Capitalism, security and foreign aid – The behaviour of aid agencies in the context of Sri Lanka’s conflict

The purpose of this article is to try and explain the behaviour of aid agencies in the context of Sri Lanka’s conflict. With the escalation of the armed conflict between the LTTE and the Sri Lankan state in recent times, there have been a number of developments within aid agencies that seem to be contradictory. While some agencies have reduced or even closed down their operations, others continued to support Sri Lanka. The recent decision by the IMF to grant a loan to Sri Lanka is the latest in the latter category.

In order to understand this behaviour there we need to move our analysis beyond the confines of the Sri Lankan state and take into account the globalised world. This is true not only in the case of a clearly global phenomenon like foreign aid but for many other aspects of our society in the new millennium. Despite the protests of anti-globalizers, globalization is already a part of our society. This realization is essential not only to understand our society, but also to find answers to the problems that we are facing. In a globalized world we need to work both at the global and national levels to find answers to our problems.

Aid agencies operate in a world dominated by two tendencies.

  • First, the expansion and deepening of global capitalism to all corners of the world.
  • Second, post-Cold War security issues manifested at a global level.

The needs to strengthen and promote capitalism and ensure a stable world are two of the central concerns that drive the policies of aid agencies. The actual policies that emerge from these concerns depend very much on the specific context. But it is essential to keep in mind global imperatives in the analysis of aid policies.

Support to capital
In the post-colonial history of Sri Lanka, the general election held in July 1977 was an important turning point in deepening capitalist relations.  The centre-right UNP government elected to power during that election, undertook a series of policy changes that shifted the Sri Lankan economy in a direction that gave emphasis to markets, the private sector and a greater degree of openness to the global economy. These were steps that were essential for strengthening capitalist relations in the economy and satisfying demands of capital.

Although there were regime changes since 1977, none of them have shifted the fundamentals of the post’77 economic ideology. Of course there are differences in implementing specific policies, in the speed of the reforms, etc. But what is important to note is compared to the pre ’77 period of post-colonial Sri Lanka, where there were debates about diverse models of economic development, in the post’77 period promotion of capitalism, where private sector and markets are the dominant entities, has become the only model available. All discussions on development such as participatory development, sustainable development, etc., take place within this framework.

Liberalisation of the economy in 1977 had a very positive response from the developed west as well as Japan. A key indicator of this support was increased aid flows. One of the estimates published in 1985 stated that from a total of $ 1640 million foreign aid received between 1960 and 1985, 70% was received after 1977.[1]

What is important to understand is the political nature of this support. If we define politics broadly as a clash and interaction of interests, ideas and values, the 1977 shift in economic policy signified strengthening of capitalist interests, a set of ideas how we should develop our economy and the values that go with it. Taking steps to promote these interests, ideas and values is a political step. This is what UNP did in 1977. Increased aid flows reflected political support from developed centres of capitalism to a state that has taken these steps.

The beginnings of this transition were internally driven. J.R. Jayawardena, who gave leadership to these policies in 1977, tried to promote them while he was Minister of State in Dudley Senanayake regime of 1965-1970. However he did not get support from the cabinet. In 1977, with a five-sixths majority in parliament, he took the initial steps in implementing more capitalist friendly policies.

Under JR, Sri Lanka did not implement classical structural adjustment policies as advocated by aid agencies such as the IMF and the World Bank[2]. However his regime managed to secure support from aid agencies at an unprecedented level. There was the support for overall reforms as well to lead projects such as Mahaweli development, setting up of a free trade zone, urban development and at one time, to fourteen Integrated Rural Development Projects (IRDPs) spread all over the country.

The support for the JR regime by aid agencies was so high in spite of not following classic structural adjustment policies, Mick Moore for example, argued that it is easier to understand the behaviour of aid agencies as  political support for the regime rather through a technical discussion focusing on structural adjustment policies.[3]

This is not to argue that aid agencies were not interested in pushing structural adjustment policies. Every agency, including those who supported social development projects like IRDPs, have their own ideas about what is good for Sri Lanka. No aid agency operates without such a framework.  But it is difficult to understand persistence of support to a country only by focusing on these narrow technocratic policy issues. It is much more important to focus on politics at a global level.

Conflicts and security
During the first decades of liberalisation of the economy, despite disturbing political trends both within the Tamil as well as the Sinhala community, conflicts did not receive much attention from aid agencies. The TULF contested elections in 1977 on a separatist platform reflecting the worsening of the relationship between Sri Lankan Tamils and the Sri Lankan state. There was violence related to this issue in 1977 and 1981. In July ’83 we saw the worst attack on Sri Lankan Tamils that the country has ever seen. The government enacted the PTA and sent troops to the North to take care of Tamil militancy, which began the military approach to the conflict.

