A. Executive summary
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Sri Lanka | ![]() |
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18. Februar 2019 | ![]() |
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![]() ![]() A. Executive summary
Sri Lanka is a country whose democratic heritage has been wasted by
chauvinist majoritarian policies, leading to the progressive
discrimination of the Tamil minority, the dismantling of the secular
state character, a full-fledged civil war from 1983 to 2002 and the
widespread violation of human rights. The government is only slowly
re-building the democratic fabric, by conceiving a federal solution to
the ethnic conflict, calling for international mediation and
safeguarding the cease-fire. To find a sustainable solution is
difficult, due to coalition partners and powerful interest groups
opposing a truly federal political set-up on the one side and the poor
conciliatory and democratic credentials of its radical Tamil opponents
on the other.
Thus, problems of stateness persist, the military has become
independent to a certain degree, the monopoly of the state on the use
of physical force is not assured in the Tamil areas, where rebels have
installed a parallel administration. Political participation has always
been remarkable in the country, and freedom of association is secured,
although freedom of opinion is restrained by heavy political influence
on the media. The separation of powers leaves much to be desired, as
parliament has been partly deprived of its authority, the independence
of the judiciary has been eroded and the introduction of a
semi-presidential system has created two centres of political authority
and legitimacy. Democratic institutions have nevertheless remained
stable, supported by an equally stable, but fragmented and slightly
polarized party system.
The economic record of the country is excellent, despite the recently
concluded civil war. Rising exports, remittances and foreign direct
investment allowed a narrowing of the balance of payments deficit and a
moderate build-up of foreign exchange reserves. This is mainly a result
of market-friendly policies, deregulation and a comparatively
well-skilled workforce. There are some reform deficits with regard to
the land and labor market and the privatization of remaining state
enterprises. Foreign trade is nearly deregulated, the tax regime is
liberal, the authorities are pursuing sound macroeconomic policies and
inflation rates have fallen markedly. The budget deficit remains
however excessive and is due to untargeted subsidies, overstaffing in
the public sector and high defense expenditures. Private property is
well protected, except the agricultural sector. Social exclusion of
women is non-existent, whereas poverty is still relatively widespread
despite a whole gamut of (poorly targeted) anti-poverty programs.
The level of difficulty for political transformation is considerable,
because quite a few veto players can and do obstruct the peace process
and ethnic harmony. The steering capability of the government in
economic matters has been remarkable, although recently there was a
slight relapse into populist policies. The steering capacity in
democratic and peace consolidation suffered from the veto power of
important actors. This also made consensus-building rather difficult.
B. History and characteristics of transformation
Economic and political transformation in Sri Lanka happened at
different times. General, free and fair elections were already
introduced under colonial administration (from 1931 onwards), leaving
Ceylon at independence (1948) as a democratic regime copying the
British model and politicians socialized in this tradition. These
politicians took care in the first years after independence to
safeguard this heritage. They drafted a pluralist constitution
protecting the minorities, educationally put into an advantage by the
British. The Sinhalese majority was however soon mobilized by the
opposition with the aim to revise the plural character of the state by
introducing Sinhala as the only official language (1956), abolishing
Christian (but not Buddhist) schools, elevating Buddhism to the rank of
state religion (with the new constitution in 1971) and by impeding
university access for Tamil students. This laid the basis for the
radicalization of the Tamil youth and the civil war later.
The next constitution in 1977 (after the victory of the conservative
UNP) brought the introduction of a semi-presidential system and limited
decentralization. This could not stop the escalation of the “ethnic”
conflict, which was first dealt with by special anti-terrorist laws and
a massive military build-up against several militant Tamil
organizations, later on by calling an Indian intervention force (1987)
and the offer of a quasi-federal solution by way of the introduction of
provincial councils. The democratic heritage was damaged during this
period by the extra-constitutional extension of the sitting parliament,
the more or less permanent invocation of the state of emergency, the
arming of paramilitary forces to fight against the Tamil rebel forces
and militant Sinhalese youth in the southern part of the country and
the massive violations of civil rights.
Increasing war fatigue on both sides brought a first formal cease-fire
under the new left government of the People’s Alliance in 1994. During
the following years the government adopted a two-pronged strategy
against the Tamil rebels by offering a federal solution and
simultaneously intensifying military pressure. The federal solution was
frustrated by the Sinhalese opposition, the military solution by the
fighting strength of the main rebel group Liberation Tigers of Tamil
Eelam (LTTE). In 2001 a new cease-fire agreement was achieved by
Norwegian intermediation, followed by several rounds of peace
negotiations between government and LTTE. Slow implementation of the
negotiation results by the government and different conceptions of an
interim administration in the Tamil provinces led to the suspension of
peace negotiations, rendered more difficult by the electoral advances
of chauvinist parties in 2004.
