Sri Lanka's Mammoth defence budget: who would benefit?

By Ranga Jayasuriya - No doubt, Sri Lanka’s defence allocation for year 2010 is phenomenal . The government allocated whopping 201.3 billion rupees, 35 billion rupees higher than the defence allocation in the 2009 budget.

The estimated defence budget for last year was 166.4 billion rupees. But actually spending shot through the roof. The government’s actual military spending for year 2009 was 210 billion rupees, 45 billion more than its initial estimate.

Therefore, defence allocations for 2010 though reported as higher than the previous year, is marginally lower than the actual defence spending of the previous year.

However, a massive defence budget during peace time would sound outrageous to many a citizen. But, the breakdown of the defence budget itself provides the explanation. Of the 201 billion total budget, 191 billion is categorized as recurrent expenditure. Only ten billion, approximately five per cent of the total budget is allocated for capital expenditure: mainly to procure new weapons systems.
The lion’s share of the defence budget will be spent on salaries, uniforms, boots and feeding of the oversized Sri Lanakan defence forces and police, which altogether now number nearly half a million. That also explains why Sri Lanka has the highest per capita military personnel (18.5 to 1000} in South Asia.

Strain on combat capabilities

Hundred and thirty (130) billion rupees, i.e. over half of the total defence budget would be spent on the 200, 000 men strong Sri Lankan army. That Sri Lanka did not concentrate on downsizing the military forces after the war ended means that it would continue to absorb vast sum of money as recurrent expenditure on its personnel. That would, however, cut corners on the modernization program of its weapons systems. This would have a severe strain on combat capabilities of the Sri Lankan army in the 21st century, in an era of Revolution of Military Affairs (RMA) and Network Centric Warfare which have compelled the states to focus on small, smart military forces.

The relationship between defence spending and economic growth is often disputed.
Many argue it is a waste of economic resources which could otherwise be utilized in productive economic activities. However there is a dissenting opinion, supported by research data.. Perhaps the most controversial study on the relationship between defence spending and economic growth, was undertaken by Belgian defence economist Emile Benoit.

Benoit argued that the defence spending had a net- positive impact on the economies of developing countries .

.He came out with his argument after a survey of a sample of 44 Least Developed Countries(LDCs), testing the correlation between their annual military spending and annual economic growth rates.

He argued that in the LDCs in the 60s, only a fraction of resources which were not allocated for defence went to productive investment and that most of the government budget was spent on the consumption and subsidies, which were not related to increasing future production. In contrast, he argued that, money spent on the military contributed to the civilian economy in indirect ways. He admitted that “optimum civilian programs” would make a better contribution to the economy, but cautioned that one must compare defence spending with their ‘objectively probable substitutes’ and not with their optimum substitutes.

Benoit’s argument has its origin in military Keynesianism, the theory which advocates that the government should devote large amounts of funding in order to stimulate or accelerate economic growth. This is a variation of Keynesian economics advocated by John Maynard Keynes. The advocates of this theory argue that military spending would have a greater multiplier effect on the civilian economy. In addition, they argue that the military’s function as the last resort for employment, meaning that militaries recruit from the least qualified segment of the work force and provide them skills and decent living standards. They further argue that R&D of the military sector have a spin off to the civilian sector, which leads to technological innovation and increased growth prospects. Indeed, computers, radar, aviation, nuclear power and internet were invented in the military related research and development. But, in the Sri Lankan context, when a minuscule of allocation is made on R&D at defence sector, which itself is at infancy and is unlikely to grasp technological innovations,it is unlikely to have much spin off to civilian sectors.

The supporters of military Keynesianism cite Nazi Germany in the1930s which achieved high economic growth through heavy military investment as a case in point. Another example is the United States during the Regan administration which pushed for tax cuts and increased military spending. In 1984, the deficit rose to a whopping 6.2 per cent of GDP. Consequently, the economy grew by more than 7 per cent that year.

Income redistribution

Harvard Economist, Martin Feldstein recently argued that if the Obama Administration increases defence spending by 10 per cent, it will stimulate the economy and create 300,000 new jobs.

However, this is a theory which is often contested. Critics of Military Keynesianism argue that it disregards the opportunity cost and that the investment in the non-military sector would create more jobs and produce higher growth rates.
A Congressional report on military spending also states US $10 billion spent in non- military sectors created 40,000 more jobs than a same amount of investment in the military sector.