With regard to the politics among the Sinhalese, the UNP with its massive majority did not brook any opposition to the new policies. There were numerous attacks on opposition political parties and other organisations and individuals who questioned UNP policies; in 1983 the government used all its power to defeat a general strike. Around 40,000 workers lost their jobs; using a highly questionable process Mrs. Bandaranaike was deprived of her civic rights. Through this process JR eliminated the principal candidate that could oppose him in the forthcoming presidential elections due in 1982; in 1982, after assuming the duties of an all powerful president for the second time, JR using a fraudulent referendum postponed the general elections due in 1983; and finally in 1983, making use of July’83 violence, the JVP was suppressed.

These political trends within the Tamil as well as the Sinhala community signified maturing of a crisis of the post-colonial Sri Lankan state, first signs of which were seen in the early seventies. The beginnings of violent challenges to the Sri Lankan state within the Tamil as well as the Sinhala community go back to this period.

However the aid agencies that flooded into Sri Lanka after 1977 were not interested in these political trends and instability that they could create. Their primary interest was in promoting capitalism. The conflict blindness prevailed although some of the authoritarian political trends were directly linked to the economic policies that donors were supporting. For example, JR used the referendum in 1982 to postpone the elections due in 1983 because he wanted to ensure the continuation of the majority that the UNP had in the parliament from 1977. He felt the UNP needed more time to consolidate the achievements in economic policy. Therefore elections due in 1983 had to be sacrificed. Donor support continued despite these authoritarian trends and their political repercussions.

The conflict blindness of aid agencies could not last forever. Both internal and external developments pushed agencies to take into account conflicts and therefore security issues in their aid policies. Internally, violent challenge to the state in the mid-eighties and nineties led by the JVP, and counteraction by the security forces, led to a high level of destabilisation of the country. The impact was felt in most areas other than the North and East. Many agencies found it difficult to implement projects outside Colombo. Travel became difficult. The impact of the violence was stark. Dead bodies floating down rivers and by the roadside made it impossible to ignore the conflict. By this time some of the European bilateral agencies began to raise questions about the conflict mainly through the angle of human rights. These issues came to a head during the annual aid group meeting held in 1990. Many representatives from bi-lateral agencies raised questions about the conflict, human rights violations and the need to link these issues with aid policies.

The recognition of conflicts and their implications starting somewhere in the mid-eighties did have an impact on aid policies and aid flows. Some of the bilateral agencies took into account the conflict and human rights violations and changed their policies accordingly. There was a reduction in the grant component of aid flows. However agencies focusing on various aspects of economic development continued to support the Sri Lankan state. In fact there were new commitments from the IMF and World Bank, because the Premadasa government began to implement structural reforms such as privatisation. The commitment of the ADB increased. Japan continued to have bilateral programmes that brought in assistance. As a result, in the late eighties and early nineties the IMF, World Bank, ADB and Japan accounted for about seventy percent of net aid flows. In other words while conflicts became prominent, those agencies concerned with promoting capitalism continued to support Sri Lanka.

However in the latter part of the nineties even these agencies could not ignore the conflict, because the escalation of the conflict in the North/East was beginning to have an impact on the economy, especially its future prospects for growth. The discourse on economic costs of the war became a prominent theme. But it is important to note that the interest on the conflict was not so much based on solving structural reasons for the conflict, but because it was affecting the principal agenda of these agencies, i.e. promoting capitalism.

Internationally many of the donor countries began to focus attention on conflicts. With the end of the Cold War there was a lot of hope in liberal circles that there would be a reduction in conflicts in the third world. Many of the conflicts in these countries were interpreted as proxy wars of the two contending power blocs trying to extend their influence over different parts of the world. With the demise of the Soviet Union it was believed that the world would be a more peaceful place where capital would reign. This euphoria was short lived. Very quickly this perspective shifted to a notion where future security threats were seen to emanate from the underdeveloped periphery. Some writers popularised the vision of a ‘Coming Anarchy’[4] with centres of this process located in the third world. 9/11 strengthened this vision and it became clear to the western powers that it is difficult to ignore conflicts in the underdeveloped periphery.

