s prime and much-coveted natural harbour in Trincomalee, on the northeast coast.
The island also counts on China for significant military and financial assistance. In Hambantota – the southern tip of Sri Lanka, 106 km from one of the world’s busiest shipping lines – is a vast construction site, where a Chinese-funded port is being built. One of the poorest districts on the island, Hambantota is also President Mahinda Rajapakse’s electorate. And while China says that the USD 1 billion port is a purely commercial venture, American and Indian military analysts regard it as part of a so-called ‘string of pearls’ strategy, meant to encircle strategic waterways.

China has also helped Sri Lanka in other ways as well, including encouraging Pakistan to sell weapons to Colombo and supporting it diplomatically at the Security Council, especially blocking votes on the war. It is also reported that Beijing provided, free-of-charge, six F-7 jet fighters last year. According to the Stockholm International Peace Research Institute, it was these very planes that subsequently shot down the LTTE ‘mosquito’ planes. And the relationship shows no signs of dwindling, with Chinese aid to Sri Lanka jumping from a few million dollars in 2005 to USD 1 billion last year, replacing Japan as the island’s largest donor. Of course, Beijing was already Colombo’s biggest arms supplier by the 1990s. As both India and China fish in Sri Lanka’s strategically located troubled waters, the government seems to have been using the rising Asian donors in particular to defeat the LTTE and to counter the Western aid lobby – one that may increasingly become irrelevant in Asia.

Aid tsunami
It is generally agreed that Sri Lanka’s current economic woes are related more to soaring defence expenditure, dysfunctional governance and corruption (which have fuelled and been fuelled by the extended armed conflict), rather than to the global economic crisis.

Three years ago, Sri Lanka turned down an IMF offer to give the country a status of Heavily Indebted Poor Country. Then, the Rajapakse regime celebrated the departure of the IMF with fanfare, promising never to go back to Western aid conditionalities, which often included the privatisation of public corporations and assets, underperforming or otherwise. Colombo had also concluded that concessionary loans (one at little or no interest rate) offered by international financial institutions were too costly. This was especially true given aid conditionalities, including over-priced technical assistance from donor countries that flow back to the contributor, amounting to ‘phantom aid’. Since then, Sri Lanka’s Central Bank has followed a path of borrowing from private capital markets. Not so long ago, the governor of the Central Bank of Sri Lanka, Nivard Cabraal, went on record telling the IMF to put Washington’s finances in order following the global financial crisis, rather than advising Sri Lanka on monetary policy.
Sound as this advice to the IMF may have been, the Sri Lankan economy itself is hardly in good shape. The country currently suffers from a serious deficit, a home-grown balance-of-payments crisis caused by excessive defence expenditure, bloated public sector spending and inflation that peaked last year at 30 percent. All the while, official reserves have in recent years been whittled away by defending an exchange rate of 108 Sri Lanka rupees to the US dollar. According to Razeen Sally, the director of the European Center for International Political Economy, an apparent balance-of-payments crisis is also related to “corruption and institutional rot that set in long ago, but has plumbed new depths”. Currently, controversial oil-hedging deals are under investigation by the Bribery Commission, following a Supreme Court stop order on payments by the Ceylon Petroleum Corporation, including to Citibank and Standard Charted Bank. Recently, the United National Party, the main opposition, raised questions about conditionalities attached to the IMF loan under discussion in the Parliament. The Rajapakse government has stated that it will not tolerate conditionalities from the IMF, which would likely welcome a client from Southasia given its declining clientele in the region.

Historically, Sri Lanka has been a bit of a donor darling, receiving disproportionate international media attention when compared with other conflict regions. Despite and arguably because of cycles of conflict, peace-building, reconstruction and destruction in the last quarter-century – as well as due to Sri Lanka’s lush tropical beauty, cultural openness and tourist-friendly people and infrastructure – the island has been a favourite of the international development industry. The country, however, tends to underutilise normal development assistance (making use of only around 17 to 35 percent of the total aid, depending on the project).

It has also at times experienced ‘hot’ aid flows. This was particularly the case following the 2004 tsunami, when over 500 donors and international organisations arrived on the island to provide relief – and then stayed on for several years. This experience gave rise to a local discourse that the island had been struck by an ‘aid tsunami’, which had caused new conflicts and problems of coordination, equity and lack of local ownership of recovery priorities and programmes. Several studies indicated that a significant part of the funds for disaster victims were consumed by international experts from various UN Agencies, the International Committee for the Red Cross and their partners, and INGOs based in Colombo – rather than reaching affected communities.