Economically, the British left Sri Lanka with an efficient plantation
economy, financing a system of free education and health care, but also
with a stagnant agricultural and weakly diversified industrial sector.
The government adopted a strategy of import substitution (financed by
consumers and the plantation sector) and public sector companies. The
results were mounting payment deficits, weak export and employment
growth, fuelling the first youth rebellion of 1971. The election
victory of the UNP in 1977 brought a first modest modification of that
model: the rupee was devalued, exports were subsidized, free export
zones created, price controls abolished and a massive debt creating
public investment program was launched. Later on, in spite of the civil
war and handover of government to the left parties, market-oriented
reforms became more broad-based, by massive privatization, reform of
the public sector and liberalization of trade and capital movements. Of
late, a moderate return to a more people-oriented economic policy was
announced.
Contrary to popular perceptions, Sri Lanka never followed a basic needs
policy. Social programs were introduced early and did improve social
indicators substantially to the level of some developed countries, but
were never targeted at the poorest sections or concentrated on basic
services.
C. Assessment
1. Democracy
1.1. Stateness
There are several problems of stateness in Sri Lanka: First regarding
the question of national identification, a majority of Ceylon-Tamils
would opt for independence, as long as substantial autonomy is not
constitutionally provided. Practically, not all citizens enjoy equal
civil rights, which are suspended against suspected terrorists and in
military zones. There is secondly no clear separation of religion and
politics as long as Buddhism remains state religion, monk orders and
Buddhist universities are supported by the government (and allowed to
obstruct the peace process). Although the constitution unequivocally
establishes civil control over the military, during the civil war and
because of numerous exceptional laws, not to mention through the
establishment of a special task force and militias, the military has
gained extensive independence and has long promoted the militarization
of the ethnic conflict. In addition, the establishment of private
armies of politicians, acting as subsidiary agencies of crime
prevention must be mentioned. Administrative efficiency is slowly
improving; the public sector is however still massively overstaffed,
thus acting as a labor market-buffer, recruitment follows a political
and clientelistic logic, corruption is still widespread.
1.2. Political participation
Sri Lanka has always shown very high participation rates in elections
(often above 80%) in spite of sometimes militant boycott initiatives by
rebel organizations and decreasing violence during elections. There was
a frequent change of government and elections were frequent;
manipulation of election schedules and massive indoctrination through
the state media are still common phenomena. Candidates of minority
parties in the Tamil areas (sometimes also in the Sinhalese South)
still run a considerable personal risk. Part of the press and the media
is under state control. Critical journalism on government initiatives,
human rights violations etc. are therefore rare. Quite often,
journalism is subject to censorship, especially during periods of
intensified fighting. In addition, attacks on foreign or critical
journalists occur occasionally.
1.3. Rule of law
In relation to the separation of powers, Sri Lanka deteriorated in
maintaining the rule of law in the late 1970s. The introduction of a
semi-presidential system in 1977 led to the centralization of power in
the executive, while parliament was degraded to a rubber-stamp
institution and members of parliament were forced to underwrite undated
letters of resignation. This tendency was reinforced by the fact that
the president also acted as leader of the ruling party, which weakened
during periods of cohabitation of dual offices (2001-2004). The
division of powers is also restricted by the high number of ministers,
making nearly every second member of parliament wearing two hats.
The independence of the judiciary eroded after the constitutional
reform of 1977. For instance, a Supreme Court sentence declaring a law
unconstitutional, can be overruled by a two-thirds majority in
parliament. During this period, the Supreme Court was filled with
adherents of the ruling party, with judges who pledged allegiance to
the preceding constitution being forced to retire. Of late the court
has once again become more proactive. The president is authorized to
install special investigation commissions, whose recommendations cannot
be questioned by the courts. Intimidation and transfers of judges have
become routine procedures. The level of corruption in Sri Lanka is
moderate, but higher in government procurement and public transfer
payments. Political interference in the working of the administration
and in recruiting personnel is common. Respect for human rights did
suffer a lot during the civil war. After 1983 the security forces were
granted special powers and immunities, the Northern and Eastern part of
the country were under near permanent emergency. In addition a Special
Task Force (consisting to a great extent of unemployed and lowly
disciplined youth) and home guards for the defense of Sinhalese settler
colonies were established. In combination with the inevitable
brutalization ensuing from civil wars, this explains the massive scale
of human rights violations, torture and “disappearance” of suspected
people. The activity of international human rights organizations was
forestalled, and violations brought to the knowledge of national human
rights commissions did not entail judicial sanctions for quite some
time.
