Foreign Aid &
Sri Lanka's Military Expenditure

Nadesan Satyendra
[Revised 5 October 2006]

Introduction
Rising military expenditure - 1977 to 1986 - 1995 - 1996 - 1997 - 1998 - 1999 - 2000 - 2001 - 2005 - 2006 - 2007
Sri Lanka's structural dependency on foreign aid  
Foreign aid fuels Sri Lanka's genocidal war 
For & Against giving Aid 
Sri Lanka economy driven by military expenditure

Introduction

Sri Lanka's military expenditure increased from 0.75 billion Sri Lanka rupees in 1977 to a budgeted 139.6 billion for the year 2007 - an almost two hundred fold increase. During the same period, foreign aid to Sri Lanka has kept pace with Sri Lanka's increasing military expenditure. It is not simply  that  Sri Lanka's economy is structurally dependent on foreign aid - it is also that that dependency shows a clear in built increasing trend.

Without foreign aid, Sri Lanka would not have been able to continue its genocidal war against the Tamil people - and it may well have found the need to talk with the people of Tamil Eelam on an equal basis and structure a polity where the two peoples, the Sinhala people and the Tamil people, may associate with each other  in equality and in freedom. And foreign aid has been forthcoming because each 'aid donor' is intent on securing its own strategic interests in the Indian Ocean region - and this is true, whether the aid donor is the US, the EU,  India or China.

Sri Lanka has sought to use the political space provided by the countervailing strategic interests of the US, India and China in the Indian region (with supporting roles for Pakistan, European Union and Japan) to advance its own interests and acquire the military capability to subdue Tamil resistance to alien Sinhala rule.

Rising Military Expenditure

1977 - 1986

During the nine year period 1977 to 1986, Sri Lanka's military expenditure increased eight fold. In February 1986, 11 Non Governmental Organisations commented at the UN Commission on Human Rights:

"Since 1977, (Sri Lanka's) defence spending has increased by 800 percent , that is, from Rs 750 million to Rs 6 billion. Although defence expenditure for 1985 was estimated at Rs 3.7 billion it rose to Rs 6 billion. The amount estimated for defence for 1986 is Rs 5.84 billion."

1995

Nine years later, in 1995, Sri Lanka's military expenditure was estimated at Rs. 24 billion ($444 million). The actual amount spent during the year was Rs. 34 billion. This was more than a five fold increase on the figure for 1986 and forty times the figure for 1977.

1996

In the following year,1996, the budget allocation for military expenditure was increased to a then unprecedented Rs. 38 billion ($707.7 million). However, the actual expenditure was Rs.46 billion - a 35% increase on 1995. Sri Lanka's Deputy Secretary of Treasury P.B. Jayasundera, explained in April 1997:

"Sri Lanka's defence spending in 1995 was 34 billion rupees, but rose sharply to nearly 46 billion, or about six percent of gross domestic product, last year (1996) as the war escalated. Jayasundera said the big increase was largely because previous budget forecasts had been made on the assumption that there would be no escalation in the conflict. "There was a gross underestimation in terms of events," he said." (Reuters Report, 2 April 1997)

A study on the Cost of the War undertaken by the Sri Lanka Marga Institute  released at a National Peace Council convention in Colombo on 5 January 1998 found that the total war cost  in 1996 amounted to Rs 165 billion or 21.3 percent of GDP, and was more than three times the direct budgetary expenditure on defence.

1997

Sri Lanka's budgeted military expenditure for 1997 saw an increase to Rs.44 billion ($758.6 million) from the budgeted amount of  Rs.34 billion for 1996. This  amounted to 6% of GDP and 22% of total government spending. Reuters reported on 2 April 1997:

" Sri Lanka, waging a protracted war against Tamil Tiger rebels, does not expect a rise in defence spending this year, a top finance ministry official said on Wednesday. P.B. Jayasundera, deputy secretary of treasury, said military spending should not top the proposed budget of 44 billion rupees ($758.6 million) for 1997. 

