Macro-Economics and Finance:
Unit of currency: Sri Lanka rupee (SLR) valued at SLRs61.15:US$1 on 5 December 1997. Since 1977, the rupee has shown a general gradual fall.

GNP: Sri Lanka is a low-income country by World Bank classification, although near the top of the low-income group. In 1996, per capita GNP was US$753. Total GNP in 1996 was $13,800m. Average yearly per capita GNP growth was 3.1% over the period 1985-96. Despite the damage to development caused by internal political conflict in recent years, Sri Lanka still has the world’s highest ranking for achieved quality of life above material quality – reaching 0.711 in the UN’s Human Development Index for 1997, over 40 places above its rank in purely GDP terms. The purchasing power of Sri Lankan incomes (ppp) is also proportionately higher. GDP for 1996 is estimated at SLRs743.5bn and growth over the year at 3.8%.

Overview: While agriculture is central to Sri Lanka’s economy (accounting for a fifth of GDP), manufacturing and services are of increasing importance, with exports of textiles and clothing now well ahead of the traditional agricultural exports as foreign exchange earners. A banking and financial services sector is also developing. The former policies of nationalisation have been superseded by an extensive liberalisation programme since 1989, which has led to extensive privatisation of the formerly largely centralised economy. Privatisations in various sectors – commercial and agricultural enterprises, banking, transport services and utilities – are underway. Six more tea plantations were to be privatised in 1997.
Privatisation has been acclaimed in the business sector but remained unpopular with the workforce. Sri Lanka is aiming at achieving newly industrialised country (NIC) status by the year 2000. However ethnic conflict has adversely affected the economy, notably in the areas of foreign investment and tourism. The economy of the north and east has been seriously damaged, with somewhat less effect on the country’s most productive industrial sectors. Indeed the economy was growing strongly through the first half of 1997. Harvests were good, tea production reaching a record, and prices for rubber and coconut high. Tourist numbers were rising and foreign investment grew with 14 new enterprises in manufacturing and infrastructure scheduled for opening through the year. On the negative side, defence spending was high – with 14 aircraft lost in 12 months.

Inflation: Inflation fell steadily during the 1990s to 8% in 1995 but rose suddenly to 15.9% in 1996; this has been attributed to increased food prices after the drought.

Investment: Foreign investment is encouraged and tax concessions are available with the aim of stimulating growth in targeted areas, e.g. infrastructure, tourism and non-traditional manufacturing exports. Foreign investment is supervised by the Board of Investment of Sri Lanka (BOI). Four investment promotion zones have been created and two industrial parks are to be opened. BOI enterprises employed 241,970 people in 1996. Sri Lanka also has a stock exchange. Founded in 1896 and so one of the Commonwealth’s early share trading institutions, the Colombo Stock Exchange was opened to foreign investment in 1990.

Trade: Sri Lanka’s main exports are textiles and clothing, tea, cut diamonds, petroleum products, gems and rubber products. Its main imports are textiles (for the clothing industry), machinery and equipment, transport equipment, petroleum, building materials and sugar. Its main trading partners are the US, Britain and Germany (exports) and Japan, India, South Korea and Hong Kong (imports). Exports were valued at US$4,095m and imports at $5,412m in 1996.

Aid: Equivalent to about US$34 per head in 1996, as against India’s under $4 per head, but considerably lower than other island countries. The largest donors are the International Development Association, the Asian Development Bank and Japan. Project loans stood at US$425.3m in 1996, non-project loans at $42.1m.

External debt: Total external debt was US$7.9bn in 1996, nearly 83% of which was on concessional terms.

Currency restrictions: Local currency may be imported and exported to the value of SLRs1,000. Indian and Pakistani notes may not be imported. There is unrestricted import of other foreign currencies, but they must be declared. Export is limited to the amount imported.

Regional affiliations: Sri Lanka was a founder member of the Colombo Plan for Co-operative Economic and Social Development in Asia and the Pacific, the world’s oldest regional co-operation organisation. It is also a member of the South Asian Association for Regional Co-operation (SAARC) and the South Asia Preferential Trade Agreement (SAPTA).

Physical Economy:
Agriculture: The chief export crops are tea, rubber and copra. About 54% of the area under tea cultivation belongs to large government-owned estates, and the rest belongs to small farmers. The main market for Sri Lankan tea is now the former Soviet Union and the Middle East. Recently, yields of low-grown tea have risen relative to yields on the hilly, soil-impoverished higher slopes. Rubber production also improved, with higher prices allowing an increased application of fertiliser. Other crops grown for export are spices (cloves, nutmeg, mace, pepper, cardamom, cinnamon) and specialist fruit and vegetables. Rice, sugar and a range of other crops are grown for domestic consumption. Forestry has declined with controls on felling and a temporary embargo on timber exports. The Mahaweli River Diversion now provides water for 150,000ha of new farmland.

