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Land Privatization: Why Sri Lanka Must Reject the MCC Compact

August 17, 2020
By: Janhavi Mittal
Sigiriya fortress in the northern Matale District. Photo: The Oakland Institute
Sigiriya fortress in the northern Matale District. Photo: The Oakland Institute

This blogpost is adapted from the Oakland Institute’s report, Driving Dispossession: The Global Push to “Unlock the Economic Potential of Land,” released in July 2020, authored by Frederic Mousseau, Andy Currier, et al. The report examines the MCC compact with Sri Lanka and raises alarm over the irreversible consequences of embarking on land privatization — when most of the land is public in the country.

In late June 2020, an expert committee assigned by the Sri Lankan government to review a proposed compact with the US Millennium Challenge Corporation (MCC) recommended the government to “unconditionally reject” the agreement. Turning down what appears to be a generous grant of US$480 million for the development of transportationdriving and land management projects may seem counterintuitive given Sri Lanka’s plummeting economy and mounting external debt.

In 2009 and 2016, the International Monetary Fund loans to Sri Lanka came attached with stringent conditionalities and structural adjustments that forced the country to adopt austerity measures. In 2017, the ballooning debt to the country’s biggest bilateral donor, China, resulted in a US$1.1 billion debt swap that entailed Sri Lanka relinquishing control over its strategic port in Hambantota, and 6,070 hectares of surrounding land for 99 years. Apprehensions about accepting the MCC’s US$480 million “grant” may arise from learning this hard lesson — that there is no such thing as a free lunch.

While the review committee has raised questions about how the MCC compact could be used to undermine Sri Lanka’s economic and territorial sovereignty, the most potent aspect of the compact is its Land Project, which involves the registration of the majority of the country’s land with the aim of creating a land market.  A recent report by the Oakland Institute has examined the MCC compact and raised concerns over the irreversible consequences of embarking on a process of land privatization in Sri Lanka, where most of the land is public.

On the Path to ‘Economic Freedom’ with the MCC

The MCC is a US government entity created by Congress in 2004, with the mission of “reducing poverty through growth” in developing countries that are committed to “good governance, economic freedom and investing in their citizens.” While the sanctioning of multi-million dollar aid for MCC compacts is annually drawn from the US Congressional Budget, the disbursal of its “grants” is purportedly based on a competitive evaluation of the country’s “democratic governance, investment in people and economic freedom.” As MCC’s history in numerous countries indicates, it is actually more invested in introducing policy and regulatory changes that support privatization and liberalization of economies. Though the tools MCC uses to determine a country’s eligibility may pay lip service to democratic values, they are primarily focused on promoting unfettered capitalism.

“Though the tools MCC uses to determine a country’s eligibility may pay lip service to democratic values, they are primarily focused on promoting unfettered capitalism.”

Most notable amongst these are the indicators clubbed under the “Encouraging Economic Freedom,” which rewards countries for participating in “global trade and international capital markets.” This category also includes the “Land Rights and Access” indicator, which promotes the setting up of land registries. It misleadingly uses the language of land rights to promote the privatization of land through the creation of land markets.

The MCC indicators are part of a global neoliberal doctrine to privatize public land, under the garb of “unlocking” its economic potential. To date, MCC has invested approximately US$500 million in land programs across 15 countries. In Africa, MCC has used these grants to introduce policy changes that allow investors to acquire land at bargain prices. This facilitates a shift to large-scale industrial agriculture at the expense of smallholder farmers, to the benefit of agribusiness and private investors. Furthermore, the “creation” of land markets has been repeatedly found to solidify existing inequalities in access to land. Within a market system where land is nothing more than a commodity, corporations and wealthy individuals can price farmers and herders, who rely on land for their livelihoods, out of the markets.

The MCC in Sri Lanka

In Sri Lanka, where the state formally owns an estimated 85 percent of the country’s 6.6 million hectares of land, there is legitimate concern that the proposed MCC compact would shift control of these lands towards private interests. When Sri Lanka was considered for a compact, the 2017 constraints analysis conducted by the MCC in partnership with the Center for International Development at Harvard University highlighted that “the difficulty of the private sector in accessing state-owned land for commercial purposes” was one of the major binding constraints to economic growth. The study was critical of existing land laws that restricted foreign ownership of lands. Viewing land ownership through the lens of the World Bank’s “Doing Business” criteria, the analysis stressed the need for overcoming the “land constraint” by expediting the “process of acquiring rights to develop land…to meet the demand for land needed for new private sector investment, including for export-oriented FDI [foreign direct investment].”

Send a Message to US Congress

Billions of American taxpayer dollars are being used to dispossess communities of their ancestral land and threaten millions of livelihoods globally.


Ignoring the importance of traditional, small-scale agriculture that involves over five million people and produces 80 percent of Sri Lanka’s food,  the constraints analysis report champions export driven commercial agriculture. It blames “restrictions on land parcel size, the absence of land titles, and longstanding laws affecting rural land” as detrimental to “agricultural productivity and rural well-being.” For example, the report is highly critical of Sri Lankan land laws that  “restrict private ownership of agricultural land to 50 acres [20.2 hectares] per person, which obviously prevents economies of scale from being realized in the case of large private sector agricultural investments.”

The five-year compact for Sri Lanka includes a US$67 million grant for land projects with the objective of “lasting improvements to the country’s land governance framework [to] promote land transactions that could stimulate investment and increase its use as an economic asset.” The US$413 million portion of the grant, allotted to the development of transport infrastructures and projects, appears to be insidiously tied to this smaller portion allocated to the Land Project.