"The 1997 budget is more a military type of budget, which has fully accommodated the military requirement," he said. "Each plane crash does not mean that we have to add something," Jayasundera said in reference to the tiny air force, which has lost six aircraft in operations against the rebels this year. 

On 12 October 1997, a lead feature in the Sinhala owned Sri Lanka Sunday Times was compelled to point out:

"...two long years after the crisis purchases have flooded the battlefields with both expensive, sophisticated military hardware as well as with obsolete, unserviceable items, there are no signs that the cost of the protracted guerrilla war has receded. To the contrary, it is showing an upward trend giving a message to every Sri Lankan. To the tax payer, its a message that they would have to continue to pay to sustain the war effort. To all others, indirect taxes on goods including consumer items is a daily reminder.  

None other than Justice, Constitutional Affairs, Ethnic Affairs and National Integration Minister, Dr. G.L. Peiris, has in his role as Deputy Minister of Finance, declared that the highest allocation in the budget for next year, Rs 45 billion, has been made to the Defence Ministry. The current year's (1997) allocation is Rs 44 billion.  Like the current year's allocation which exceeded the allocated amount (due to the mounting cost of procurements), there is no doubt, there will be a repetition this year too.

Whilst the allocations have been made on the basis of recurring costs and new procurements, colossal unexpected losses of military hardware warrant additional expenditure. Events in the battlefields of Wanni this week underscore this reality."

In the event the actual military expenditure for 1997 was Rs. 46.6 billion.

1998

The budget allocation for military expenditure for 1998 was initially Rs.44 billion. This was later increased by Rs.8 billion. Reuters reported on 13 August 1998:

"Sri Lanka's defence spending is expected to rise sharply in rupee terms in 1998 as the campaign to wrest control of a key northern highway from the Tamil Tiger rebels drags on, the deputy finance minister said on Thursday. "We started by allocating 44 billion rupees ($663.3 million). We would now need to increase it roughly by eight billion rupees," Gamini Peiris told a news conference."

In the event, a month later on 24 September 1998, the Sri Lanka government announced an increase not of 8 billion rupees, but of 12.2 billion rupees amounting to a  28% increase on the original allocation for 1998.  Associated Press reported:

" The ruling party on Wednesday asked parliament for 12.2 billion rupees (US$ 184 million) more than the 44 billion rupees (US$ 665 million) which was budgeted for the military for 1998. Parliament is likely to approve the increase later this month, officials said. The government did not give a reason for the increase, which brings the total defense spending to 56.2 billion rupees (US$ 850 million). (Associated Press Report, 24 September 1998)

The Sri Lanka Budget deficit in 1998 was expected to be 7.8%, sharply higher than the previous forecast of 6.5%.

"Sri Lanka Deputy Finance Minister Gamini Peiris said the budget deficit in 1998 was expected to be 7.8 percent of the gross domestic product (GDP), sharply higher than the previous forecast of 6.5 percent.He blamed rising defence expenditure as the main cause for the increase" (Reuters Report, 11 November 1998)

1999

On 5 November 1998,  Sri Lanka announced yet another ' unprecedented' allocation for military expenditure in 1999 to  47 billion rupees, up from the originally estimated 44 billion rupees in 1998 (later extended to 56.2 billion rupees). In contrast, the allocation for health for 1999 at 12.46 billion rupees compared to an actual expenditure of 15.0 billion rupees in 1997 and an estimate of 11.09 billion rupees for 1998. A Budget deficit of 7% was forecast.

2000

On 5 October 1999, the Budget Estimates tabled by the Sri Lanka Finance Minister estimated a  11.5 percent increase on defence over that for 1999. The government estimated that defence spending will reach 52.43 billion rupees (728 million dollars), compared to the estimated 47 billion rupees in 1999 and 44 billion rupees in 1998. However, in the past, defence spending has overshot original budget estimates by 20 to 25 percent. The recurrent defence expenditure for the calendar year 2000 would total 41.5 billion rupees while 10.9 billion rupees has been earmarked for capital expenditure. The Appropriation Bill presented in the Sri Lanka Parliament  showed that the Government's total expenditure next year will be 291 billion rupees.

