Britain made clear its discontent over Sri Lanka’s treatment of Tamil refugees last night by abstaining from a vote at the International Monetary Fund to give $2.4bn (£1.46 bn) to the country.
The abstention, the first by the UK since 2004, signals the degree of unease in London over the handling of the humanitarian crisis in Sri Lanka following the government’s recent victory in its civil war against the Tamil Tigers. The US, Germany and France also abstained.
Hundreds of thousands of Tamils fled the north-east of the country earlier this year when the government launched an offensive against the Tamil Tigers that ended with the final capture of the group’s last hideout and the killing of its leader Velupillai Prabhakaran in May. Some 280,000 people, almost exclusively Tamils, are still being held in detention camps by the government despite condemnation from humanitarian and aid groups.
Stephen Timms, the financial secretary to the Treasury, said in a letter to MPs last night that Britain “remain[s] concerned with the humanitarian situation in the internally displaced people’s camps.
“We support the UN’s recent call for the government of Sri Lanka to develop a comprehensive resettlement strategy for IDPs, to allow them to return home as soon as possible.”
Timms also called on Sri Lanka to honour its commitment to allow all the Tamil refugees to return to the north within 180 days.
The British abstention was more symbolic than practical in that the IMF loan will go ahead in any case. It was approved by the IMF executive board in Washington last night, with $322 million to be made available to the Sri Lanka immediately and the rest flowing subject to quarterly reviews by the fund.
Sri Lanka’s president, Mahinda Rajapaksa, appealed for IMF help in February arguing that it faced a financial crunch brought about by the combination of declining exports and foreign disinvestments in government bonds.
Britain and the US pressed for that request to be put on hold during the Sri Lankan army offensive which led to a heavy toll in civilian lives.
On Tuesday the head of the IMF, Dominique Strauss-Kahn, said the time had come to put concerns about the loan to one side. He said: “The end of the conflict provides Sri Lanka with a unique opportunity to undertake economic reform and reconstruction, which would be key to laying the basis for higher economic growth in the years ahead.
“To this end, the government has formulated an ambitious programme aimed at restoring fiscal and external viability and addressing the significant reconstruction needs of the conflict-affected areas.”
The British position remains sceptical of that view. Timms said that in London’s view the likelihood of a Sri Lankan default had diminished in recent weeks.
The condition inside the detention camps is hard to gauge precisely because of the lack of access for journalists, humanitarian workers or monitors. There have been reports of rampant disease in some of the larger concentrations of Tamils, with water-borne illnesses such as diarrhoea claiming a further terrible toll.
The last remaining outside agency with access to the area in which the fighting occurred, the International Committee of the Red Cross, has itself come under pressure in recent days from the Sri Lankan government to quit the north-east on the grounds that the war is now over.
One small step forward
An agreement by all 192 UN states on the financial crisis acknowledges our global interdependence
Last week, something unusual happened: the international community, coming together at the UN to discuss the global financial crisis and its impact on the developing world, reached a consensus on an agreement. This spelled out the issues to be addressed and laid out the way forward. Many had said it would be difficult for 192 countries to reach consensus, and that was why discussions should be limited to a self-selected group of 20. In fact, the UN agreement was stronger and more forceful than the G20 communique.
It also demonstrated why it was important to have an inclusive process: the G192 were willing to raise key issues that the internal politics of the G20 may have made too sensitive. For instance, while the G20 focused attention on the role of bank secrecy in tax evasion, the UN agreement highlights corruption.
The G20 recognised the need for a global response to the global downturn. But responses are framed at the national level, and often take insufficient account of the effect on others. As a result they have been too small and they are structured to maximise domestic impacts, not global ones. Moreover, developing countries do not have adequate resources for coping with the crisis. The G20 committed themselves to providing generous support, mostly through the IMF. But they did not take adequate note of the risk of poor countries undertaking more debt, and the reluctance of many to turn to the IMF for support – partly because of its history of demanding borrowers undertake counterproductive procyclical policies.
Participants at the UN conference emphasised the importance of more grant funding. The hundreds of billions (perhaps trillions) of dollars spent on bailing out the banks has put a new perspective on government expenditures. It makes claims that there are insufficient funds to finance development assistance ring hollow. But developing countries are constrained not just by a lack of money, but a lack of “policy space”. The meeting concluded that: “Countries must have the necessary flexibility to implement countercyclical measures and to pursue tailored and targeted responses to the crisis.”
One of the factors contributing to the crisis was longstanding global imbalances, and one of the sources of these was the dollar-based global reserve system. This contributes to an insufficiency of global aggregate demand, as countries divert purchasing power into precautionary savings – and such an insufficiency may impede the world’s ability to regain robust growth. While the UN meeting was not the occasion to devise a new system, it acknowledged calls for “further study of the feasibility and advisability of a more efficient reserve system”. Unsurprisingly, some countries with large dollar reserves were concerned about the current system, the low returns and high risk – increasing with America’s rising debt and the Federal Reserve’s ballooning balance sheet.
The UN meeting reinforced the need for reforms in the governance of the international economic institutions – some of which pushed policies of financial market and capital market liberalisation that were in part responsible for the crisis and its rapid spread. But it also delved into controversial issues of enormous importance to developing countries, such as migration.
The UN meeting reflected what is now a global consensus: “The current crisis has been compounded by an initial failure to appreciate the full scope of the risks accumulating in the financial markets and their potential to destabilise the international financial system and the global economy …” But discussion highlighted the shortfalls in the proposed regulatory reforms – for instance, the reluctance in some countries to do enough about the too-big-to-fail banks. While everyone talks about the need for transparency, some participants raised concern about changes in accounting in the US that have made matters worse.
Perhaps the most important conclusion was the most obvious: “The ongoing crisis has highlighted the extent to which our economies are integrated, the indivisibility of our collective well-being, and the unsustainability of a narrow focus on short-term gains.” We have allowed economic globalisation to outpace political globalisation – we do not have the institutions or the mindset to respond collectively in ways that advance the wellbeing of all. The UN meeting represented a small, but important, step forward.