The case of phanthom aid

This is part II of Dr. Darini Rajasingham Senanayake's article on "Peace as Legal Fiction" which appeared on June 18 .

More recently, the December 2004 Asia Tsunami disaster also drew a large number of international reconstruction funds, volunteers and technical experts, unfamiliar with local languages, institutional structure and culture. The latter remain in the country with considerable cost, while reconstruction is painfully slow for various reasons: arguably primarily due to the failure to devolve the operation to the regions and the burden of the international aid industry that had disabled local ownership of the recovery operation. The Governments of India and Thailand had refused most forms of international assistance and access after the Tsunami. Post Tsunami reconstruction in those countries is relatively far more advanced.

Over the past half century of war and natural disaster, Sri Lanka's politicians and policymakers have got used to seeing a silver lining in every disaster: that is to say the international carrot/aid pledged so generously for post-conflict and post-tsunami reconstruction, and the promise that if reconstruction is privatised to international companies and consultants it would result in "building back better". The 'culture of aid dependency' that successive Sri Lanka governments manifest, is contrary to the facts: the country is no longer a least developed county, has almost 90 percent literacy rates, and a number of under and unemployed graduates, and exports technical skills overseas. The question remains as to why national expertise is marginalized in reconstruction, whether the aid pledges materialize, how effective it is, and more importantly, how much of the assistance actually reaches the country or the communities affected by war, natural disaster and poverty?

"Phantom Aid" or the Political Economy of Conflict

A recent report on aid effectiveness by ActionAid International, titled "Real Aid: Making Aid More Effective" estimated that 61 percent of all international donor assistance is "Phantom Aid". The authors define "phantom aid" as: "aid that never materializes to poor countries, but is instead diverted for other purposes within the aid system". Action Aid's definition of "phantom aid", which it distinguishes from Real Aid, includes funds that are: a) tied to goods and services from the donor country, b) overpriced and ineffective technical assistance (this is by far the largest category of phantom aid accounting for US$13.8 billion), c) spent on excess administration, d) poorly coordinated and high transaction costs, e) aid double counted as debt relief, f) aid not targeted for poverty reduction, g) funds spent on immigration related costs in donor countries, etc.

Systematic and transparent accounting

To date, there have been few systematic and independent reviews of donor assistance of how much assistance actually reached the communities affected by the conflict and Tsunami. The Strategic Conflict Assessment (SCA) for Sri Lanka commissioned and launched by the World Bank, DIFID, Asia Foundation and other donors [E5] that was recently released in no way met the need for systematic and transparent accounting and analysis of donor assistance to Lanka, or measured the impact of aid. Nor did it rank performance across donors, or assess the extent to which transaction costs overburden the recipient government.

The [E6] Donor Co Chairs of the Sri Lanka peace process have estimated in May 2006, of the 4.5 billion pledged to Sri Lanka, "US$3, 400 million had been provided based on Tokyo pledges and Tsunami funds, and more than 20 percent of that allocated to the north and east, including LTTE- controlled areas". No disclosure is made of how much of this aid was in the form of loans. The absence of an aid sharing mechanism between the GoSL and LTTE is often quoted as the reason for lack of funds disbursement and progress on reconstruction in the northeast [E7], but questions may be asked as to how this amount was spent in the first instance if the absence of a mechanism for aid distribution is such a problem? How and how much of the aid was phantom aid?

Arguably much of the aid pledged and disbursed for peace and reconstruction in Sri Lanka is "phantom aid". Phantom aid in disaster situations where the usual development project safeguards are waived due to an emergency situation may be as high as 80-85 percent of donor assistance. In the context, the fact that Sri Lanka's aid absorption rate remains at around 17-20 percent while donors continue to pledge ever larger sums for development assistance is not mysterious! Conflict situations present significant "opportunities" for growth of the international aid experts and bureaucracy that is exported from the Euro-American world to the global south as described in New York University Economist, William Easterly's book the "White Man's Burden: How aid has done so little good and so much Harm".