The London based Financial Times reported on 30 May 2000:

"As a peace initiative brokered by Norway got under way in February, R.A. Jayatissa, the bank's research director, estimated that an end to the war could raise Sri Lanka's trend growth rate by 2 percentage points a year and more than double per capita income over the coming decade. But as the Tigers continue to inflict defeat after defeat on the demoralised army, this peaceful vision has been lost in the scramble to find more money for the war.

In nominal terms, declared defence spending has risen from Rs1.3bn in 1983 to Rs53bn ($709m) in 1999. In this year's budget, the government of President Chandrika Kumaratunga emphasised that, as a proportion of gross domestic product, planned outlays of Rs52.4bn had dropped from 5 per cent to 4.7 per cent. P.B. Jayasundara, finance secretary to the treasury, said in February the defence budget was designed to underpin the peace process and "will sustain the status quo rather than intensified military activity".

But now the government has sanctioned an extra Rs12bn military spending in a desperate attempt to hold back the Tigers' latest offensive in the north. This will raise the declared defence budget to around 6 per cent of GDP and, in total, dwarf projected spending on education and health - respectively Rs29.3bn and Rs15.7bn. It will also deepen the distortions in the economy and further blight Sri Lankans' hopes of rapid development.

The extra sum, mostly for heavy guns and Israeli jet fighters, is being raised by increased taxes on alcohol and tobacco and a rise in the National Security Levy. This war tax, introduced as an interim measure in 1991 at a rate of 1 per cent, is now 6.5 per cent and levied on almost all goods and services. The revenue it raises exceeds all income tax receipts, and, along with other extraordinary levies, such as the Save the Nation Contribution, a surcharge on income tax, has had the effect of postponing urgently needed tax reform.

The war has sabotaged much else besides. A declining fiscal deficit, down from an average 10 per cent of GDP to just under 8 per cent last year, is spiralling again. This has a scatter-gun effect, ranging from the uncertainty it creates about investment conditions to the postponement of financial sector reforms. The war makes politically sensitive changes, such as labour market reform, all but impossible. And, of course, it scares off all but the hardiest foreign investors."

The British Refugee Council, Sri Lanka Monitor reported in December 2000:

"..The international institutions and foreign nations participating in the Sri Lanka Development Forum (Paris Aid Group) on 18 December 2000, declared that ‘social exclusion driven by ethnicity, language and religion had resulted in reduced opportunities over decades and created the extreme tensions which drove the conflict’ in the island.

The delegates noted that there was a “disconnect” between policy and the experience of the people despite the Sri Lankan government’s assertion of commitment to improve judicial, legislative and administrative systems. The World Bank’s South Asia Vice President Meiko Nishimizu emphasized the need for efficient institutions and good governance. She made clear that economic growth without equity and social harmony among citizens could become a ‘destabiliser’ in the region.

Ms Nishimizu pointed out that war expenditure had risen to 6% of the GDP. Ahead of the Forum sessions, the International Working Group on Sri Lanka (IWG), a consortium of NGOs, had pointed out that while 25% of government expenditure is needed to fund the war effort, defence outlays rose by more than 50% in 2000 to around $1 billion. The IWG had urged governments to develop an explicit strategy for peace building within donor programmes and a coherence throughout all elements of foreign policy in relation to Sri Lanka..."

2001

 The Times of India  reported on 9 February 2001

"On 8 February 2001, Sri Lanka announced an unprecedented Rs 63.39 billion defence allocation for the current year in the provisional budgetary estimates presented to Parliament. The appropriation bill, revealing the government's balance sheet for 2001, showed that its borrowing limits had been expanded to Rs 247 billion, a huge 67 per cent of its projected expenditure of Rs 364 billion... Last year, Sri Lanka's budget was derailed by the protracted war against Tamil separatists, with massive defence spending inflating original estimates by almost two-thirds. An interim budget presented in December showed that increased outlay on weapons purchases pushed defence spending in 2000 up to Rs 83 billion, compared to the estimates of Rs 52.43 billion made earlier in the year... Saddled with steadily depleting foreign reserves, which stood at $900 million at the end of last year - down 45 percent compared to a year earlier - the government moved on January 23 to avert a financial crunch by freeing the rupee from a managed float. The latest tally sees the local currency having depreciated by a huge 27.5 per cent against the dollar in the last 12 months."