International assistance can certainly be helpful. But it is clear that aid dependence in conflict situations may lead to institutional de-development that exacerbates the emergent conflict, creating a poverty trap in places where long-term, low-intensity conflict prevailed. It is in this context too that the Sri Lankan government has recently been quite dismissive of Western aid donors. Ultimately, the giving and receiving of aid is as much about politics as it is about humanitarian aid or poverty alleviation. In the words of political theorist Joseph S Nye, “Politics in an information age is not only about whose military wins, but whose story wins.” This has proven to be a truism in Sri Lanka, especially as the war has wound up in recent months.

Trade, not aid
With much physical and political reconstruction work now necessary in Sri Lanka, the issue of aid disbursement becomes more relevant than before. It is still possible for Colombo to win the war but lose the peace. Many have predicted that the remaining LTTE cadre will melt into society, in Sri Lanka and South India, continuing to fight a guerrilla war until the root causes of the conflict are addressed. After all, the core concerns of the Tamils are in no way addressed by the military victory. These fundamental concerns will cease to exist only with the devolution of power to the north and eastern regions.
Tamil moderates could argue that now, when the LTTE threat has passed, meaningful power-sharing should take place. This should be in direct opposition to the masquerade of democracy that has been evident in the east since the government ‘liberated’ the Eastern Province. After that area was re-captured by the Sri Lanka military in mid-2007, the situation in the east has been showcased as a post-conflict development model. A report by the International Crisis Group, issued in mid-April, notes:

Even now, the Eastern Province is still not the ‘post-conflict’ situation that development agencies had hoped. Despite the presence of tens of thousands of soldiers and police in the east, the LTTE have proven able to launch attacks on government forces and their rivals, the Tamil Makkal Viduthalai Puligal (TVMP). There have also been violent conflicts between different factions of the pro-government TVMP and impunity for killing and disappearances, many of them apparently committed by government forces and their allies. The government has still not devolved power to the Eastern Province as required by the Thirteenth Amendment to the Constitution which established the provincial council system in 1987 in response to Tamil demands for regional autonomy … In this environment, development of the east remains affected by the conflict and threatens to exacerbate them. Despite the need for development there is a danger of funds being wasted or misused.

The critique of development assistance within the country has, of course, also remarked that international aid itself has contributed in the past to the conflict. Poor governance locally as well as in the international aid bureaucracy, where phantom aid, lack of transparency, poor monitoring and evaluation, and non-existent exit-strategies, are all part of the problem. In this context, it is to be hoped that the IMF loan and other international aid is now conditional on a scenario that ensures sustainable peace through genuine devolution of power.

Most importantly, the moderate Tamil voice that had been stifled by the LTTE and government-allied paramilitaries must play a central role in the reconstruction of the northeast. The military defeat of the LTTE does not mean that its ideology has been defeated. This will only happen when the state recognises the multicultural and multi-religious nature of the country, and ensures equal rights to all communities. The state will need to reach out to the minority community, ensure that displaced people are not held in internment camps, and offer the Tamils an acceptable political solution. There also needs to be a process of reconciliation and peace-building among the various ethnic and religious communities. Affirmative action, by hiring minority community members into government institutions, the bureaucracy and the armed forces, could be a useful start.

Unfortunately, much like the LTTE, southern politicians have played the ‘ethnic card’, using the conflict to win votes and stay in power. This political culture must end in order for bridges to be built and ethnic relations to improve in Sri Lanka. Ultimately, no amount of aid, howsoever large, can heal Sri Lanka’s wounds if it is not implemented in an environment of compromise and understanding. Indeed, as Colombo’s political approach to Tamils and other minorities must change, so must the state’s handling of aid monies. Naturally, the involvement of national development experts as well as civil society in monitoring the IMF loan and other reconstruction assistance is extremely crucial. What is more, there should be clear timeframes and exit strategies for all the reconstruction players. Finally, ‘trade not aid’ is the path forward for sustainable economic recovery, as well as to avoid aid dependency and the related poverty trap n which northeast Sri Lanka has been caught for the last two decades.