Concerns about conflicts and security in a new world order had an impact on aid agencies as well. Gradually conflicts became a principal concern of almost all aid agencies. Other actors operating on a world scale and depending on foreign aid, such as international NGOs, incorporated conflicts as a central concern. Mark Duffiled has correctly interpreted these developments in the aid industry as a merger of security and development.[5]

The new focus on conflict and security among donors has given rise to a veritable industry of research, seminars, evaluations, studies, etc. It has produced a large volume of literature, concepts, tool boxes, etc. There is no space here to go into a detailed discussion of this debate. However we can learn a few lessons on donor behaviour by looking at how these policies manifested themselves in Sri Lanka.

Liberal peace of the UNP
The high point of the involvement in conflict issues by aid agencies was during the ceasefire agreement of 2002 and negotiations with the LTTE. During these events there was a remarkable meeting of minds between the UNP and aid agencies with their new policies on conflict.

The negotiations of 2002 were a major departure from anything that has been tried before to find a negotiated settlement to Sri Lanka’s conflict. The ceasefire agreement accepted the presence of two armies in the country and the control of one part of the territory by the LTTE. The agreement stipulated conditions that each party should adhere to.

The UNP strategy internationalised the negotiation process to an unprecedented degree. In addition to Norwegian mediation, the negotiation process established a monitoring mission consisting of representatives of Nordic countries to monitor the peace process. This was backed by three co-chairs – US, Japan and EU. In short the UNP placed a lot of hope on what is now popularly known as the international community to deliver peace.

In addition, the UNP was also ready to institute an extensive economic reform program to take the process of expanding capitalist relations initiated in 1977 to a qualitatively new level. In hindsight this aspect of the UNP strategy seems to have been a primary motivating factor in entering into the ceasefire agreement.

The entire strategy of the UNP had many of the elements of the liberal peace agenda that donors were promoting all over the world. Resolving conflicts through negotiations with a mediator from a western country as the go between, inviting other major players from centres of capitalism to underwrite the agreement, the promise of reforming the centralised state, an economic reform programme taking the economy further in the direction of strengthening markets and inviting many donor supported non-governmental organisations, now identified as civil society, in building peace were very much in agreement with what new donor policies were advocating. Sri Lanka became a possible success story of the new aid policies. There was massive support from aid agencies with new agreements and aid commitments.

The liberal peace of the UNP did not last long. It was defeated by Sinhala nationalism and Tamil nationalism of the LTTE variety, working in parallel. Social contradictions generated by the economic reforms were an added factor that helped the mobilisation by Sinhala nationalists. The collapse of the negotiations resulted in an all out armed conflict between the Sri Lankan state and the LTTE. What we have witnessed recently is the defeat of the LTTE militarily and assertions of the power of the Sri Lankan state over the area that was controlled by the LTTE during negotiations.

Much has been written on these issues elsewhere. What interests us here is the behaviour of aid agencies in the context of these developments. The public debate and discussions within civil society have been dominated by what prevailed during 2002-2004 negotiations. However a closer examination of what went on within aid agencies during these turbulent times of Sri Lankan history shows that there were two distinct trends and ideas:

- The first position, which dominated when direct negotiations were taking place, had all the elements of liberal peace mentioned above. It accepted the concepts reflected in the CFA in treating the Sri Lankan state and the LTTE on a par with each other. The optimistic scenario was the possibility of reforming the centralised Sri Lankan state through negotiations. Donors also funded civil society organisations to promote this agenda. Some continued without much of a deviation from these ideas.

- The second perspective that informed international actors was much more statist. This position agreed that Sri Lanka had a serious problem regarding the rights of the minorities, and it had to be solved politically. They also agreed that resolving the problem involved reforming the centralised Sri Lankan state and devolving power, while maintaining its territorial integrity.

This position did not ignore the need for negotiations with the LTTE. But it did not treat the Sri Lankan state on a par with the LTTE. The notion of symmetry between the two parties was not accepted by this position. The LTTE was a product of the political problem faced by Sri Lanka. But it had to agree to a settlement within the Sri Lankan state and disarm itself once the conflict is resolved. If the behaviour of the LTTE threatened the security of the Sri Lankan state it was seen as a threat to global security as well. The ‘war on terror’ in the aftermath of 9/11 strengthened this position.

With the collapse of the CFA the second position came into prominence. This was reflected mainly in the attitude towards the LTTE. The LTTE was already banned in several countries. This ban expanded. Important actors like the EU also took steps to ban the LTTE. The LTTE’s fundraising mechanism and support organisations were disrupted. The Sri Lankan state also received support from some countries in its military operations against the LTTE.