2005

Yet again military expenditure took a lion’s share of  Sri Lanka's 2006 budget

"Sri Lanka’s has substantially increased its defence budget for next year to almost US$700 million, the Sunday Times said this week. The rise of over 20% comes amid a stepping up of violence in the island’s east between Army-backed paramilitaries and the Liberation Tigers. In a report titled “Defence takes lion’s share of 2006 budget,” the Sunday Times said the proposed budget raises expenditure on the military next year to Rs. 69,470 million (US$690 million), a rise of nearly Rs. 13,000 from this year’s Rs. 56,300 million (US$ 554 million). Defence is among several areas that have been allocated increased funding in the government estimates for the coming year, the paper said.

The total government expenditure for 2006 was estimated at Rs. 568 billion, up from 438 billion in 2005, in the Appropriation Bill for next year to be presented by Finance Minister Dr. Sarath Amunugama in Parliament on Tuesday, the paper said. Some analysts argue Sri Lanka has developed a domestic ‘war economy’ where the defence budget is one of the largest injections of state funds into the market. "Army recruitment and compensation have become the primary source of resources transferred into the economy of the rural poor in the Sinhalese-majority regions of the South," says Prof. Kenneth Bush in his book "Learning to read between the lines: the intra-group dimensions of ethnic conflict in Sri Lanka."

The rural economy of the rural poor in the South is “three times more dependent on 'military remittances' than official poverty alleviation programmes (Janasaviya and Samuradhi); and more dependent on Army recruitment and compensation than on overseas remittances," he says. "In effect, successive governments [have] been using military employment as a grand youth employment cum poverty alleviation programme," Prof. Bush argues." (TamilNet report 2 October 2005)

2006

And on 9 November 2006, TamilNet reported -

 "Sri Lanka's defence expenditure for fiscal year 2006 is expected to increase by more than 30% of the 2005 levels to Rs 61b, budgetary estimates submitted to the legislative body Tuesday revealed. Breakdown of the expenditure forecast by Sri Lanka's Ministry of Defence estimate for the "formulation, co-ordination and execution of policies with regard to defence and safeguarding the territorial integrity and sovereignty of Sri Lanka," follows:

While the recurrent expenditures for Sri Lanka Army (SLA) and Sri Lanka Navy (SLN) account for the biggest increases, the capital expenditure for the SLN decreased from Rs 4.6b in 2005 to Rs 1.8b for 2006."

2007

And, for 2007, Sri Lanka plans to double military spending.

 "Sri Lanka plans to double defence spending next year, Reuters reported Thursday 5 October 2006. Defence spending will rise 100 percent next year to 139.6 billion rupees from 69.5 billion budgeted for 2006, the appropriation bill seen by Reuters ahead of its presentation to parliament showed. Overall spending goes up 40% to 804.6 billion rupees ($7.7 billion) in 2007 from that budgeted for this year.

Analysts said the increase in spending was higher than anticipated, expecting the budget deficit to widen due to increased defence expenditure, and wondering where the government will find the money.

"It looks as though they might be planning to upgrade their defence hardware, which means they will have to raise foreign money," Dushyanth Wijayasinghe, head of research at Asia Securities in Colombo told Reuters. "They could do that partly from dollar bond issues and partly from long-term credit lines from (arms) suppliers," he added. "They need to get public sector spending under control ... and improve tax collection. There's no other way."

Meanwhile, many investors have either cancelled or held back investments in Sri Lanka’s $23 billion economy amid serious clashes between the armed forces and the Liberation Tigers, especially since late July when the military launched a major onslaught against the LTTE.