  • Pragmatist

    Having worked as an engineer for the Sri Lankan govt I have seen first hand how the phantom aid game was played by western donors ever since SL independence. Some of the blame for that state of affairs also belongs to our own leaders who were extremely inferior to westerners OR for than matter any foreigner. I am glad to see MR restore pride in people to be Sri Lankan. Many times SL engineers did the hard work while the “white experts” sat in AC cooled rooms and just wrote reports and collected big bucks. I have also seen the same happen after the tsunami with many INGO staffers doing the same all over the country, staying at hotels or expat residences with hardly any field visits, with their local peons even drafting the reports. What is worse is that some of these Tsunami disaster merchants transferred large sums of aid money back to their bank accounts. I personally know of one instance where $70,000 was transferred by an INGO worker from Galle to USA via a the blackmarket. Now, can anyone tell me how an INGO staffer earn that kind of money doing aid work? Many of us who live in poor countries have a glorified view of our past colonial masters. In fact many of them are far worse than our worst crooks but they steal right in front of our eyes, all done legally! I am sure that the aid flowing to IDPs will be skimmed off in the same manner by these unscrupulous bastards. I think the govt should let local people handle all aid and its administration – like India did very wisely after the tsunami. The INGOs and NGOs will only bring more disasters to SL as they need them to steal the money donated by govts and well wishing people all over! If Sl does not have enough bodies to do this job why not hire some local people who do not need interpreters – there are many who’d take these jobs. Even if they steal a little that will stay in the local economy instead of being sent overseas. I say we kick out all of the INGOs right away. Now, I am sure those who former INGO peons now living overseas will write here to say this is all BS.

  • Concerned


    I am generally a fan of your work, particularly your work on identity in the borderlands, which I felt showed a real receptivity and understanding of the complex and everchanging nature of multiethnic, multireligious and multilingual politics.

    Your tone of sustained anger, indignation, and moral crusading has also been welcome, particularly as you hold a position that can be heard both in Sri Lanka and carries some credibility in the West (though, I imagine that politics is always politics and that your reputation and work also is dependent on how you play the game- (I hope, and feel, though I do not know you at at all, that you don’t play it at all).

    However there has been a thread of almost bigotry and ‘anticolonialism’ in your work on the ‘aid industry and the peacebuilding industry’ which at times I feel has ‘overdetermined’ your position. Yes, the tools and processes of aid orgs are insufficient, ineffective and sometimes, utterly irrelevant to the specific contexts they operate in. Yes, they also may sometimes contribute negatively to the cycles of conflict, privileging one group over the other, depriving local institutions of their ability to grow and transform, ‘crowding out’ entrepreneurial initiatives, contributing to the “colonial-subject” discourse. This may be done through neglect, carelessness or worse (though rarely) premeditation. I agree with the possibility and the probability of all of this happening.

    Yet, I am sure as you know, that the intentions of aid officials, much like the intentions of Sri Lankan civil society (such as CPA etc.), and the intentions of political representatives, are largely either positive or neutral. They command attention, access to resources, the ability to mobilize people, and power and influence.

    You may see sinister intentions behind every INGO, and attribute to them an ability and desire to enforce their sinister agendas motivated by their own geopolitics, in Sri Lanka. Yes, they are relatively inscrutable, don’t have clear accountability systems to the people they serve, and have opaque mandates too. But they are formed in an international system that has oversight (even if the power imbalance is there between North and South) and these institutions have been around for some time, and there has grown up with them, a critical and questioning body of individuals and institutions that attempt to hold them accountable. These institutions are also evolving (albeit glacially) a system of ethics and moral accountability, accompanied by a pressure on evolving their technical capacities to be more suited to the context they work in. All this may not be immediately apparent, but it is nevertheless true.

    Compared to this kind of aid, the aid from India and China, which have less ‘conditionalities” upon it, which you see as a good thing, is to me, quite clearly MORE opaque, more suspect and more sinister, more clearly influenced by local geopolitics, less ‘altruistic’, and certainly indifferent to the welfare of local populations unless it serves their political interest. I would hesitate to say that in Sri Lanka, this represents a positive step forward (although it certainly is fodder for triumphalist nationalist rhetoric). The special session of the UNHRC last week, was an utter abrogation of the council’s responsibility to attend to the state of human rights. Just because SL was supported by 29 of the world’s worst human rights offenders, does not mean it has a mandate, or that India and China’s support is somehow “better”- more of a mandate, than European “colonialist” powers.

