Did we get the message?
The government claims that the Sri Lanka Development Forum in Galle was a success. Prior to the Forum it was announced that it was not meant to get aid pledges. After, there was a celebration of pledges.
The objective of the Forum was to announce the long-term development programme of the government. That it did with a clear exposition by the Secretary to the Treasury Dr. P.B. Jayasundera. As expected, the diplomatic community responded diplomatically with a guarded endorsement of the ten-year Mahinda Chintana development programme.
The newly appointed Enterprise Development Minister Dr. Sarath Amunugama as a spokesman for the government told the media that the Sri Lanka Development Forum was extremely successful and that donors expressed their commitment to provide US$ 4.5 billion for infrastructure development for the next three to five years. This was despite the Forum not being considered an event for pledging aid. In fact it was claimed that development aid pledges reached US$ 9 billion for the next three years. This was with the aid pledges in the pipeline.
The additional good news is that a third of the US$ 4.5 billion is in the form of a grant and that the other two-third (US$ 3 billion) is on soft terms. This is good news for two important reasons: First, infrastructure investment has a long gestation period and its returns are through increased productivity and improved efficiency of capital in other sectors. Second, in the context of an increasing foreign debt burden owing to the government's resort to commercial borrowing on a large scale, the grant element of the pledge and the soft loans would be less of a repayment burden.
However, the celebration must be tempered with the realities of foreign aid implementation. It is common knowledge that aid pledges don't mean much as there is a difference between aid pledging and aid performance. Much of such pledges do not translate into actual commitments. Then commitments are much higher than disbursements. And the utilisation of aid is a fraction of the disbursements.
Yet on paper it was another success for the Mahinda Chintana. Then there were the usual plaudits for the government's programme. Some of these were veiled in language that required reading between the lines. For instance, World Bank Vice President Praful Patel complimented the Forum for its "frank and open discussion" and described the 10-year plan within the Mahinda Chintana framework as a "good basis" for developing the country.
He also stressed that the Government should be committed to achieving peace and that there should be micro and macro-economic stability. In another interview he stressed that high inflation and violence were having adverse repercussions on growth. The real message of the World Bank thus lay in three words: Peace, macro- economic and micro-economic stability.
Similar sentiments were expressed by the Asian Development Bank Vice President Liqun Jin who said that the donor community was encouraged and impressed by the Mahinda Chintana (MC) development plan. No details of what impressed them in the abbreviated statement of the MC were forthcoming. Were there any practices in the unfolding of the MC that they thought were impediments? Galle was not the place to say so.
The real message of the donor community was somewhat different. They stressed the need to come up with a political settlement as soon as possible. The US ambassador spoke of the linkage between peace and economic growth. Patel said three per cent of growth had been lost to the economy owing to the war. Reaching rates of growth of 8 to 9 per cent was not possible, they said, without a settlement of the conflict.
Despite the Forum being held at an auspicious time when the government forces had recaptured strategic parts of the East, the donors' emphasis was on the need for a quick end to the conflict through a negotiated settlement. They stressed that without this, the pace of economic development would be hampered, that war expenditure would cause an unbearable burden in foreign and domestic debt, lead to spiralling inflation and the destabilisation of the economy.
Will the government be content to rest on the plaudits and be complacent about the unsolicited advice? Or will it recognise that the ten-year plan that has been sketched with an emphasis on the development of infrastructure especially the development of power and energy, transport, highways and aviation will come to fruition only if economic stability is attained? Peace, a constitutional settlement and fiscal consolidation are prerequisites to development that no government could ignore. The government's objective of achieving and sustaining a real growth rate of over 7 per cent each year in the next decade cannot be achieved without these three preconditions being fulfilled. Everyone knew this before going to Galle.