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The Sunday Times Economic Analysis By the Economist

Reconstruction aid from Oslo
The hopes and expecta- tions of the govern ment are that the talks in Oslo would bring in substantial aid for the reconstruction of the North and the East. How much of aid will the country get and on what conditions? These aid talks are different to previous aid parleys. It is especially focused on aid for reconstruction. Therefore the aid would no doubt rest on the donor perception of the durability of the peace. Donors have said many a time that they require evidence of a durable peace to dole out any significant amounts of aid. The presence of the LTTE at the talks is no doubt the means of obtaining assurances that a peace settlement is possible and that there would be no return to terrorism. A peace settlement would require an acceptable constitutional arrangement within a unitary state and a democratic framework. Otherwise the large majority of people in the country, who must agree to the arrangement, will not accept the settlement.

The donors are fully aware of this and have a right to insist on assurances from the LTTE that these fundamental conditions are met. A basic constitutional framework acceptable to all is vital to ensure that a durable peace can be achieved. The Oslo talks may not come to much in terms of aid unless such assurances convince the donors.

There is of course another possible scenario. The government and LTTE could give certain assurances to the donor community. They may accept these as adequate evidence of the peace process leading to a durable settlement. The Norwegians articulated such a position after the first round of talks. If this approach were accepted it would be a new position among the donors. Even if this were to happen, it is most likely that the aid donors would commit only some part of the funds and await more evidence of a durable peace to release their full commitment of aid funds.

There are two pertinent issues that require to be clarified. First, there are misgivings about the aid the Oslo conference expects to obtain. There is an unfounded fear that a large amount of aid to the North and East would tip the process of economic development in favour of this area and against the other areas of the country. Let us be quite clear that the aid is specifically for reconstruction of the devastated areas. There can be no doubt that the scale of destruction in the North and East over two decades requires massive amounts of funds. Such financial resources cannot be mobilised locally especially in the current dire economic context. That such reconstruction is absolutely necessary can hardly be denied. Assistance for economic development in other areas of the country would be on another basis. There should be no fears that the aid commitments would seriously erode aid commitments for the country in general.

These fears must be tempered with the realisation that the reconstruction of the North would have beneficial ripple effects on the economy of the country as a whole. One of the immediate effects of the aid flows would be to improve the balance of payments position. The reconstruction would lead to an increased demand of materials produced in other parts of the country. There would also be increased employment opportunities throughout the country. Therefore the reconstruction of the North would be of benefit to the entire country. Further such reconstruction would be a means of ensuring the durability and sustainability of peaceful conditions. An issue relevant to the discussion is the utilisation of aid.

Over many decades the country has experienced a low level of aid utilisation. While successive governments celebrate obtaining large aid commitments, the country has in fact been able to utilise only a small fraction of the aid commitments. The exception was the utilisation of the aid for the Accelerated Mahaweli project. Therefore in as far as parts of the country are concerned they could have benefited much more from aid flows had the institutional capacity and administration of projects been efficient.

There are two implications arising from this experience. One is the need for government machinery to be improved to achieve a much higher level of aid utilisation. The other is the need to have effective machinery for the utilisation of aid for reconstruction. Otherwise the aid from Oslo would have little effect either on the reconstruction or on the economy as a whole.

One possible problem is that conflicts between the LTTE and the government may seriously jeopardise the effective and timely use of aid. Foreign assistance on a large scale is absolutely necessary to reconstruct the North and East.

We hope the earlier pronouncements of governments that such assistance would be given would materialise in Oslo. In fairness to the donors they would need strong evidence that a durable peace is in sight. We also hope that the donors would insist that the LTTE accept a reasonable and just solution within a democratic unitary constitution.

Those fearful of thinking that the aid commitments for the North would affect the rest of the country are indeed taking a narrow and myopic view of the economy.

The reconstruction of the North would have definite beneficial impacts on the rest of the country. The capacity to utilise the aid obtained in Oslo is as important as the aid that would be promised.

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