Financial Times

Doubts over peace dividend
A new report by the think tank, the Institute of Policy Studies, has put the progress of the peace process and the euphoria over economic growth in a more realistic light. It has pointed out that the peace dividend the country could reap will only be a partial one if there is no permanent settlement of the ethnic problem in the immediate future.

The war-weariness on both sides and international pressure on both combatants not to re-start hostilities is seen as ensuring that the truce continues. However, the uncertainty that is bound to remain in the absence of a permanent peace deal will mean that the expected long-term investments, both foreign and local, might not be forthcoming.

It looks, as some had expected at the outset of the peace process, as if the government's game plan is to drag on the peace process so that the people, especially the majority Sinhalese, will have plenty of time to get used to the idea of LTTE control over one-third of the country - to the LTTE's dominance of the north and east, their illegal activities such as extortion which passes off as taxation, and their illegal police stations and law courts.

The massive dollop of foreign aid that is in the pipeline is meant to sweeten the bitter pill of devolving power to minority Tamils, which until recently was opposed by significant sections of the Sinhalese, although their opposition to the idea has become less strident over the years, as the realisation grew that the war was not winnable the way it was being fought and that some sort of accommodation involving devolution was inevitable if a permanent peace was to be arrived at.

This foreign aid sweetener is designed to make devolution or sharing of power with an LTTE-dominated north-east more palatable, particularly if people will be able to enjoy the fruits of a market economy and a rapidly growing economy.
However, this is not happening as planned. The IPS report warns that the trickle down effect, that according to conventional wisdom should enable the poorer sections of the population to benefit from overall economic growth, has not worked as advertised and that while a trickle down does take place, it is slow and not effective enough.

The more prosperous sectors of the economy - in other words those with existing wealth - are the major beneficiaries of free market reforms advocated by the international lending agencies.

It also draws attention to a startling statistic - one-fourth of the population is still estimated to be below the poverty line and has been so for the past 20 years.
IPS says that global poverty has grown rather than diminished, especially when considering relative poverty and the distribution of income, despite decades of work by international lending agencies.

The IPS report says that it is not surprising that donors and lending agencies are focussing heavily on poverty. This, the report says, is an admission that their strategies of the past have failed to reduce poverty. It also asks whether the current strategies of these lending agencies are any better in resolving the root causes of poverty.

IPS says that it is a mistake to attribute a reduction in poverty to economic growth alone, pointing out that the distribution of incomes, developments in agriculture and investments in rural development and land policies also played an important role in reducing poverty in places like south east Asia.

Economic growth strategies such as export-led growth should be complemented with other support measures and reforms to improve the capacity of the poor to access economic opportunities. "Without such efforts," the report says, "economic growth can exacerbate income differentials and have little impact on the poor."

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