"The peace process will be key," Wijayasinghe said. "If they can take it forward, that will relieve a lot of pressure on the inflationary front and enable the corporate sector to take a longer view." (Tamilnet, 5 October 2006 )

Structural Dependency on Foreign Aid

The comparison of Sri Lanka's military expenditure with the foreign aid received by Sri Lanka during the same  period is instructive.

1977 to 1987

During the period 1977 to 1986, the aid commitment to Sri Lanka averaged around $500 million, which was a five fold increase compared to the average for 1960-77. In 1987, the aid committed was US$593 million

International Alert commented in 1987:

"The amount of aid committed to Sri Lanka for 1987 is US $593 million. Aid commitment has averaged approximately $500 million per annum since the present government came to power in 1977, a five-fold increase compared to the average for 1960-77. .. Aid has become Sri Lanka's largest source of foreign exchange. The Sri Lanka economy has become structurally dependent on foreign aid. ... The Sri Lankan government's defence expenditure has roughly quadrupled in little over two years, to reach approximately 8% of GNP this year."

1995 -1997

In April 1995, the Paris Aid Consortium pledged $850 million as aid to Sri Lanka - a 43%  percent increase on the aid committed for 1987. Again, in November 1996, the Paris Aid Consortium pledged $860 million as aid to Sri Lanka for 1997.  

1998

The Paris Aid Consortium, at its meeting held on 27 May 1998, pledged 780 million dollars of aid to Sri Lanka.  The World Bank made what has now become almost a ritualistic statement about the ongoing conflict. The Bank expressed  "deep concern that the prospects for a quick end to the war were not more encouraging", "deplored the growing tragic impact of the war on the entire nation"  and called upon " all Sri Lanka's political leaders to rise above partisan politics and unite in the cause of peace and prosperity".

The award was lower than the $850 million pledged in 1997 because members of the Aid consortium  had generally trimmed their contributions by 10% for the current year. But Japan did not reduce its contribution.  Though Sri Lanka sought to explain the Japanese decision as an expression of "profound satisfaction with the success that the Sri Lankan government had been able to achieve in dealing with the variety of very difficult and complex problems", the economic and political reality may be that given the crisis in the Japanese economy and in the Asia Pacific region, Japan had a compelling  need to increase (and not reduce) overseas aid and in this way ensure  that Japanese exports  have a ready market.

In recent years, Japan has emerged as the largest single aid donor to Sri Lanka. The Japanese government allocated 52.63 million US dollars to be given to Sri Lanka as a grant for the 1997, and in addition, Japan also agreed to provide 26.32 million US dollars for technical co-operation and other projects. The Japanese government had provided 1.25 billion US dollars as grants from 1969 up to March 1997, 3.5 billion US dollars as loans from 1965 to 1996 and 2.85 billion US dollars in technical co-operation during the past two decades. (see generally - Japan's Cheque Book Diplomacy) 

2001

Foreign Aid fuels Sri Lanka's Genocidal War

Though  foreign aid  pledged by the Paris Aid Consortium and others does not go directly to the Sri Lanka military, such aid has enabled Sri Lanka to release its own funds to fuel its war against Tamil resistance to alien Sinhala rule. International Alert commented in 1987:

....Almost none of the aid (Sri Lanka)  receives is defence-related, and indeed project aid (unlike commodity or food aid) is closely tied to particular items of non-defence expenditure. But to the extent that it frees resources that would otherwise be spent upon these projects, it enables the government to run a larger defence budget than would otherwise be possible, though this effect is hard to quantify...

....More indirectly but no less importantly, aid enables a given defence budget to be sustained at less cost to the overall economy in terms of inflation and consumer shortages, and may thus diminish the political unattractiveness of pursuing a military solution to the problem"

In recent years, the Sri Lanka navy has acquired water jet-propelled attack craft from Israel and patrol boats from France, while China has sold an anti-submarine warfare vessel and gunboats and landing craft. China was a major supplier of arms to Sri Lanka - and this brought with it corruption as well. Reuters reported on 27 April 1997:

