The nation has just celebrated 62 years after the regaining of the country s independence. In as far as the economy is concerned, there are good reasons to celebrate. This is the first celebration of independence after the end of the war that ravaged the economy in many divergent ways. There is now a new opportunity to achieve rapid economic growth and solve the country s economic and social problems.

Impact of war
On reflection, it is difficult to think that the economy suffered by ethnic disturbance, terrorism and the war for nearly one half of the period since independence. At first, the impact was marginal with sectors such as tourism and foreign investment suffering most. Then as the war gained in ferocity, the expenditure turned to be enormous. The cumulative expenditure on the war is mainly responsible for the huge public debt and crippling cost of debt servicing that has distorted public expenditure, resulted in persistent high fiscal deficits and high rates of inflation. These eroded the country s export capacities by the real effective exchange rate appreciating and making exports non-competitive.

There was specific damage to various sectors of the economy as well. Apart from tourism and its backward linked sub-sectors of the economy, fisheries, agriculture and some industrial manufactures too suffered. Commerce and internal trade were also adversely affected. Even external trade was affected by additional insurance and other fees imposed on the country s exports. Air travel was severely curtailed by international airlines pulling out of the country.

The war was the most serious impediment to economic development. It was a financial burden, a hindrance for investment and it crippled several areas of production in the economy. Undoubtedly the economy performed at less than its potential.

In spite of this devastating experience, the economy was surprisingly resilient and posted reasonable rates of growth. It is true that some of the sources of economic growth were themselves brought about by public expenditure on the war, increased expenditure on the public services and development undertaken by borrowings from abroad. Nevertheless, there was growth in this context of this overwhelming impact of the war on the economy.

Poised for growth
The economy is now poised for rapid economic growth. There are some positive signals that give hope for the economy. Business confidence is high. The rise in the share prices is a good indication of this. Since the end of the war the indices at the Colombo Stock Exchange have jumped up to unprecedented heights. Shares in the hospitality trade, plantations, banks and finance, diversified holdings have all risen and market capitalisation has gone up sharply.

The country foreign exchange reserves are high at over US$ 5 billion and the country has had a balance of payments surplus. Foreign investors have shown much interest in investing. Foreign remittances into the country are increasing and providing substantial support to the balance of payments and wiping out the trade deficit. All these are a solid foundation to generate rapid growth in the economy to achieve the government s objective of doubling per capita income during this decade, reducing the urban-rural disparities and reducing unemployment and poverty.

Sources of economic growth
The initial economic growth would come from those sectors of the economy that were directly affected by the war and terrorism such as increased agricultural production from the North and East, increased output in fisheries that were hampered by prohibition of fishing in the security zone, and by the resumption of commerce between the North and the rest of the country.

The gains from commerce would be in both directions: the South gaining from the demand for items produced in the South, especially consumer durables, construction materials and trade in both goods and services. The repair and development of infrastructure in the North and East would enhance this growth. With the resumption of transport there have been a flow of goods in both directions, south to north and north to south. Goods from the South to the North have improved the availability, reduced cost and prices of essential items. The North provides new markets for goods such as sewing machines, refrigerators, fans, air conditioners, television sets, radios and machinery that were prohibitive in price. The rest of the country would also benefit from the availability of several vegetables and fruits grown in the area including potatoes, chillies, onions grapes and mangoes and an increased supply of fish.

Tourism that grew till 1982 and collapsed after the ethnic disturbances has suffered heavily since then. Tourism will bloom in the new environment of peace. Once the global recession in developed countries wanes a tourist boom could be expected. The North and East would benefit from a flow of tourists to these regions.

Prerequisites for economic growth
Economic development will, however, not be rapid merely because the war is over. There are many preconditions that have to be put in place to generate rapid economic development. In order to achieve higher rates of economic growth higher levels of investment are needed. A substantial increase in foreign investment is needed for the high growth rate that is expected as domestic resources are inadequate. Peaceful conditions, political stability, good governance and policies to stabilise the economy and improve the economic fundamentals could provide the setting for higher foreign investment. Without these, it would be difficult to attract large amounts of foreign investment.

Several preconditions must be generated to obtain the full benefits of peace and for the economy to achieve its full potential and to usher in a period of economic growth and prosperity. In the first instance an equitable, durable and permanent political settlement must be achieved. The rehabilitation of the Internally Displaced Persons (IDPs) is a massive task that has to be achieved. The lack of adequate resources and the essential security scrutiny of the IDPs make this a difficult task. Nevertheless, this has to be expeditiously and efficiently performed as the satisfactory resettlement of these people is a precondition for their contribution to the economy.

The successful rebuilding of the devastated areas and the reconstruction of economic and social infrastructure are basic requirements. This requires a massive investment that the country s own finances are quite inadequate to mobilise for this purpose. Foreign assistance of a large amount would be needed.

It is essential that economic policies are conducive to investment. Economic policies must be based on sound economic principles. Fiscal consolidation is a must for economic stabilisation and growth. There is a need to cut waste and prune expenditures to bring down public expenditure and reduce the fiscal deficit. Without such improvements in fiscal management, there is the danger of inflation that could destabilise the economy, particularly exports.

Peace provides the backdrop and environment for the pursuance of appropriate economic policies for growth. There must be a realisation that the benefits of the peace would take some time and can be reaped in full measure only if the proper economic policies are pursued. Peace has conferred on the country a new opportunity and an environment conducive for economic development. However, there are many preconditions that have to be established to usher in economic prosperity. The macro economic fundamentals have to be strengthened, inflationary pressures must be contained and institutional and legal reforms that would be favourable to economic investments are needed. The economy will not achieve its full potential merely because the war is over. An economic policy framework conducive to development must be put in place.

Finance Minister Pranab Mukherjee will inaugurate the 42nd Consultative Committee Meeting(CCM) of Colombo Plan tomorrow, which brings nations together for co-operative economic development in the South and South-East Asia.

'The purpose of the Colombo Plan is co-operative economic development in the South and South-East Asia,' an official release said.

Over 150 delegates from 26 member countries and other 33 observer countries and organisations are expected to participate in the CCM, to be held on February 10-11. India has earlier hosted the Consultative Committee Meetings in 1953 and 1972.

The idea of launching the Colombo Plan germinated at a meeting of Commonwealth Foreign Ministers in Colombo in January 1950, where the ministers concentrated their attention on the needs of South and South-East Asia and the strategies to address them.

Over the years, the Colombo Plan grew from the group of seven Commonwealth nations ? Australia, the UK, Canada, Sri Lanka, India, New Zealand and Pakistan into an international organization of 26, including non-commonwealth nations.