Challenges of reconstruction in 2016 | Daily News
Economic crisis in the North and East

Challenges of reconstruction in 2016

The devastation of the war and the subsequent failure of reconstruction in the North and East under the Rajapaksa regime during the post-war years have led to a deep crisis characterised by falling incomes, rising unemployment and crippling indebtedness. The Government is clearly aware of this crisis, but there is little commitment on the part of the Government to address this crisis with state finances. Given the absence of an economic vision including related demands towards reconstruction by both the Northern Provincial Council (NPC) and the TNA leadership, they are also partly to blame. Reconstruction is as much about the capital necessary for rebuilding as it is about a credible economic development plan, both of which are lacking even as the war-torn regions are mired in an economic crisis.

Budget 2016 and housing construction

Finance Minister Ravi Karunanayake delivering Budget 2016. 

Despite the massive needs for reconstruction and resettlement, the commitments in Budget 2016 are limited to a mere three items, with only one proposal with any financial commitment, which is for resettlement totalling only Rs.14 billion. This resettlement budget proposal is to address continuing resettlement needs, livelihoods, the building of 20,000 houses especially in the Districts of Mannar and Mulativu, improvement of the Delft Jetty, renovation of roads from Velanai to Kayts and establishment of a clinical waste management system. In the context of the need for small industries for employment creation and value addition in the North and East, there is merely one proposal, and that too a public private partnership, for a red clay factory in Oddusuddan.

Development funds channelled through Provincial Councils continues to be marginal. Undermining the idea of financial devolution is the major decline of allocations for all nine Provincial Councils by 17% this year. In this context, the allocation to the NPC has increased from Rs.20 billion in 2015 to Rs.29 billion in 2016. However, with much of the Provincial Council budget going towards recurrent expenditure such as paying salaries and capital expenditure characterised by the Central Government's development projects implemented by the Provinces, this increase in allocation for the NPC will not make a dent on reconstruction in the North.

The major development not mentioned in the Budget Proposals is the Cabinet Decision to construct 65,000 houses for resettlement in the North and East. The Government has put out a call for proposals from agencies with concessionary financing to construct these houses. While such a major housing project is indeed necessary for the war-torn North and East, the process of building those houses is also going to be important.

There are many lessons from the various other housing schemes by the World Bank, India and the Swiss Development Cooperation. Such housing schemes, when implemented as owner driven houses, have led to the high indebtedness of many who got the housing grant. On the other hand, these housing schemes became a major local economic stimulus for households; local labour that could not find adequate incomes in agriculture and fisheries found some relief in incomes through mason work.

The question remains as to whether the proposed project for 65,000 houses will address both concerns of ensuring house-building without indebtedness and avoiding contractor run house-building that may not contribute to much needed local incomes. This major longer-term investment by the state in a post-war housing scheme of 65,000 houses - calculated in terms of the existing schemes worth Rs.550,000 per house amounts to Rs.36 billion - should be designed so it also provides a much needed near term boost to the war affected regional economies.

NPC and economic neglect

There has been little serious engagement on the part of the TNA and the NPC with respect to Budget 2016 and the new economic policies of the Wickremesinghe Government. One would at least expect a debate from them on the economic challenges in the North and East, but that is also absent, as Tamil politics continues to neglect economic issues.

Here a quick look at the NPC and its use of allocated funds would be instructive. For example in 2014, only 63% of the Rs. 6 billion in capital expenditure allocated to the NPC was spent. (Finance Ministry Annual Report 2014, page 323) Indeed, in 2014, the year for which the latest data is available, the NPC is one of the lowest spenders of its capital allocation, when compared to other Provincial Councils.

This is a rather shameful situation for a Provincial Council that continues to claim it does not have enough finances and puts forward devolution as its primary political demand.

It is a known fact that much of the budgetary allocation of Provincial Councils are for recurrent spending, what are called Block Grants, which are mainly the salaries of provincial employees such as teachers. Furthermore, even the capital allocation for Provinces are often determined by national policy for development projects, which are allocated as Province Specific Development Grants. Indeed, this is the shortcoming of devolution as it stands in Sri Lanka; there is little room for participatory development at the regional level.

Provincial Councils only have some discretion in development spending with the much smaller allocations for capital expenditure under what are called Criteria Based Grants. In the case of the NPC, the Criteria Based Grants for 2015 were a meagre Rs. 400 million.

The worrying development, however, is that the latest NPC Financial Progress Report claims that only Rs. 143 million or 36% of the allocated Criteria Based Grants for 2015 have been spend by October 31, 2015. It is for the NPC and its Chief Minister to provide an explanation for this state of affairs.

Donor dependency and employment generation

The emphasis on housing in the Budget and the 65,000 housing scheme mentioned above will be welcomed by those whose houses were destroyed and living without permanent housing after the war. However, the larger economic problem of the war-torn region is the lack of job creation and falling incomes, which are linked to the dearth of investment for value addition in the local economy.

In this context, reconstruction of the North and East now hinges on a proposed Donor Conference in Tokyo. Perhaps the Government is considering the possibility of reviving the large funds that were pledged at the Tokyo Donor Conference in June 2003, which was at the height of the internationalised Norwegian peace process. Donors pledged a total of US$ 4.5 billion (now worth over Rs.600 billion) in development aid for neoliberal economic reforms coupled with progress on the peace process. However, at that time,the LTTE arrogantly boycotted the donor conference as it prepared for war, and those donor commitments could not be taken forward. The reality is that the national situation and geopolitical interests are very different today, and the chances of this donor conference becoming a reality are slim, and even if it did take place, only a fraction of the aid necessary for reconstruction is likely to come from the donors.

Next, the general approach of donors has been that of investing in infrastructure and that mind-set has also become dominant among the bureaucracy. Reconstruction has become reduced to physical infrastructure such as roads and buildings, with a rejection of any role for the state in directing employment creation. Even worse, the donor and state policies, encourage NGO-led and other projects towards self-employment schemes including through micro-finance, which have in fact led to high levels of indebtedness and devastated household assets and finances. Indeed, it reflects a huge gulf between the concerns of the war-torn people and the economic programmes created by the nexus of the state, the donors and the NGOs.

Expecting a people who have lost everything in a war, to suddenly start producing, marketing and creating a livelihoods taking on the entire economic burden as individuals through self-employment reflects the height of economic idiocy. In short, the falling incomes in the rural economy, the lack of credible employment generation and the crippling effects of self-employment schemes, all constituting the failure of reconstruction, reflect the abdication of state responsibility towards reintegrating a war-torn people.

Political will and economic vision

When it comes to the reconstruction of the North and East, what is needed is the political will on the part of the state to commit the resources necessary to rebuild our war torn societies. Furthermore, a credible economic vision is necessary from the Government and the Tamil political leadership to address the root causes of the economic crisis in the war-torn regions. That must begin by looking at the massive indebtedness, the falling incomes and the lack of employment. Investment in the still rural economy, in small industries and the people, the most important resource, is the only way out of the deepening economic crisis tearing apart society.

If 2016 is to be a different year for the long suffering people of the North and East, the political leaders both in the South and the North have to stop passing the buck; not to each other nor to the donors whose interests lie elsewhere. Meaningful reconstruction is going to require our resources and our vision, and we as a country have to take responsibility for the economic crisis in the war-torn regions as much as for the tragic history that led to the devastating war. 

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