Sri Lanka’s conflict hitting tourism and the economy

Press, 23 August 1984, Page 12

Sri Lanka’s conflict hitting tourism and the economy

NZPA-Reuter Colombo Sri Lanka’s recent bloody ethnic conflicts have slowed down the economy’s drive to diversify, depressing tourism revenues and foreign investment and making Colombo more dependent on its main export item, tea. Island-wide riots in July, 1983, sporadic violence last April, and several recent days of fighting betweeen Tamil separatists and the Army in the north have badly tarnished Sri Lanka’s image as an island favourable to both sunbathers and shareholders. A boom in world tea prices and a well managed austerity programme have left the country with a balance-of-payments surplus and falling inflation, but senior economic officials interviewed said the unrest was still a major worry. The Finance Minister, Ronnie de Mel, told Reuters he considered political stability to be an essential precondition for the development of foreign investment and tourism. “A solution to the ethnic problem is essential if we are to continue to attract foreign investment and tourists as we hope to,” he said. The Central Bank’s governor, Wamasena Rasaputra, also noted the key roles ethnic conflict and tea prices were playing in the economy. Neither would he speculate on the prospects for a solution to the crisis in which guerrillas are fighting for an independent state in northern and eastern Sri Lanka where most of the island’s Tamils live. Long-simmering tension between the majority Sinhalese and the Tamils, who make up 2.5 million of the 15 million population,

flared into island-wide riots in July, 1983, leaving about 400 people dead. Foreign tourists, mostly West Germans, French and Asians, cancelled plans for trips to the island’s beaches and foreign investors thought twice about bringing their money here. Tourism revenues, which had almost quadrupled from 1977 to reach $129 million in 1982, plummeted to about $lOO million last year. The travel trade fell from fourth to sixth place as a foreign exchange earner. The Central Bank has just began rescheduling debts for smaller hotels, the hardest hit by the drop in tourist arrivals, Mr Rasaputra said. Colombo’s building boom is also now looking shaky, a Western diplomat added, leaving several unfinished hotels dotting the skyline. “In the next two years, Colombo is supposed to go from having two five-star hotels to six,” he said. “This reflects a euphoria that now looks hard to sustain.” In spite of a $1 million publicity campaign to restore Sri Lanka’s image abroad, tourist arrivals were down 31 per cent in the first five months of this year compared with the same period, last year, Central Bank figures show. Mr De Mel said the industry was picking up, though, and bookings for the main season later this year looked good. Foreign investment, which was going mostly into the growing textile industry, was already tapering off

slightly because of the world recession when the July, 1983, riots hit. Then it nosedived from $322 million in 1982 to $154 million last year. The Finance Minister said investment was also beginning to pick up again but could not say whether the present unrest would affect it. A rise in world tea prices which began soon after the 1983 riots brought timely relief to the economy. Tea export earnings were boosted about one-quarter to $332,000, Mr Rasaputram said. Although tea prices are expected to stay high for the near future, Mr De Mel acknowledged that Sri Lanka should break away from being a single-com-modity exporter. “We are still largely dependent on tea, and to a lesser extent on rubber and coconut,” he said. “Diversification has taken place, though I wouldn’t say very much.” Mr De Mel said he felt the economy was now under “reasonable control” in spite of the unrest and heavy defence spending needed to ensure internal security. Inflation, which rose 35 per cent in 1980, is now down to 18 per cent and should fall to 11 per cent by the end of this year. The balance-of-payments surplus, helped by the tea boom and remittances from Sri Lankan workers abroad, should grow to $ll million this year, compared with $3 million in 1983.