COPING WITH THE DEMAND FOR ECONOMIC SANCTIONS

by Jehan Perera
In recent months the government has been engaged in a battle against the human rights lobbies in the international community, and not only battling the LTTE. The intensity of fighting has increased on both fronts. The casualty tolls on the military battlefield are being kept under wraps, and are believed to be significantly higher than reported. The 30-day detention order against senior journalist J S Tissanayagam who runs a website called outreachsl.com while also writing to the mainstream Sunday Times newspaper would serve as a warning to other journalists. It may be part of a governmental effort to crack down on inconvenient truths surfacing from the war zones of the Wanni.
Simultaneously, there has been a barrage of government attacks against human rights organizations and international leaders who have been critical of the government. Wide publicity has been given to the prospect of being at the receiving end of unfair aid and trade sanctions by Western countries. Government spokespersons have been making powerful arguments against such sanctions. They have pointed out that the human rights situation in Sri Lanka is better than in comparable cases worldwide. The most serious of the potential sanctions against the country is the possible withdrawal of GSP+ privileges by the European Union. These privileges are contingent on Sri Lanka satisfactorily implementing 27 international legal instruments it has acceded to.
At stake would be the viability of the Sri Lankan apparel industry which employs over 100,000 persons and directly and indirectly supports a multiple of that number. Leading government members of some EU countries have expressed their determination to put sanctions in place too. A difficult economic situation could materialize in the event of sanctions, including travel advisories which will affect the tourism industry, coming into play at the same time as global prices of fuel and food continues to escalate.
Apart from the difficulties that could befall the formal sector of the economy as a result of trade sanctions, there are also calls for sanctions in respect of development assistance or foreign aid to the country. Some Western countries which have been longstanding donors to Sri Lanka are in the process of either withdrawing or downscaling their assistance to the country. They have given two main justifications for their disengagement. One is Sri Lanka’s elevation to the rank of a middle income country on account of its per capita income in excess of USD 1500. The other is their reluctance to have their development assistance provide space to the government to divert its own resources for the war effort.
DONOR WITHDRAWAL
The argument that Sri Lanka is a middle income country and is not in dire need of international development assistance has some justification. The past decade has seen the emergence of most Asia countries from the depths of poverty with Sri Lanka being ahead of most. But the same positive results are not to be found in most of Africa, which continues to be poverty stricken and conflict ridden on a continental scale. While in Sri Lanka there are pockets of extreme poverty and deprivation, in Africa whole countries suffer this fate. It would appear only reasonable and proper that the African continent should have the first claim on the relatively scarce development aid that is available from donor countries. However, the argument that development assistance should be reduced or withheld from Sri Lanka on account of its prosecution of war as the solution to the ethnic conflict is more problematic.
Most of the assistance given by donors who are sensitive to poverty and human rights issues is targeted at the poorer sections of the population. In the absence of adequate budgetary support from the national government, many local government bodies that depend on such foreign assistance for the local level projects they undertake to benefit local people would find themselves incapacitated. On the other hand, the threat of economic sanctions to induce the government to change its policies with respect to war and peace is unlikely to be effective in cases where national security is deemed to be paramount. A government, such as the present one, that believes that the LTTE is a military threat that has to be militarily defeated is unlikely to be dissuaded by the threats of economic sanctions.
The government’s refusal to change its policy on the war, despite its costs, is also supported by the attitude of many powerful countries which also appear to believe that the LTTE needs to be militarily defeated, albeit with an acceptable political solution in place. It is therefore not realistic to expect economic sanctions to change the government’s decisions. In this context the reduction or stoppage of development assistance to Sri Lanka is much more likely to hurt the possible targets of such development assistance rather than change the government’s policy on the war. The likely outcome is that the economic burden on the poorer sections of the population will be increased and the government will be less mindful of international criticisms.
TARGETED ASSISTANCE
In these circumstances, international donors need to reconsider their approach to trade and aid sanctions against Sri Lanka. A recent poverty assessment study by the World Bank (2007) has shown that apart from the war-affected north and east, high levels of poverty are prevalent in the estate sector and in remote districts such as Badulla and Moneragala. This study showed that in the period 1990 to 2002 poverty halved in the urban sector while rural poverty only declined by less than 5 percent and poverty in the estates increased by more than 50 percent, making this sector the poorest in the country. The high inflation over the last two years would have made the situation even worse.
Another concern of some international donors is that their assistance to Sri Lanka would free up government resources that could be deployed for military purposes. If donors provide direct budget support to the government, the government can utilize those funds for military purposes. On the other hand, if donors target those areas of the economy that the government has already decided to neglect, such as the road system, this problem is less likely to arise. Investing in the road and transport system is probably one of the most effective poverty reduction steps that can be undertaken in the current situation. One has only to travel around Colombo to see the condition of disrepair even of main roads. The situation is worse in rural areas where the roads are narrow and rutty where they exist at all.
It is evident that the government has decided to minimize the outflow of money from its recurrent budget to maintain the existing infrastructure, including the road network. As a result the indirect cost in terms of wear and tear on vehicles, slow traffic movement, and spoilage of perishable items during transport will add up to a considerable wastage of resources. In addition, there is the incalculable cost of enforced isolation of large communities of people in the remote rural areas who are cut out of connecting with the formal economy.
The World Bank’s poverty assessment study shows that “geographical isolation measured by the distance to the nearest market or town is highly related with district poverty headcounts.” Basic infrastructure such as roads and power generation are pre-requisites for the type of long term economic development that is necessary to take all sectors of Sri Lankan society out of poverty. As rural roads are a devolved subject the donors could work directly with provincial councils and thereby strengthen the implementation of the 13th Amendment which is also government policy in respect of an interim solution to the ethnic conflict. Ultimately, this infrastructure will also serve the development of the north and east when peace dawns, as it must and will. Instead of imposing economic sanctions on Sri Lanka, the international community needs to consider the better targeting of their development assistance.