    It is time I think to not, automatically assume knee jerk anticolonial responses, which are not sincere in any case (cf Dayan Jayatilake), but to see whether your writing above is really accurate, and whether it furthers the discourse in a constructive way.

    Apologies if I have been needlessly rude. I did not mean to be.

  • Pragmatist

    “Concerned” seems very much so about his/her future as an apologist for the disaster industry cum western INGO aid agencies that are prowling third world nations looking for very fertile areas to pitch their tent!
    Why did India say NO to these parasites after the Asian tsunami? They have been burned before and learned bitter lessons.
    We need to put local people to work helping their own nations with direct aid. No more pukka sahibs on all expenses paid tours to assess the disaster and direct aid from their five star hotels.

  • trininalinii

    This SL government has used legalised terrorism to get its way – rape, terror, destruction, deaths have been their motto.

    Do not give them money unless it can be accounted for!!!!!!!!

  • DRS

    Dear concerned,

    FYI –I’d suggest three books: the latest published this year by African Economist, Dambisa Moyo, titled “Dead Aid: Why aid is not working and there is a better way for Africa”. She critique celebrity disaster advertising and asks for an end to the Aid Game in Africa and an exit for all aid actors in 5 years. The other two books are: by New York University economist William Easterly: The White Man’s Burden: Why the West’s efforts to aid the rest have done so much a harm” and “the Lords of Poverty: the Power, Prestige and corruption of the International Aid Business”.

    There is a distinguished social science tradition that constitutes a non-naïve critique of aid that views the modern aid industry as ‘colonialism by other means’. While there is little doubt that many have humanitarian impulses and act upon them, the critique however is a systemic and structural one.

    Today the international aid industry is part of a wider international (financial) culture, where rent seeking, corruption, toxic assets and shady transactions have been normalized along with celebrity disaster advertising that is condescending to the survivors of disasters. Aid governance is a problem and aid hence encourages greater corruption at the local lvel and results in de-development as Moyo shows in her book. That is why I think that finally, trade rather than aid is the way forward.

    President Obama has asked for a cap on salaries and perks and there have been investigations into the large bonuses and salaries that CEOs, experts and executives in the international financial system paid them selves over the years. Likewise there is an ongoing scandal re. improper payments made by several British Parliamentarians to themselves. Similar inquiries need to be made with regard to the international development and humanitarian aid industry which is lacking in transparency, whose CEOs and experts pay themselves enormous salaries while claiming to be doing poverty alleviation!

    Finally, this critique of aid is based on empirical evidence. I have evaluated aid agencies and have been shocked and horrified by what I have learned in the past. I once thought of being a whistleblower but confess that I lacked the courage at the time. I asked local NGOs to help me take out a public interest litigation case on behalf of those victimized by an INGO but they were unwilling –also given the murky politics of I/NGO bashing in Lanka.

    The International Federation of Red Cross (IFRC) brought in 183 foreign delegates to Lanka after the Asia tsunami disaster (they were volunteers from the different RC socieites in different countries, the majority with no particular educational or technical expertise), and each delegate cost over 120,000 USD per annum. They lived and some still live in fancy houses in Colombo 7. The funds they consume/d where meant for tsunami victims. UN agenceis, WB, IMF, regional banks, IFRC, and a range of INGOs also pay themselves and their staff enormous salaries, “hardship” allowances, perks etc. while claiming to do poverty alleviation and humanitarian work. Receptions in five star hotels are the norm!

    Just as the international financial system and British politicians excesses are being exposed and there is a down sizing of extravagance, at this time ETHICS need to be re-inserted into the international aid business. It seems that now is the time to do it!

  • veedhur

    I am also a fan of DRS’s ‘anthropological’ writings

    But this looks like another dabbling in Political Economy by an anthropologist. The critical points that are raised with regard to the post-tsunami aid circus are real and valid but the over all analysis seems to be a lousy attempt at ‘political economy’. Joining the dots and using cliched rhetoric a la Escobar (anthropologist) or Ben Fine (Marxist economist) does not represent any serious engagement of politics or economics.

    In that sense I agree with Concerned – this does not advance thinking constructively – it just seems to be a diatribe.

    DRS, is certainly capable of doing better!