However, despite the competing schools of thought, a comparison between the net positive impact between investment in military goods and alternative social goods has not been conducted. Equally important, spin off of the military R& D is often exaggerated. While the highly industrialized economies with greater technological incline is at a position to generate greater spin off through military R &D, its impact is relatively low for the developing economies that are not in a position to grasp new technological advances.

However, there is one positive point in the Sri Lanka context, where a vast sum of defence allocation is spent on salaries That provides a decent living for large number of young men, who generally come from least qualified social segment and causes income redistribution. Money spent on salaries, therefore, will have some economic multiplier effects. However, chances are that the same investment in technological education or in a micro credit scheme would have a higher net- positive income. Therefore the debate is not over on the economic impact by defence spending.

However, empirical evidence shows that high military spending would have far reaching societal consequences.

Prolonged high military investment could lead to militarism in the society and create lasting adverse social effects, such as high crime rates, generally associated with military deserters. Heavy military spending at the expense of social welfare is bound to create social unrest and an elite military class, which is not a healthy sign for the social stability.

© Lakbima News

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The United States and India have similar views of Sri Lanka- Robert O. Blake

The United States and India have similar views of Sri Lanka situation and the steps that need to be taken, according to a high ranking US official.

In an interview with India's Rediff website, the U.S. Assistant Secretary of State for South and Central Asian Affairs Robert Blake has said that the US and India are in agreement with their foreign policy toward Sri Lanka, especially on the resettlement of the remaining 40,000 plus internally displaced persons (IDPs).

The former US Ambassador to Colombo said that the US worked closely with India for the last several years on Sri Lanka's situation.

"We have worked very closely throughout the last several years on the situation in Sri Lanka, and again we have a real convergence of view on how that situation has evolved," Rediff quoted Assistant Secretary Blake.

Blake has noted that the United States has been the largest donor of food aid to the IDPs and said now they are focusing on other programs to help restore the livelihoods of the resettled by encouraging new business development in the war-torn northern region.

The US would coordinate closely with India to resettle the remaining IDPs and to ensure devolution of power in the north and greater respect for the rights of all Sri Lankans, Blake has told Rediff.

Noting that the recent meeting between Sri Lanka's External Affairs Minister Prof. G.L. Peiris and US Secretary of State Hillary Clinton was "very successful" Blake has said that the US had welcomed the steps taken by the Sri Lankan government including the forming of a Reconciliation Commission.

According to Blake, US has asked Sri Lanka to also work with the UN since the UN had a "great deal of experience in these matters."

Blake has said that the US was pleased to learn from Minister Peiris that the Reconciliation Commission Sri Lanka has established will meet the criteria that US Ambassador to the UN, Susan Rice laid out.

The Assistant Secretary has dismissed the criticism by certain human rights groups that the Commission is a sham saying that although it's a government appointed commission, it has independent experts on the commission.

"Not everybody on the Commission is a government employee. In fact, very few of them are," Blake has said.

The US official stressed that a home-based inquiry is the best for the country.

"We always believe that it's best to have domestic answers to these very serious problems that exist because those in the long run -- if they are credible and independent and really get to the bottom of whatever the issue is -- will be much more acceptable domestically and that's particularly true in a country like Sri Lanka, where there is still some polarisation," Blake was quoted.

The Assistant Secretary has stressed that the Commission must "produce concrete, serious results" to be credible and to ward off the criticism by groups like International Crisis Group and Human Rights Watch.

In response to the interviewer's question on Sri Lanka's Defense Secretary Gotabhaya Rajapaksa's recent comment to the BBC on hanging former Army Commander General Sarath Fonseka for betraying the country by his remarks, Blake has replied cautiously saying that the US has expressed its interest in ensuring that General Fonseka is treated fairly and in accordance with Sri Lankan law.

© Colombo Page

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Sri Lanka becoming battlefield for proxy cold war between China and India

By Tisaranee Gunasekara - “When elephants fight it is the grass that suffers -” African proverb

The Indian International Film Awards (IIFA) became a test of strength between the Rajapakse administration and Tamil Nadu Tamils, and, at the end of the day, Colombo was the loser.Most major Bollywood stars, giving threadbare excuses, stayed away from the event, which is said to have cost Sri Lankan taxpayers close to a billion rupees.