1.4. Stability of democratic institutions
Democratic institutions were more or less stable, leaving aside defects
in the rule of law, the observance of human rights and election-related
violence. As governments often only commanded a thin and unstable
majority, they were not able to push through wide-ranging plans for
bringing about peace and reducing interethnic tensions. Different views
of the president and the prime minister regarding concessions toward
Tamil militants during the period of cohabitation played an important
role, becoming an additional obstruction to the resolution of the
conflict. Nevertheless, democratic procedures are widely regarded as
the only ones conferring legitimacy. They are not questioned by any
major party or group, although sometimes subverted in practice. Voter
participation is very high and voters do even accept risks to cast
their votes.
1.5. Political and social integration
Sri Lanka possesses a relatively stable, but fragmented party system,
where two major Sinhalese parties and their allies are the main blocks,
completed by minor Tamil and Muslim parties. Party polarization is less
than their oft revolutionary mottos would suggest, but is significant
in the question of a federal solution to the civil war. Party
membership is wide, exact data are however not available. Party
discipline is lower, cross-over of individual members of parliament
between parties after elections is not uncommon. Union coverage is also
broad (approximately 45%), but unions are organized at the company
level, affiliated to political parties (except unions in the plantation
sector which became parties in their own right) and their space of
action is limited in the public sector. Nevertheless, the incidence of
labor disputes is high but declining. The power of employers’
federations is considerable; they forcefully support economic reforms
and the peace process. There is also a wide range of NGOs actively
engaged in the upliftment of poorer sections and in the creation of
ethnic harmony.
2. Market economy
Sri Lanka is a full-fledged market economy. The remaining
transformation deficits relate mainly to the finance sector, reform of
the public service, cutting of subsidies and the necessary reduction of
the still massive public deficit.
2.1. Level of socioeconomic development
The central development indicators classify Sri Lanka as a
middle-income country. In regard to the Human Development Index, the
country surpasses comparable economies, albeit at a diminishing rate.
Basic social exclusion in regard to education or gender aspects hardly
exists, apart from the war-inflicted regions. Absolute poverty is
slowly declining to about 25% of population and is concentrated
regionally on provinces in Central and Eastern Sri Lanka, which are
also poorly provided with public services. Income distribution became
slightly less egalitarian since the civil war, but is still moderate.
The civil war is partly to be blamed for less satisfactory outcomes in
terms of poverty reduction and social indicators in recent years.
Poverty is most widespread in the countryside and among less educated
people, ethnically among Muslims. There is no correlation between
unemployment and poverty, as only better educated and more affluent
people can wait for better job opportunities.
2.2. Organization of the market and competition
The basis of market competition in Sri Lanka is assured and stable. The
formerly high regulation density of the economy was reduced, the
discrimination of foreign investors completely eliminated. There are
still some liberalization deficits in regard to the labor and land
market, the pricing of public services and
privatization/commercialization of public enterprises. Foreign trade is
nearly de-regulated, tariffs have been reduced to two standard rates
(10 and 25%). There is a free trade agreement with India, allowing
tariff-free imports of several hundred items. Sri Lanka can boast of
the most free trade regime in South Asia. This also applies to the
investment regime of the country, serving foreign investors with a
uniform administrative set-up and dispensing of too liberal incentives.
The formerly rigid labor laws of the country were streamlined in 2003
with the aim of making the labor market more flexible, new labor courts
were installed and mandatory severance payments for dismissed employees
were introduced. The local tax regime is quite liberal, maximum rates
for income taxes have progressively been reduced to 30%, while the
resulting revenue shortfall was compensated by higher indirect taxes
(especially for luxury goods).