" The Sri Lankan navy will partly pay the Chinese supplier involved in a controversial $63 million arms deal that will leave the country with a huge stockpile of ammunition, a newspaper reported on Sunday. Naval chief Vice-Admiral Cecil Tissera told the Sunday Leader newspaper in an interview that the navy, which is investigating the deal, would only pay for what it used. The remaining ammunition would be kept in a bonded warehouse for the Chinese company in Sri Lanka, he said. Tissera said the Chinese company had sent 150,000 rounds of 25 mm and 35 mm shells, whereas the annual consumption of these shells by the Sri Lankan navy was only 3,000. "

John Zubrzycki, reported in a Special to The Christian Science Monitor  on 12 August 1998:

"Uncovering evidence of corruption within the military can be risky for journalists who are already subjected to strict censorship when reporting on the war. When Iqbal Attas, an investigative reporter for Colombo's Sunday Times, began closing in on evidence of massive kickbacks in a combat-aircraft deal, armed men broke into his house, pointed a gun at his head while his terrified wife and daughter looked on, and then fled. Mr. Attas later identified one of the assailants as the personal bodyguard of a former Air Force commander implicated in the deal. The war has become a very big industry," says Attas. "Look at the sophistication of the Army and the Air Force ... and yet they claim that the LTTE numbers only a couple of thousand soldiers."

The comments of the World Bank, after the Paris Aid Consortium meeting on 18 November 1996 are not without relevance:

"The bank said the highest priority for Sri Lanka was peace and said donors were prepared to offer more aid if a settlement to end the island's civil war were reached. 'Deploring the cost of the hostilities and human suffering  (donors) hoped that negotiations leading to a peaceful settlement could be initiated without delay' the bank said. "

This view was reiterated by the Asian Development Bank in its Annual Report on 23 April 1998:

" The government has said the budget deficit in 1997 was 7.5 percent of GDP and aims to reduce it to 6.5 percent this year. ...The war escalated last year after the military launched a fresh offensive to capture a key northern highway. Government officials say Sri Lanka spends nearly six percent of GDP on its security forces and the war. "The status of the ongoing civil conflict is a key determinant of the country's long-term development prospects," the bank said. (Reuters Report, 23 April 1998)

For & Against Giving Aid

In 1987, the arguments for and against giving foreign aid were summarised by International Alert:

"A number of arguments are from time to time advanced in support of the view that, in current circumstances, aid to Sri Lanka should be curtailed, reduced or made subject to stringent conditions on its use. These include the arguments:

i. that aid should not be given to countries that consistently and consciously violate human rights;
ii. that aid has made it possible for the Government of Sri Lanka to increase its military expenditure;
iii. that Sri Lanka's dependence an aid gives donor countries great influence for good or ill which in the current crisis they would be irresponsible not to use;
iv. that the existing aid does not reach those who need it most - the victims of ethnic violence.

On the other hand arguments are advanced:

i. that donor countries should not interfere in the internal affairs of Sri Lanka;
ii. that reductions in aid would be negated because other donors would step in to fill the gap;
iii. that reductions in aid might destabilise an already unstable political situation;
iv. that those who would suffer most from reduced aid would be the poorest groups whom it is most desired to assist. "

The arguments summarised by International Alert ignore one important aspect of all foreign aid - the strategic and economic interests of the donor country.

'Aid' is more often than not linked (directly or indirectly) to the commercial interests of the donor country. Indeed, the word 'aid' itself is a misnomer. It is directed to promoting private industrial and trade interests of  the donor country. Castis put the matter, perhaps somewhat harshly, when it declared in 1993:

"Do Western governments give this money to the (Sri Lanka) regime without being aware of the (human rights) situation? ... The reasons are economic benefits... Nowadays, imperialism takes the form of foreign aid."

Perhaps, aid donors (not only from the West but also from Japan and the East) should ask themselves whether their own long term economic and strategic interests will be served by supporting a government which seeks to impose the rule of one people on another people. Economic development requires peace and stability and these are unlikely to exist where the rule of one people by another alien people prevails.

The Annual Human Rights Review by US State Department, and the existence of organisations such as International Alert, suggest that the so called 'developed' world is not unmindful of the dangers caused by ignoring human rights issues.