According to The Sunday Times of June 6th, the actors and the actresses who did come to Colombo failed to show up at a brunch organised by President Rajapakse in their honour. As a reprisal for this churlish behaviour, President Rajapakse, who was billed as the chief guest at the IIFA awards, did not put in an appearance. The entire enterprise became a colossally expensive failure from the point of view of Colombo and the most unsuccessful award ceremony in the brief history of IIFA. The sole winner was the South Indian film industry which boycotted the event and asked Bollywood stars to follow suit to protest the treatment meted out to Lankan Tamils by the Rajapakses.

The lesson is obvious. Though the Tiger is no more and Lankan Tamils are cowed, Indian Tamils and Diaspora Tamils together can still pose a formidable challenge to Colombo. And their capacity to do so will remain so long as the problems of the Lankan Tamils are unresolved.

The war has been won. Vellupillai Pirapaharan, his family and all top and middle level Tiger leaders are dead. The LTTE is decimated. And yet, Sri Lanka is not out of the woods, manifestly. Regionally and globally Lanka’s reputation as a vindictive winner is growing, which, in turn, is causing a steady increase in the sympathy for the defeated and defenceless Tamils. Given this context, Lanka’s woes will not be over until a political solution to the ethnic problem is instituted and normalcy is restored in the North and in the Tamil areas of the East.

‘Sinhala Zionism’ and Anti-devolution

Army Commander Jagath Jayasuriya’s recent remarks about the need for a political settlement are apposite; his realism is a welcome change from the Sinhala supremacist myopia of his predecessor and his political bosses. In a speech to a group of businessmen, on the first anniversary of the defeating of the LTTE, Gen. Jayasuriya said that “it is up to the government and the people now to fund the root cause of the problem and give a proper solution… I believe in the end a proper solution is needed” (The Straits Times – 11.6.2010).

Unfortunately his words are likely to be unheeded, if not scorned. The Rajapakses will not deliver a political solution, because they do not believe in the existence of an ethnic problem, as the President himself had stated, publicly, time and time again. Disbelieving in the existence of an ethnic problem, they, logically, do not see the need for a political solution.

In the Sinhala supremacist narrative, the Tigers were conjured into being by inimical international forces (including India) to destroy Lanka, the sole refuge of Sinhala Buddhism. Alien Tamils always wanted to possess Lanka, and in this desire they had been aided and abetted, from way back in history, by other alien races and religions.

According to this worldview, the Sinhala Only and other legislative measures introduced since 1956 to ensure Sinhala supremacy are warranted acts, long overdue steps to restore the ‘natural balance’ which the British (and other colonialists) destroyed. Even the Black July is seen as a ‘justifiable reaction’ by ‘much goaded’ Sinhalese. In this narrative, there are no Tamil (or minority grievances) and being ‘aliens’ in Sri Lanka, the Tamils (and other minorities) have no right to grievances. The Rajapakses subscribe to this ‘Sinhala Zionist’ worldview, by and large. Consequently, only the wilfully inane and illogical could have believed and can continue to believe that the Rajapakses will deliver a political solution to the ethnic problem, with or without the Tigers.

Not only will the Rajapakses not deliver a political solution; even the restoration of normalcy or a real improvement in the living conditions of the North-Eastern Tamils is unlikely to happen, except marginally and minimally. The fact that the 2010 budget sets aside Rs.201 billion for defence but only Rs.2 billon for resettlement demonstrates the very low priority accorded by the government to Tamil wellbeing. It also reveals the regime’s inability/unwillingness to see the nexus between development and security. Given such a militarist mindset, reconciliation is but a mirage, a delusion spun occasionally by the state media, for purposes of propaganda.

So India is faced with the classic, take it or leave it, Hobson’s choice. Delhi would know that President Rajapakse will not deliver a political solution (this time even face-saving promises were absent) and – worse still – will hollow out the 13th Amendment leaving only the shell (disempowering the provincial councils seems to be the main purpose of the proposed senate). But post-war, India has little wherewithal to push the Rajapakses into a more compliant mindset. And given China’s very obvious determination to take Sri Lanka into her orbit, Delhi will be particularly vary of ruffling Colombo’s feathers too much.

It is clear that the China factor (and not the Tamil factor) is the focal point in Delhi’s Lankan policy. India seems to be competing with China to give aid to Colombo, to undertake infrastructure projects, to assist in international fora.

The obvious indication of this new priority is India’s curious insistence on being permitted to open a consulate in Hambantota. Delhi is engaged in a race with China burdened by a severe handicap. Beijing does not have to bother about political solutions and human rights; in any case, China is notorious for her uncritical support for notorious human rights violators in the region and outside. India would like to be equally blasé, but given the Tamilnadu factor she cannot.