2.3. Currency and price stability
Since some years, Sri Lankan authorities have pursued sound money and
exchange rate policies, trying to contain inflation without unduly
obstructing economic growth. This development commenced after 2002,
supported by some improvement in the fiscal position along with
structural adjustment and a concomitant Fiscal Management
Responsibility Act. Inflation rates fell continuously till 2004 (to
3.9% in the first half of the year), which helped to sustain
international competitiveness of Sri Lankan exports and led to a
remarkable easing of balance of payments problems. This also went along
with bringing in line banking practices (liquidity requirements,
calculation of assets) to international standards and with the
transition to open market transactions by the Central Bank.
Traditionally high credit rates came down, although the gap between
savings and credit rates is still considerable. Part of these
achievements are in danger with the more profligate policies of the new
government, especially the massive wage hike and recruitment spree in
the public sector. International debts of the country are not excessive
(58% of GDP), capital service even less so (11.6% of exports) as most
of debt is of official, long-term character. The level of international
reserves has become comfortable during the period of this review.
2.4. Private property
Property rights and acquisition are adequately secured in the
industrial and service sector. The situation is different in
agriculture where 80% of arable land is state-owned, but usually leased
to private farmers. Their rights to the land are however ill-defined,
part of it cannot be sold and is in addition badly demarcated, although
there is some progress in upgrading land registration, reform of land
rights and abolition of restrictions for selling and leasing land.
Mobility of farmers is therefore still limited.
Privatization of public enterprises made some headway, albeit at
certain stages. During a first wave, plantations, parts of the national
airline, hotels etc. were privatized, earning the government
considerable income. During the period of cohabitation there was first
a slowing down of the process, reversed with the signing of adjustment
programs with the IMF and the World Bank. After the victory of the new
alliance in 2004, a return to the (unsuccessful) policies of the early
1990s was proposed, trying to make public enterprises self-sufficient
without privatizing them. Labor laws are traditionally very complex,
rigid and worker-friendly; dismissals in the formal sector nearly
impossible. Wages in the public sector (in less qualified positions)
ranged above those in private companies. In the last few years a reform
effort was made to streamline laws and to reduce overstaffing in the
public sector.
2.5. Welfare regime
Sri Lanka has a long-standing, progressive, comprehensive system of
social services and poverty programs. That is why social indicators
range still above the level of comparable countries. Food subsidies
were introduced early and replaced in the late 1970s by targeted but
still widely distributed food stamps. In addition, several poverty
programs of self-help character exist. This social heritage has seen
some erosion in the last decade because available resources for these
programs stagnated, while the disease and education pattern (in
accordance with the ageing of the population and the saturation at the
primary educational level) shifted to more expensive services. There is
factually no gender gap in educational enrolment or achievement,
outlays are however too low to allow the expansion of the tertiary
sector or quality improvement. Poverty programs are still poorly
targeted, since half of the population benefits from them, allocation
is politically influenced and the poor do not participate in the
implementation of programs. As their costs are considerable, very less
is left for the really vulnerable (widows, orphans of the civil war
etc.).
2.6. Economic performance
In spite of the ongoing civil war, growth rates of the economy were
very satisfactory from the late 1990s onward, apart from the crisis
year 2001. This is due to the dynamics of slowly diversifying exports,
buoyant remittances and increasing transfers of foreign private capital
as well as relatively generous development assistance. This
satisfactory performance was possible because of sound macroeconomic
policies, moderate inflation and – as a result – a remarkable record of
private investments. After signing and implementing market-friendly
adjustment programs with the IMF and the World Bank, thus giving a
boost to privatization, deregulation of the labor market etc., the
record improved even further, supported by the positive effects of the
lasting cease-fire in terms of mounting international assistance, the
revitalization of the transport sector and of tourism and the increase
of arable acreage in agriculture. This demonstrates the even greater
potential effects of a lasting peace solution.
2.7. Sustainability
Environmental degradation in Sri Lanka has reached a serious level due
to deforestation and soil erosion, use of wood for cooking and
encroachment on natural reserves. This is connected with adverse
effects for biodiversity, cleanliness of ground water and the
maintenance of coral reefs. Water consumption in agriculture is
enormous, due to subsidies for canal irrigation. Consequently, fields
often become salinated and marshy. Natural tropical forest cover has
shrunk to small sizes. Damage from ecological degradation was
calculated at 2.5% of GDP per annum. In reaction to this, the
government has adopted a comprehensive action plan and earmarked large
areas as natural reserves.