Manufacturing: This has been an area of dynamic growth since the mid-1980s, dominated by the clothing sector. In 1986, clothing overtook tea as the largest single export earner. Four further manufacturing companies were due to open in 1997. The domestic textile industry is as yet little used by the clothing industry, which imports fabrics. Other manufactured products are rubber and petroleum items, footwear, ceramics and soft toys; there is also an electronics assembly sector. The diamond-cutting industry, using imported diamonds, has been growing rapidly.
Mining: Sri Lanka is rich in resources of precious and semi-precious stones, producing sapphires, rubies, tourmalines, zircons, spinels, quartz, chrysoberyl, cats’ eyes, topaz, garnets and moonstones. Gems, which constitute a significant export, quadrupling between 1985 and 1990, reached a peak of SLRs3,917m in 1994. Graphite, zircon, silica quartz and dolomite are also mined. Salt is produced by evaporation. A project to mine rock phosphate is under negotiation.

Tourism: Sri Lanka offers wide appeal to tourists, with its ancient culture and historic sites, scenic beauty in its forests and mountains, and a pleasant tropical climate and beaches. Ethnic conflict, however, has had an adverse effect on the industry, more than halving tourist arrivals in the late 1980s. Tourist arrivals numbered 302,265 in 1996, most of them from Western Europe, with an increasing proportion from other Asian countries. Tourist arrivals were increasing in 1997.

Energy: Sri Lanka has hydroelectric power but no coal or oil deposits, though there may be petroleum reserves off the southern coast. Hydroelectric power is generated chiefly from the Mahaweli Ganga which provides approximately a third of the energy needs of industry. Hydro-generation is being expanded with further plants and there are proposals for micro-hydroelectric schemes. Imported oil, however, remains the main source of commercial electricity. Two large thermal plants under construction at Sapugaskanda and at Kelanitissa were to come onstream in 1997. Meanwhile firewood, agricultural residues and animal waste provide around 66% of total energy, mainly for domestic use.

Traveller Information:
Public holidays: New Year’s Day (1 January), Tamil Thai-Pongal Day (January), Independence Commemoration Day (4 February), End of Ramadan (1-2 February), Sinhala and Tamil New Year (April), May Day (1 May), National Heroes’ Day (22 May), Special Bank Holiday (end June), Milad un-Nabi (8 July), Deepavali (October), Christmas Day and Boxing Day (25 and 26 December). There is a Buddhist Poya holiday at each full moon. (The dates of many religious festivals are finalised according to local sightings of the phases of the moon or the lunisolar calendar and may vary from dates given here.)

Time: GMT plus 6hrs.

Electricity: 230/240 volts AC, 50Hz; round 2-pin plugs are used, bayonet-type lamp fittings.

Driving and local transport: Vehicles keep to the left. An international driving licence is acceptable, or temporary Sri Lankan licences are obtainable on showing a national licence. Transport in Sri Lanka is fairly good, with a crowded, country-wide network of buses. Taxis are metered. There are agencies for the hire of cars and air-conditioned minibuses. Chauffeur-driven cars are inexpensive and the service is good.

Office hours: 0900hr-1700hr, plus Sat am.

History:
Sri Lanka appears to have been inhabited from as early as 125,000 BC. Balangoda Man was the ancestor of the present day Veddhas, a racial minority now inhabiting remote forests. The Great Dynasty (Mahavamsa) of the Sinhalese was established in 543 BC by King Vijaya, who came with his followers (the Sinhala or ‘Lion Race’) from Bengal and settled in the north. Traces of the vast irrigation system they established still exist. About 300 years later, a royal prince from India named Mahinda, son of Asoka, introduced Buddhism. Tamil settlements began in the 10thC AD, and gave rise to a Tamil kingdom in Jaffna. There was a long struggle between Sinhalese and Tamil kings for the control of the north of the island.
By the end of the 13thC, the Sinhalese were forced to migrate to the south. Malaria set in when the irrigation and drainage systems were destroyed by continuing warfare. The Sinhalese population split into two separate kingdoms at the end of the 15thC, the up-country kingdom of Kandy and the low-country kingdom of Kotte.

In the 16thC the Kotte Kingdom sought protection from new arrivals, the Portuguese; and in 1597 Dharmapala, last of the Kotte kings, bequeathed his throne to the King of Portugal. The Portuguese soon subdued the north and so acquired most of the coastal belt of the country, leaving the central region to the Kingdom of Kandy. From the mid-1630s, the King of Kandy helped the Dutch to dispossess the Portuguese; by 1656 the whole island had become a Dutch possession except for the Kingdom of Kandy. Later the Dutch also seized Kandy’s coastal areas, cutting the Kandyans off from the outside world. British interests developed in the late 18thC when a British army invaded and forced the Dutch to accept its protection. In 1802 the Dutch colony became a British possession. The Kingdom of Kandy was invaded in 1815 and its monarchy was abolished.

Thus the whole island came under British rule.