Delhi must be seen to be doing something for Lankan Tamils, or risk discontent in Tamil Nadu. Already ominous signs are emerging. According to media reports, “passengers in the Tiruchirapalli-Chennai Rockfort Express had a narrow escape when suspected pro-LTTE elements blasted railway tracks at Perani railway station in Villupuram district… Leaflets condemning the visit of the Lankan President Mahinda Rajapakse were found from the spot, the police said” (Hindustan Times – 12.6.2010).

Delhi is thus in a bind. It knows that in the absence of a political solution to the ethnic problem and a rapid improvement in the living conditions of the Tamils, Northern Sri Lanka will become radicalised; this can cause a reactive radicalisation in Southern India. A political solution to the ethnic problem is thus critical not only for Lankan peace and stability but also for stability in Southern India. But Delhi is virtually powerless to bring about this desired outcome. Worse still, it cannot even express its displeasure with Colombo too strongly and too publicly for fear of pushing Sri Lanka completely into the Chinese orbit.

According to unconfirmed media reports, India is to initiate direct talks with the Lankan Tamil and Muslim parties about a political solution to the ethnic problem. If true, this decision will rile many in Sri Lanka. Already the UNP’s Ravi Karunanayake (of the Pamankada-Alimankada fame), in an outburst which would have done Cyril Mathew proud, has condemned the move.

But, given the obduracy of the Rajapakse administration, given its obvious disinclination to share power with the minorities, such a step by India is understandable. From the Joint Statement issued by the two countries, subsequent to the discussions between Mahinda Rajapakse and Manmohan Singh, it is clear that Delhi brought up the issue of a political solution to the ethnic problem and Colombo stonewalled it with verbiage.

Delhi would have got the message, and initiating talks with the Tamil and Muslim parties may be its response to Colombo’s recalcitrance. Given the potency of the Tamil Nadu factor, India cannot afford to be seen to be doing nothing, even if she achieves precisely that in the end.

Our Hobson’s choice?

In the 1980’s the Jayewardene administration followed a policy of wooing the West as a counter to India and to Indian pressure on the Tamil issue. This strategy backfired, because, for Washington, as for Moscow and London, Delhi mattered far more than Colombo did or ever could. China then was a third rate regional power. Today she is the pre-eminent regional power and, according to some analysts, a potential contender for the status of the global hegemony.

China, in consonance with this new international gravitas, is making a concerted effort to build a chain of allies and client states, and seems more than willing to stand foursquare behind Sri Lanka, vis-à-vis India and perhaps even the West.

The Rajapakses have adopted a policy of playing India and China against each other and gaining concessions from both. It is a difficult balancing act and how long it can be maintained without turning Sri Lanka into a locus for a proxy cold-war between the two regional powers is uncertain. The contending powers will not content themselves with wooing the government. They will try to win friends and recruit allies in every field, from politics to the media, from the economy to academia, from the armed forces to the cinema and the theatre, in order to plug one’s line and discredit the enemy. Their rivalry will thus divide the already hopelessly divided Lankan society, yet again, between Indophiles and Indophobes, Sinophiles and Sinophobes.

Becoming the friend of both India and China makes sense; but permitting Sri Lanka to be turned into a battlefield for their proxy cold-wars does not. The best antidote to this potential ailment is to diversify dependence, to cultivate other countries for aid and investment. But for this, the unresolved ethnic problem is an insurmountable barrier. Like India, the West too wants to see the root causes of the war addressed. And unlike India it will not hesitate to disengage or even chastise, when faced with Rajapakse obduracy.

The uncertain fate of the GSP+ is a case in point as is the growing pressure on Sri Lanka to investigate war crime charges. Incidentally, outbursts, such as the diatribe by the Defence Secretary, merely serve to strengthen the suspicion that Lankan forces did commit war crimes.

If there is nothing to hide, why should Mr. Rajapakse go into a fit of apoplexy when told that the former Army Commander is willing to give evidence before a war crimes tribunal? When Mr. Rajapakse says, “He can’t do that. He was the commander. That’s a treason. We will hang him if he do that….. How can he betray the country? He is a liar, liar, liar”, the impression is of a man with something to hide and is determined to hide it, at whatever the cost.