The economic front of this second position was to continue to support Sri Lanka’s path of promoting capitalism. Aid policies of countries such as the US, Japan and policies of multilateral aid agencies such as the World Bank and ADB fit very well into this picture. During the time of the negotiations all these agencies formulated new strategies taking into account negotiations. But once the process collapsed they formulated their strategies and continued to support Sri Lanka. Recently announced support by the IMF is a continuation of these trends. To be fair they do have a notion of conflict sensitivity. But as we shall argue below it is not clear how these ideas can deliver peace.

However this support for Sri Lanka’s stability and security does not mean that the Sri Lankan state is having a free ride with the international actors. On the contrary this support is conditional, because the ideas of liberal peace have not disappeared. They continue, but take into account the importance of security of states as well. This is contrary to the earlier liberal belief of withering away of states in a globalised world. The Sri Lankan state also has to behave in a particular way for this support to continue. On the economic side, if the Sri Lankan economy deviates from the overall pro-market, pro-private sector, liberal capitalism inaugurated in 1977, this support will be seriously questioned. Any significant deviation from these policies will have negative repercussions. The other aspect is the possible impact of the behaviour of the Sri Lankan state on global stability and security. The recent concern about the humanitarian fall-out of the armed conflict is an example of this aspect. Finally, the overall direction in Sri Lanka’s foreign policy will be closely observed. If it moves in a direction hostile to western interests, the support can disappear.

Concluding Remarks
The two trends of donor behaviour that can be identified in the Sri Lankan context reflect the complexity of politics of aid agencies at a global level trying to promote capitalism as well as ensure stability. On one hand there are policies that emphasis the importance of negotiations, state reforms and building of liberal institutions for peace. Many civil society organisations play a role within this strategy. The other trend is that which emphasises security of the state. Contrary to what was believed at the time of liberal triumphalism there is no sign of states withering away. States are back on the agenda and 9/11 has deepened the focus on state security.

However both these dominant ideas of liberal peace or state security are inadequate for long-term peace. There is little focus on issues such as the politics of social exclusion and state-society relations in these discourses. Legitimate state-society relations are an essential part of long-term peace. Unless issues of social exclusion are addressed it is difficult to achieve this objective. Hence the debate on ideas that can ensure long-term peace in conflict affected countries is still open.

These are important considerations that need to be taken into account by civil society that looks towards the ‘international community’ in their search for peace. As argued at the beginning of this article, in a globalised world the focus towards the international level is important. It is difficult to find answers to Sri Lanka’s problems only by focusing within the confines of the Sri Lankan state. However we need to work at a number of levels covering the global, national and the local. In other words international actors will not deliver solutions by themselves. Any international intervention has to have legitimacy internally. To complicate the matter, it is not clear whether the discourses that dominate at global level have all the answers that can ensure long-term peace. It is only the specific experience in a particular social and historical context that can show up the limitations of these ideas. Therefore those of us that live and work in conflict affected countries have to intervene in global debates as well.


[1] Sorbor, Gunnar M., Grete Brockmann, Reider Dale, Mick Moore, Erok Whist (1987) Sri Lankan Country Study and Norwegian Aid Review, Bergen: Centre for Development Studies, University of Bergen.

[2] See Nicholas Howard (1987) ‘The post 1977 economic strategy: a comparative and theoretical overview’, in David Dunham and Charles Abeysekera (eds), Essays on the Sri Lankan economy, 1977-83, Colombo: Social Scientists Association.

[3] Moore Mick (1990) ‘Economic liberalization versus political pluralism in Sri Lanka?’, Modern Asian Studies, 24,2

[4] There was an article by Robert Kaplan with this title published in the Atlantic Monthly. Recently he has written on Sri Lanka’s conflict.

[5] Duffiled, Mark (2001) Global governance and new wars: The merging of development and security. London: Zed Books

  • punitham

    Sunil
    Thanks for writing this.
    Most probably you know:
    Development Dilemmas: Challenges of Working in Conflict and Post Conflict situations in South Asia, DFID Conference, 5 – 6 March 2007: ‘’Economic growth is not an alternative to political conflict resolution. In Sri Lanka donor pressure to address development issues and post conflict reconstruction in 2002/3 could not make up for the lack of political progress in dealing with the central issue of the conflict. Aid became a distraction from the peace process, and then a point of division. Donors had inflated ideas about the importance of economic incentives, whereas for the LTTE the political factors were far more important.”

  • punitham

    it is frightening to note that the Sri Lankan President does not have justice for Tamils in store: his interview to Express Buzz(Indian daily), 3 September 2009:
    ”Economic development rather than a conventional political settlement would ensure lasting peace in the island nation”.