The compact aims to improve access to land for the private sector through five interventions under the Land Project. The Parcel Fabric Map and State Land Inventory Activity will initially map and record state lands in seven target districts that cover 28 percent of Sri Lanka’s land and potentially extend outside the target districts to cover 67 percent of all land. Creation of this map will be accompanied by digitizing paper titles, converting permits and grants to state land into “absolute land grants,” setting up a computerized appraisal system for land valuation, and establishing a land policy research group.

Creating a ‘Dynamic Land Market’

While the immediate pressure to privatize land may come from the MCC, the Sri Lankan government has made several legislative changes in recent years to facilitate land transactions. Creating a “dynamic market for land” is listed as a priority in the Sri Lankan government’s eight-year national development plan, Vision 2025: A Country Enriched. In 2018, the Sri Lankan Cabinet approved a Bill that sought to amend the Land (Restrictions on Alienation) Act of 2014. Without any cost benefit analysis, the Bill sought to enable foreigners and companies listed on the Colombo Stock Exchange with more that 50 percent foreign shareholdings to purchase lands. It also gave retrospective effect to land acquisitions carried out prior to April 2018. This change that enables foreign investment to take over the commons in Sri Lanka, carefully addresses the concerns around land access expressed by the MCC and Harvard University.

Disbursement of MCC funds for the Land Project was made conditional on the enactment of legislation to support the registration of “absolute land grants.” This push towards to a freehold system of land ownership is directed at creating “marketable and bankable titles” of land that can be transferred “without excessive government restrictions.”  Despite criticisms of how the privatization of state owned land under a system of absolute ownership would dispossess the more vulnerable smallholder or tenure farmers dependent on land they do not own, the State Land (Special Provisions) Bill, was tabled in the Sri Lankan Parliament in June 2019. It was withdrawn only after petitions taken up by Sri Lankan civil society challenged the Bill’s legality in the Supreme Court.

A year later in July 2020, the Sri Lankan government again sought to change land laws to enable the privatization of land and natural resources. The Cabinet Spokesperson announced the cancellation of Circular 5/2001 that brought “residual/other state forests” under the protection of the Forest Department. This move could potentially lead to mass scale deforestation as control is reverted back to District and Divisional Secretaries, who will not be bound by the strict conditions spelt out for the release of these lands for “other purposes.” Although these forests with their rich biodiversity have great ecological value, the Sri Lankan government follows the logic of the MCC compact and portrays the cancellation of Circular 5/2001 as a pro-poor move that puts this state land to good use for chena cultivators.

A Death Knell For Land Rights

Pilavu protest to demand land back from military occupation, Northern Province, February 2017. Copyright: Tamil Guardian
Pilavu protest to demand land back from military occupation, Northern Province, February 2017. Copyright: Tamil Guardian

Civil society groups in Sri Lanka have raised significant concerns on how this privatization of land would sound a death knell for the livelihoods of 24.5 percent of Sri Lanka’s workforce, which is engaged in agriculture. Summarizing these concerns, the Alliance for Economic Democracy has rejected the compact in a letter endorsed by 53 civil society groups, academics, and local leaders. The letter predicts that the privatization of land and the support for agribusiness could be economically catastrophic for smallholder farmers who may then use land titles acquired through privatization measures as “collateral to pay off their loans, leading to land grabs by creditors.” The dispossession encouraged by the compact could push many small rural landholders into the informal labour sector. The letter thus warns that the Land Project will not address poverty and instead result in “land grabs by creditors, the transfer of prime land to multinational corporations, [and] the loss of livelihoods for local farmers.”

These concerns around the impact of the MCC on the most marginalized also draw on the past failures of the Sri Lankan government to adequately protect people’s land rights. A notable example of this was when the government implemented “buffer-zones” along “high risk” coastal areas after a devastating tsunami in 2004. As a result, thousands were displaced from their land along the coast, losing access to farmland and fishing vital to their livelihoods. A human rights assessment of the tsunami response by Action Aid International found that it further displaced people from coastal lands, while prioritizing policy to support commercial interests, such as agribusiness and luxury hotels.

“These concerns around the impact of the MCC on the most marginalized also draw on the past failures of the Sri Lankan government to adequately protect people’s land rights.”

Additional fears remain surrounding the impact that the Land Project could have on disenfranchised groups considering the history of dispossession in Sri Lanka. 11 years have passed since the end of Sri Lanka’s bloody civil war, a war that killed an estimated 200,000 and displaced over a million people. In 2016, the Oakland Institute documented how a “silent” conflict was being waged across the island in the form of military land grabs that also tied in with corporate interests, particularly related to tourism. The report revealed dispossession and marginalization of Sri Lanka’s Tamil population through violence, “development schemes,” repressive laws, and a “government-orchestrated colonization of the northern and eastern parts” of the island, traditionally the Tamils’ homeland.

Tamil communities are concerned that their lands may eventually fall under the purview of the MCC Land Project, and be declared vacant and unused. The compact grants the government power to determine which state lands are underutilized and available for investment and those currently “in active use.” Given the history of land grabs in the region through militarization and “development”, there is legitimate grounds for concern that the Land Project could very well be used to legitimize past illegal land seizures at the expense of the formerly dispossessed.

While the outgoing cabinet approved the MCC compact in October 2019, the new President Gotabaya Rajapaksa, who promised to discard the MCC compact during his campaign, started to change his stance upon winning the election. Under US pressure, the government announced the aforementioned committee to revisit and review the MCC compact. This compact not only imperils Sri Lanka’s economic sovereignty but also undermines the land and human rights of its citizens. It must be rejected.