Given the precarious economic and financial conditions of Sri Lanka, and the less than sympathetic attitude of the West, Colombo has no choice but to depend more and more on China and India for economic assistance and for politico-diplomatic help in warding off a war crimes inquiry. This means, like Delhi, Colombo too has come to a Hobson’s choice.

Even if it is aware of the dangers of overdependence on contending regional powers and of the consequent possibility of Lankan becoming a locus for their rivalry, Colombo has no choice but to turn towards China and India. Because so long as the Rajapakse unwillingness to deal with Tamil concerns endures, other avenues of help are blocked. The danger of being sucked into other peoples’ battles is clear, but given the Rajapakse obduracy, Colombo has little choice but to risk it and bind itself ever closer to Beijing and Delhi.

© Transcurrents

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CEPA-like agreement with Pakistan too?

The Sri Lankan government is discussing with Pakistani authorities the possibility of signing a trade agreement similar to the proposed Comprehensive Economic Partnership Agreement (CEPA) with India.

Industries and Commerce Minister Rishard Bathiudeen said the government was holding discussions with the government of Pakistan to sign an agreement similar to the proposed CEPA with India.

The Minister made this comment in parliament recently in response to a question raised by DNA parliamentarian Anura Kumara Dissanayake whether the government was planning on signing trade agreements similar to the CEPA with any other country.

Mr. Bathiudeen observed that while the government has not arrived at a final decision to sign the CEPA with India, it was also holding similar discussions with Pakistan.

© Colombo Today

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India, Lanka sign 7 pacts, discuss resettlement of Tamils

India and Sri Lanka on Wednesday inked seven pacts, ranging from security to development, and discussed steps being taken to rehabilitate displaced Tamils, a process which New Delhi wants to be expedited.

During wide-ranging talks here, Sri Lankan President Mahinda Rajapaksa briefed Prime Minister Manmohan Singh about his government's efforts to resettle nearly three lakh Tamils displaced due to the war with LTTE.

Singh is understood to have emphasized on speeding up the process of resettlement and devolution of political powers to ethnic Tamils.

The two leaders also discussed a host of bilateral and international issues, including an expansion of economic ties, energy security and increased cooperation in areas of development and counter-terrorism.

After the meeting, seven pacts were signed to boost bilateral cooperation across a range of areas, including security, power, railways and cultural exchange.

Two MoUs were inked on the transfer of sentenced persons and mutual legal assistance in criminal matters that aim at enhancing security cooperation between the two countries.

A memorandum of understanding (MoU) on interconnecting electricity grids of the two countries could mean supply of 1,000 MW of power that will go a long way in improving the situation in Sri Lanka which continues to suffer due to war-ravaged electricity infrastructure.

A pact on laying Talaimannar-Madhu rail link was also signed. Increased development cooperation was reflected across other pacts that included an MoU on special projects and setting up of a women's trade facilitation and community learning centre by SEWA, an Ahmadabad-based NGO.

Rajapaksa arrived in India on a four-day visit on Tuesday evening, his first trip after his sweeping electoral victories in January this year.

An estimated 70,000 displaced Tamils still continue to live in relief camps even after a year of Sri Lankan army crushing the insurgency led by LTTE.

Although it had promised to resettle all 300,000 war displaced within six months of defeating the LTTE, the deadline for closure of relief camps housing the refugees has been extended to August by the Rajapaksa government.

© The Times of India

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China signs six trade deals with Sri Lanka

Chinese Vice-Premier Zhang Dejiang held talks with Sri Lanka's president Saturday after signing six trade and economic deals, the president's office said in a statement.

Zhang had a breakfast meeting with President Mahinda Rajapakse and the two reviewed ongoing Chinese-assisted infrastructure projects.

"Today?s meeting followed the signing of agreements between China and Sri Lanka for economic and technical cooperation, highways development... IT and the development of maritime ports," the statement said without giving details.

Zhang arrived in Colombo on Thursday with a 30-member delegation.

Sri Lanka maintains close ties with China, a key supplier of small arms to the island's armed forces during the height of fighting between troops and Tamil Tiger rebels.

Government forces crushed the rebels in May last year and Sri Lanka has publicly thanked China for its generous military support. Colombo has been buying naval craft, jet aircraft as well as tanks and small weapons from China.

"President Rajapakse thanked China for its continued assistance to Sri Lanka in the country?s efforts to defeat terrorism and for economic and social development both during the conflict and after," the statement said.

China is also building a port in the south of the island and is involved in constructing highways, power stations and petroleum storage tanks.

© AFP

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