3. Management
3.1. Level of difficulty
The level of difficulty faced by the government in creating lasting
peace was considerable. In relation to the majority, the last
government was confronted with a powerful presidency of the opposing
party blocking peace efforts regarded as too conciliatory toward the
Tamil rebels and using its constitutional powers to undermine the
government. In theory the level of difficulty should have diminished
with the victory of the presidential party and its partners in 2004;
the new government was however dependent on the support of the
traditionally chauvinist JVP and the even less conciliatory party of
the monks (JHU). The tension eased with the party of plantation workers
(CWC) joining the government and the renewed pressure exerted by the
international community on the new government for finding a lasting
peaceful solution. On the side of Tamil rebels the peace process was
obstructed by proposing a federal solution falling only very short of
full secession (interim administration under full and sole authority of
the LTTE, including taxation, allocation of development assistance,
foreign trade, law and order etc.) and declaring these proposals as
non-negotiable. Accepting this would have meant a revision of the
constitution and political suicide for the government.
The difficulties for continuing market-oriented reforms were less, as
the government can rely on a well-educated workforce, sufficient
international transfers of capital and a solid coalition of groups
benefiting from market-friendly policies. It has to be acknowledged
however, that quite a few sections of the population felt overlooked by
these policies and therefore voted the last government out of office.
Most vocal among these groups are thousands of educated unemployed,
traditionally backing the radical JVP. Therefore the new government
could not help but to present a budget with a human face, doling out
benefits for the poorer and rural sections, public employees and the
unemployed, thereby also trying to suppress popular frustration about
mounting prices of essential food items.
3.2. Steering capability
The steering capability of the government in market transformation
until recently was remarkable. Agreed structural adjustment programs
were nearly fully implemented, labor laws were streamlined to make the
market more flexible, privatization of public enterprises (including
large and profitable companies) made headway, reduction of overstaffing
in the public sector was planned and implemented, tax administration
improved, the Central Bank was reduced to oversight and regulation
functions and last but not least, the budget deficit was curtailed in a
significant way. After the takeover of the new government in April
2004, economic steering capacity did however suffer. Privatization was
stalled, prices for public goods and services were only inadequately
raised, emergency measures to stop price increases of essential food
items were implemented, agricultural debts restructured or cancelled,
tariff rates for non-essential items were raised, a massive wage and
pension hike in the public sector was granted and a likewise massive
recruitment program in several agencies for unemployed graduates was
started. This, together with some reasonable new programs (for poverty
alleviation) led to an immediate slippage in regard to budget targets.
In regard to the peace process, the steering capacity of the previous
government was obstructed by the showdown between the president and the
prime minister, solved only by the dissolution of parliament and new
elections. Steering capacity afterwards was limited by the veto power
of the alliance partners, an internal rebellion in the ranks of the
Tamil rebels and the temporary retreat of the Norwegian peace
intermediaries. Later efforts of the president to bypass parliament by
establishing a National Advisory Council on Peace and Reconciliation
for the elaboration of peace proposals were doomed to failure as the
opposition did not participate. Government and LTTE kept to their
respective extreme positions.
3.3. Resource efficiency
Resource efficiency in employing financial and manpower resources was
limited. The public sector became heavily overstaffed, subsidies and
poverty programs were badly targeted, defense expenses simply went out
of control. Generous development assistance could not be used
adequately. This brought massive public deficits and a reduction of
public investments to the bare minimum. After 2002 the situation slowly
improved with the promulgation of the Fiscal Management Responsibility
Act and efforts to streamline the public sector, only to deteriorate
again later. Contributing to moderate resource efficiency are massive
irregularities in the use of public funds and the politically
influenced allocation of resources. Land transactions benefited friends
and relatives of politicians, resources of the poverty program were
simply frittered away.
3.4. Consensus-building
Efforts for consensus-building regarding interethnic peace were made by
the government in proposing its version of an interim administration in
the North and East of the country, which however fell short of rebel
demands. Their counter-proposals were hardly negotiable, as it meant de
facto secession. Dim prospects for a compromise solution were never
tested. The government instead relied on a certain military build-up
(as did the Tamil rebels) whilst simultaneously creating a parallel
discussion body for peace proposals outside the parliament.
Consensus building for economic reforms was rather effective under the
last government, as no important interest group opted for a reversal of
reforms. The election outcome in 2004 was interpreted by the government
as a verdict against “neo-liberal economic policies” creating only
growth enclaves amidst countrywide poverty. Consensus-building for a
new growth cum poverty eradication program was easy, as costs of this
new paradigm were imposed on the few consumers of luxury items, while
subsidies were left intact, wages and recruitment in the public sector
were increased in a big way.