At the same time, the support that rulers such as President Suharto of Indonesia  received from the international community during the past two decades and more, suggests that even genocide may be acceptable, so long as it is completed (quickly) without drawing too much public attention. On this view of the matter, the efforts of organisations such as International Alert may be seen to be more in the nature of palliative 'public relations' exercises directed to 'managing' public opinion and securing the stability of existing regimes rather than addressing the needs of the oppressed, crying for freedom.

The fate eventually suffered by Suharto may have a wider significance and the remarks of Amnesty International in a full page advertisement in the London based Guardian on 12 March 1994 in the context of East Timor may have a broader relevance:

''When governments pretend not to notice suffering, to whom can peoples.. turn for help? The United Nations? Alas, the deeper you delve, the redder the faces. The cynicism of realpolitik extends even to the UN Commission on Human Rights... When Amnesty attended the Commission in Geneva last month to urge action on Indonesia and East Timor, we met only embarrassment. The governments to which we spoke repeated what they have been promising us for thirty years: they will pursue a policy of 'quiet diplomacy'''

Sri Lanka economy driven by military expenditure

The question is sometimes asked as to how long Sri Lanka can afford to continue to allocate more than Rs.50 billion an year for  'military expenditure'. Economist Dr. Saman Kelegama, executive director of the Institute of Policy Studies (IPS), declared at  a seminar of the Sri Lankan Association of Economists in early February 1999:

"Spiralling defence costs, which average 50 billion rupees a year now, has created a large (budget) deficit and curbed foreign investment. The budget deficit, as a percentage of GDP, rose to a high of 18.3 percent in 1980 but fell to around 7.0 percent in 1998, largely because of lower government spending in non-defense sectors, and the sale of the government's assets like the national carrier, Air Lanka, and plantations.

More than anything else, the government's financial policy is driven by military concerns. Sri Lanka by 1996 had a bigger army than countries like Malaysia, the Philippines and Australia, whose populations are much larger.....The government has been resisting devaluation  because of its impact on military expenditure. Defence spending would (then) rise because most (equipment) is imported."

Today, in 2006 the military expenditure is set to increase to 140 billion rupees. However, views such as those expressed by Economist Dr. Saman Kelegama in 1999, ignore that which the Sri Lanka government  may well see as the economic advantages of a continuing war. For instance, M.M. Jayawardene of the Kotalawala Defence Academy speaking at the same seminar in 1999, was quick to point out  that high defence expenditure has had a positive effect on the economy and was not just a drain on the government exchequer.

"Defense becomes paramount when there is a threat, internally or externally. When defence plays such a vital role in society, the social contract has to be adjusted.

The war has been a source of employment. Large numbers of rural youth have enlisted in the military. And their remittances have brought prosperity in the villages. Forty percent of the defence bill goes to salaries and wages and one can argue that, with the bulk of recruitment coming from rural areas, these areas get large inflows of funds.

There were other benefits like education and training that filtered into the village, and when one takes this positive aspect of defence spending, the cost or the burden on the exchequer would be moderated. (I acknowledge  that) the high defence spending has led to large budget deficits and cuts in social welfare measures. (But)... in the short term, defence spending has a sound positive impact while in the long term there is a negative impact on economic growth."

The reasoning is not without significance. Sri Lanka may see the enlistment of rural youth in the Sri Lanka armed forces as an answer to the problem of rural unemployment and as a way of  reducing the movement of the rural population to urban areas, in search of jobs which are difficult to find.  It may take the view that even if those who enlist, eventually die at the frontline, their remittances would  'have brought prosperity in the villages'.

But, what is the duration of the 'short term' during which 'defence spending' will have this so called 'sound positive impact'?  How long will it take before deficit budgets, inflation and army desertions take their toll? How long will it take before  foreign 'aid donors' insist on  further devaluation? How long before cuts in social welfare measures begin to bite and increase the need to resort to further repression to quell discontent? As other countries have learnt (and as foreign aid donors know only too well) militarisation is no panacea. Economic development will not come without peace - and peace will not come without justice.