Some thoughts on politics of foreign aid

Few thoughts on politics of foreign aid

Sunil Bastian

The focus of this short article is the politics of foreign aid given by other states to the Sri Lankan state during the post-colonial period. The post-colonial period of the Sri Lankan state is an interesting case study to understand the politics of foreign aid for two reasons. First, its history of state formation posed numerous challenges. Second, the state received foreign aid from sources with diverse political ideologies. Both these factors give a rich source of empirical material for analysis. It is a case study that can provide insights relevant beyond Sri Lanka. 

The conventional approach to studying a state is to treat it as a concrete, self-contained entity that has attained a final status. The legal notion of sovereignty strengthens this idea. Within human history this notion became hegemonic only after the Second World War. The spatial unit covered by the state is securitised and this is called national security. This spatial unit is objectified in maps, and borders are drawn to demarcate it. A whole paraphernalia of rituals, histories and symbols have developed – not only to promote this idea, but also to convey the eternal character of the state. Those who control the state, and their ideologues, always try to convey this notion. The mainstream discussion on geopolitics is also based on this notion of the state. It usually focuses on the security interests of states visualised as ahistorical entities. This analysis serves the interests of those who control the state. The political interests of critical geopolitics go beyond the security interests of the political elite who control the state to cover many other areas of concern.

In contrast to this conventional idea of the state, this article looks at states as a product of historical processes. Like any other social phenomenon, they are formed under certain specific historical conditions. They continuously undergo changes in critical areas, such as the institutional structure of the state, its identity and public policies. Under certain circumstances states can even totally disappear. A cursory glance at the history of the world will show this. 

In understanding the state formation process it is crucial to focus on strategic state-society relations. Depending on specific histories of state formation, certain state-society relations become strategic. These can be either managed through consent or coercion. A consensual approach means developing policies that manage these strategic state-society relations peacefully. Coercion means the use of coercive power of the state to manage these relations. The latter results in social costs, and certain sections of the society become victims. Managing strategic state-society relation through consent is the foundation for a strong state. 

Within this state formation process foreign aid is part of the politics of international economic relations of the recipient state. Other dimensions of this are foreign trade and investment. For the Sri Lankan state these economic dimensions have been perhaps the most important factor in international relations. 

Foreign aid from other states is always a part of the foreign policy of donor countries. This is irrespective of the purpose for which aid is given. It is a part of economic statecraft, where economic means are used by donor countries to pursue foreign policy objectives. It is also called ‘soft power’ in international relations literature. In studying foreign aid, it is always necessary to keep these foreign policy objectives of donor countries in mind. Often the use of the term ‘aid’ masks them. Even in the case of multilateral aid agencies states play a role in managing them, and their foreign policy interests play a role. The institutions of global finance capital that provide loans are always registered within the legal framework of a state. As can be shown through many examples, when there is a case of default of loans given by these institutions, the states under whose jurisdiction finance capital operates always come in to protect the interests of finance capital.

It is also important to remember that foreign aid from states is not only transferred to achieve economic objectives. It includes other changes in recipient countries. In recent times the focus has widened to include many areas of social transformation. However, these objectives vary from donor to donor. It depends on the hegemonic worldview that dominates in the donor country. 

When it comes to recipient states, the dominant factor is the political, economic and ideological interests of the political elite who control the state. The political elite in recipient countries are involved in negotiating the flow of foreign aid to the state. In these negotiations both economic and other dimensions of international relations come into play. 

Recipient states have their own specific histories. In order to understand the impact of foreign aid it is necessary to take these specific histories into account. This is often forgotten because of the dominance of categories that lump countries with diverse histories into a single category. Examples are the notion of the Third World or developing countries. A more recent example of this nature is the idea of ‘conflict-affected countries’, which once again lumps societies with diverse histories into a single category. Unfortunately, these types of categories dominate in formulating aid policies in donor countries.   

Post-colonial Sri Lanka

The post-colonial Sri Lankan state was constructed under British colonialism when the entire geographic space of the island was covered by a single unit of territorial power controlled by the British. This territorial power has been undergoing a process of state formation during the post-colonial period. Two strategic state-society relations have been critical in this process. First, the relation between the centralised state inherited from the colonial period and minority ethnic and religious groups. Second, relations between the Sinhala majority and the state in the context of the unequal socio-economic impact of the politics of capitalist transition. Unfortunately, during the post-colonial period managing these critical state-society relations has not been peaceful.

The post 1977 period of state formation has been particularly violent. During this period both strategic state-society relations faced special challenges. First, the worsening of state-minority relations led to Sri Lankan Tamils demanding a separate state. Second, the introduction of a more liberal period of capitalist transition and its socio-economic impact created new challenges in managing relations with sections of Sinhala majority. Both these processes led to the use of coercive power of the state with enormous social costs. It is not that there were no efforts to manage these strategic state-society relations through policy reforms. But they were either inadequate or ineffective. This period has gone down in Sri Lankan post-colonial history as a period of ‘mass graves.’ 

Right throughout this history of state formation the Sri Lankan state received foreign aid from states with their own foreign policy agenda. During the Cold-War period the Sri Lankan state received foreign aid from both camps. After the collapse of the Soviet Union and what can be called a global neo-liberal political project led by the US dominated the world, foreign aid was mainly from the developed capitalist countries of the West, Japan and multilaterals. Currently aid flows from new centres of capitalist growth such as China and India, have joined the earlier donors. But what is more important is that in the recent past global financial capital has become the largest source of loans.  

The post-1977 period, when managing strategic state-society relations resulted in a high level of violence with enormous social costs, is also when the flow of foreign aid increased significantly. This was because of the political elite’s decision to shift economic policies towards a strategy that emphasised the private sector, markets and openness to global capitalism. How this flow of foreign aid interacted with the state during a period of violence and the use of coercive power of the state presents an interesting area of research. A closer look will show donor agencies made various attempts to manage this situation, and to ensure more peaceful methods of managing strategic state society relations. Unfortunately, not all of them achieved their goals.   

At present this type of research is needed both to understand recent history and find policies for the present. This is because recently we have seen the latest episode of failing to manage a strategic state-society relations. The failure of the state to fulfil the demands of finance capital led to an economic crisis, protests, deal making between political elite and the familiar use of coercive force of the state. Therefore, it was no surprise that the electorate firmly rejected the political elite who controlled the state at the recently concluded presidential election. It is in this context of the recent Sri Lankan history that the International Monetary Fund and donors from countries have stepped in to support the Sri Lankan state. But the crucial question is what will drive their policies? A narrow agenda of supporting capitalist growth or will they learn lessons from the recent history of Sri Lankan state formation, violence and loss of lives that accompanied these events, and look for policy option that can prevent a recurrence of such events with enormous social costs.