The ActionAid Report further notes that, "eighty cents of every dollar of American Aid is phantom aid, largely because it is so heavily tied to the purchase of US goods and services, and because it is so badly targeted at poor countries... Just 11 percent of French aid is real aid. France spends $2 billion of its aid budget each year on Technical Assistance.... In real terms, the Norwegians are nearly 40 times more generous per person than the American, and 4 times more generous than the average Briton".

Phantom aid accounts for a good deal of poor country debt, because southern governments service loans and aid that did not materialize because it was consumed in the aid system. The Report estimates that: "In 2003 developing countries transferred a net $210 billion to the rich world...Interest payments alone continued to take $95 billion of developing countries resources, almost three times the value of what they receive in grant payments".

Conclusion: The Political Economy of Aid and a New Paradigm for Peace

In the final analysis, peace in Sri Lanka is the responsibility of the LTTE and the GoSL who claim to be liberating and/or defending the sovereignty of various ethno-religious communities in the island. The international community can only assist peace building in Sri Lanka as the co-Chairs noted recently in Tokyo. However, it would be naThe extent of international investment in Sri Lanka's "peace and reconstruction" has made official acknowledgement of the return war difficult. But the peace process, in the best of times, enabled merely a repressive tolerance. This was by no means only due to the inability of the two main armed actors to engage difficult issues: principally the need to democratize the LTTE and GoSL, and professionalize and humanize the military.

International peace builders

The international peace builders colluded with the main actors in differing the core social, political economic issues that structure the dynamics of the conflict in order to promote a neo-liberal economic reconstruction agenda that is integral to the (phantom) aid industry. Thus the internationalization and bureaucratization of the peace process resulted in too much time spent on international development agendas, conferences, time frames, and coordination of the various actors involved in peace building, that were often at odds with the needs and priorities of those affected by the conflict.

Since Sri Lanka is not considered a least developed country, the county's donor dependence is directly related to the armed conflict and the need for external mediation. International development agencies have recently recognized the profitability of working with rather than around social conflict in the post 9/11 world, increasingly focus on projects "for democratization, governance and conflict resolution" as the Strategic Conflict Assessment notes.

Sri Lanka's strategic location and the over capitalization of its post-tsunami reconstruction means that the country remains credit worthy and an attractive place for the International lending institutions and the aid industry despite stories of donor fatigue.

Given the $ 4.5 billion aid bureaucracy's embeddedness in the political economy of peace and conflict in Sri Lanka, it cannot be seen as a neutral actor or set of actors. This fact has particular relevance for much of the technical assistance and development "knowledge" produced and sub-contracted by development agencies. Clearly, the return of war to Sri Lanka requires rethinking the current international approach to the economics of peace.

There is ample evidence that SAPs and the macro-polices of the Washington Consensus has exacerbate intra-group and inter-group inequality and poverty that fuels (identity) conflicts in fragile states in the global south.

There is a fundamental problem with a peace and reconstruction policy approach that claims to link "conflict-sensitivity to development" without assessing the dominant neo-liberal development paradigm and policy that tends to generate inequality and conflict within and between countries. The Strategic Conflict Assessment for Sri Lanka does precisely this, though it hints as the need for such a critique. Ironically, the international aid industry and bureaucracy and technical experts may be a key impediment to the production of knowledge frames that may lead to more sustainable peace building in Lanka and other conflict affected parts of the global south.

Lessons from the peace process

Finally, it is to be hoped that the lessons from the peace process in Lanka may serve as a turning point for a "structural adjustment" of the international peace and development industry, and ensure local ownership of peace making, and accountability to communities and countries affected by conflicts. Of course, David Mosse in a recent book "Cultivating Development" (2005), has suggested that the "future positive" focus of the international peace and development industry is built on an apparent inability to learn from the past, a forgetting of history that generates and compounds catastrophes. Mosse's book which should be required reading for all aid bureaucrats and experts, goes on to note that the aid industry has itself reached imperial overstretch, even as it generates an enormous volume of theory, terminology, log fames, frameworks, and logjams to validate its own existence and assert its relevance, in a world were "trade not aid" is becoming the frontier of development.