Plantations growing rubber, coconut and coffee were established in the 19thC. After the coffee plantations were destroyed by a fungus in the 1870s, planters successfully switched to tea. The country soon became the second largest producer of black tea after India. During this period, Indian Tamils were brought into the country as indentured labour for the tea estates.

Constitutional development of Ceylon (as the country was then called) began relatively early, with Executive and Legislative Councils set up in 1833, and the first opening up of the colonial civil service to Ceylonese. Full self-government was achieved in 1946, under a new constitution, with a bicameral legislature (which became a single chamber in 1972) and Ceylon became fully independent and joined the Commonwealth in 1948. The first Prime Minister of independent Ceylon was one of the leaders of the independence movement, DS Senanayake. He was the head of the United National Party (UNP, the former Ceylon National Congress supported by the Tamil Congress). After a split in the UNP in 1951, SWRD Bandaranaike formed the Sri Lanka Freedom Party (SLFP).

In 1956 the SLFP won a decisive electoral victory. The new government, nationalist and non-aligned, immediately began talks with Britain which ended in the return to Ceylon of the Katunayake airfield and the Trincomalee naval base.

In September 1959, Bandaranaike was assassinated. After elections the following year, his widow, Sirimavo Bandaranaike, led the SLFP to victory and became the first woman Prime Minister in the world. In March 1965, the UNP was voted back to power with Dudley Senanayake (son of Sri Lanka’s first Prime Minister) as Prime Minister until 1970, when the elections returned the SLFP.

Sirimavo Bandaranaike’s new government introduced a new constitution in 1972. Sri Lanka, following the lead of India, became a Republic while remaining within the Commonwealth. Under the new constitution, the republic had a unicameral parliament, the National State Assembly, and a non-executive President. The first President was William Gopallawa, formerly Governor-General, and Sirimavo Bandaranaike remained Prime Minister.

Throughout this period, Ceylon’s government developed programmes of welfare and nationalisation. These led to marked improvements in health and literacy, but the economy began to decline. In 1971, there was a serious internal crisis with an uprising of Sinhalese youth, the Janatha Vimukti Peramuna (JVP), or People’s Liberation Front, in protest about widespread unemployment.

The government lost popularity and, at the general election in 1977, the UNP under JR Jayewardene won a sweeping victory. The UNP government encouraged the private sector and (under a new constitution in 1978) opted for a presidential form of government with proportional representation and renamed the country the Democratic Socialist Republic of Sri Lanka. The first Presidential election, held in 1982, was won by Jayewardene. In December 1982, the life of the 1977 Parliament was extended, by a national referendum, for six more years.

Communal conflict: After independence, the Sinhalese became the dominant social and political force and the Tamils felt that they were being marginalised. Several different Tamil parties formed and demanded that the Northern and Eastern Provinces become part of a federal state or, when this was refused, an independent homeland. Around 1980 the militant section of the Tamil United Liberation Front began an increasing number of attacks on politicians, the police and the army in the north. This brought a Sinhalese backlash in the south: in July 1983 there were riots against Tamils in Colombo and the south-west of the country, and Tamils fled to the north and Tamil Nadu in India. Despite efforts to calm the situation, the conflict escalated and the Liberation Tigers of Tamil Eelam (LTTE, or Tamil Tigers) gained effective control of Jaffna and the northern peninsula. The Indian government attempted to mediate and, in July 1987, Jayewardene and Indian Prime Minister Rajiv Gandhi arranged a cease-fire, supervised by Indian troops, and the Provincial Councils for the North and East provinces were to be temporarily merged into a single Council.
Some Indian-supported Tamil groups accepted the arrangement, and elections for the new councils proceeded. However, the Tamil Tigers refused to co-operate, and in 1988 the newly-elected President Ranasinghe Premadasa requested the Indian government to withdraw its troops. The Tigers took control of the vacated areas and fighting continued, government forces contending with the Tamil Tigers in the north and the JVP in the south.

Several political assassinations aggravated the situation. In 1993 the leader of one of the main opposition groups, Lalith Athulathmudali, was shot; a week later President Premadasa was killed by a Tiger suicide bomber. In 1994 UNP presidential candidate and opposition leader Gamini Dissanayake was killed, with over 50 others, by a suicide bomber.

Legal system:
The legal system is based on an assimilation of Roman-Dutch and English common law, with an independent judiciary. There is a Supreme Court and a Court of Appeal, with final appeal to the Privy Council in London.

Constitutional structure:
Sri Lanka is a democratic republic with an executive presidency. Under the 1978 Constitution, the Head of State is the President. There is universal adult suffrage with proportional representation; parliamentary and presidential elections are held every six years. Parliament has a single chamber with 225 members. Members are elected by the nation, but vacant seats occurring during the life of a parliament go to nominees of the party holding the seat. Ministers are appointed by the President, who chairs the Cabinet, and appoints the independent judiciary. Amendments may be made to the Constitution, subject to a two-thirds majority in parliament, ruling by the Supreme Court and the holding of a nationwide referendum. The Constitution provides for Provincial Councils.

Head of Government: The President