3.5. International cooperation
The improvement of macroeconomic indicators after 2002 was due in no
small part to the agreement on and enforcement of stand-by and
structural adjustment programs with the IMF and the World Bank,
demanding massive cuts in budget and balance of payments deficits
through a host of reform measures. Due to slippages in some areas
(privatization, labor laws ) and the mounting budget deficit, some
programs were discontinued in Autumn 2003. As the new government is
critical of neoliberal policies in general, collaboration with foreign
donors might become rather difficult. This is also likely because
massive commitments of donors for post-war reconstruction and
rehabilitation were made contingent on progress in peace negotiations
with the Tamil rebels, now stalled since early 2003. In addition, the
government was traditionally not able to absorb foreign aid
productively. Currently more than $3 billion of international aid are
still not used. International collaboration was more constructive in
the use of and calling for international peace mediation.
4. Trend of development
4.1 Democratic development
With regard to democratic development, the suspension of the peace
process was unfortunate, caused by intransigence on the part of the
rebels concerning their demand for a state-like interim administration
controlled only by the LTTE, which were also divided internally for
some time, due to a rebellion of the eastern wing. The government on
its part was unable to secure the support of the opposition and the
president for a generous federal solution and was practically made
immobile after the dismissal of three ministers by the president in
Autumn 2003. The Norwegian mediators retired temporarily, the
government abandoned peace negotiations. The stalemate was only
partially unblocked after the victory of the new left coalition which
initially did not command a majority and was composed of parties averse
to a genuine federal solution to the civil war. The president tried to
bypass the parliamentary process by installing a new forum for the
debate of peace solutions, but without success as the opposition did
not participate.
4.2. Market economy development
The Srilankan economy grew in 2003-2004 at a highly satisfactory rate,
supported by the cease-fire and the enforcement of structural
adjustment measures, which both brought an increase of arable area, a
resumption of transport and tourism, a remarkable growth of exports,
remittances and international capital inflow and some easing of budget
and balance of payments pressures. Inflation and unemployment came down
to moderate levels, debt indicators improved. There was however some
slippage in executing of structural reforms, leading to the suspension
of IMF-support. The newly installed coalition government changed track,
proposing a strategy based on national priorities, on the elevation of
rural areas with a focus on health and education, self-sufficiency in
food, a cautious policy toward privatization and trade liberalization,
complemented by a generous increase in wages and pensions for the
public sector. This went along with a certain economic downturn, caused
by rising international oil prices and support shortages due to the
drought. Inflationary pressures were sought to be contained by ad hoc
measures, which, together with the wage hike in the public sector and
softening fiscal discipline, brought again some deterioration in the
budget and balance of payments deficits.
![]() ![]()
![]() ![]() a Provisional estimates for 2004 are based on information available up to October 2004. Source: Central Bank of Sri Lanka: Recent Economic Developments. Colombo, Nov. 2004; www.lanka.net/centralbank/index.html: Sri Lanka Socio Economic Data. 2003 D. Strategic perspective The Srilankan economy has nearly all the prerequisites to play an active role in the international division of labor. It commands a highly qualified, motivated and comparatively cheap workforce (often educated in the English medium), a solid base of national and foreign export-oriented companies, operating in efficiently managed free trade zones and can boast of a rather liberal, not too cumbersome investment regime. The economy was thriving in spite of the ongoing civil war. With decreasing defense expenses, the disbursement of promised rehabilitation and reconstruction assistance by the international donor community, the revitalization of the agricultural and tourism sector in the Northern and Eastern part of the country and increasing international private investment a still higher growth rate is on the horizon. In addition, Sri Lanka has still untapped potential in broadening its export base toward services and non-traditional agricultural products and becoming a transit base for international trade. These promising prospects are highly dependent on the pursuit of sound macroeconomic policies, market-friendly reforms and above all on efforts to find a lasting solution to the civil conflict. The international community can support this process by binding support to earnest peace efforts of both sides (the government and the LTTE) and insisting on good governance and the maintenance of human rights in using international resources. Sector-wise international assistance should be concentrated on the reconstruction of infrastructure in the war-torn zones, on assistance to bring the public deficit under control, on encouraging labor-intensive growth (with focus on small and medium enterprises), on the control of high electricity costs (by new investment and restructuring of the sector) and on the diversification of agriculture. ![]() |
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©2004 Bertelsmann Stiftung | ![]() |
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