Sri Lanka’s Economy Thrives after a Long Civil War

Sources:

Sydney Morning Herald: With Tamil Tigers Slain, Booming Sri Lanka Makes Up for Lost Time

Bloomberg: Sri Lankan Growth Quickens to Three-Decade High After War Ends

The New Yorker: Death of the Tiger: Sri Lanka’s Brutal Victory over its Tamil Insurgents

BBC News: Sri Lanka: IMF Commends Performance and Approves Loan

Sri Lanka has become one of the world's fastest growing economies after its civil war against the Tamil Tigers ended in 2009. In 2010, Sri Lanka's GDP grew by 8 percent and is on track to grow by another 8.5 percent this year. The country's property prices have soared and its stock market has nearly quadrupled in value in the past two years. Further, improvements in security and infrastructure projects like ports, highways, and airports are all leading to a gradual return of foreign investment.

Sri Lanka's war against the Tamil Tigers lasted twenty-six years and cost at least 100,000 lives. The insurgent Tamil Tigers were formed in 1983 and attempted to create an autonomous nation on the north of the island for the seventeen-percent Tamil minority of Sri Lanka. The conflict severely disrupted the Sri Lankan economy, virtually ending the tourism industry, destroying key infrastructure, and diverting government revenues from social projects to military spending. The Sri Lankan government concluded the war in May of 2009 by cornering the Tamil Tigers and leading a violent offensive that led some international human rights activists and many Western governments to criticize the government's actions.

Because of the harsh criticism by the E.U. and the standoffish behavior by the U.S., Sri Lanka has looked to Asia and the Middle-East for investment in key national projects and industries. For example, late last year the E.U. rescinded a textile trade agreement with Sri Lanka on human rights grounds at the same time China was continuing its multi-billion dollar investment in Sri Lankan infrastructure, particularly sea ports. International investors in the tourism and hospitality industry have also been especially quick to invest in Sri Lanka. Shangri-La, Marriott, and Hyatt are all working on large luxury hotel projects in the capital of Colombo and south coast beaches.

While Sri Lanka has experienced a short burst of economic development, the country still faces many challenges. A large portion of Sri Lanka's Tamil minority has not been assimilated into the country's culture and economy. Some Sri Lankan politicians predict that if the Tamil minority does not share in the economic development, conflict may return. Sri Lanka's government has also been continuing to lower interest rates even as inflation continues to rise to nearly 10 percent. In contrast, peer countries like India, Indonesia, Vietnam, and others have been raising interest rates in response to inflation.