By Tharuka Dissanaike*

Peace negotiations are rarely just about politics. When Tamil Tiger rebels in April halted what had until then been mostly cordial peace talks with the Sri Lankan government, the reasons were economic. Tellingly – and symbolically – the rebels, who are members of the Liberation Tigers of Tamil Eelam or LTTE, also refused to attend an important donor conference in Tokyo in June, which netted a reported US$4 billion in aid for the country. When the official talks began in September 2002 hopes were high for an early end to Sri Lanka's 20-year civil war, which has cost at least 70,000 lives.

Predictably, the initial rounds were dominated by the political aspirations and rights of the Tamil minority. Now, the LTTE feels that their economic needs have not been addressed – since the February 2002 ceasefire, they argue, there has been little development of roads, schools, hospitals and power in the Tamil-dominated Northern and Eastern provinces, which experienced most of the conflict. They are now asking for an LTTE-led interim administration to control these war-hit areas.

The development challenge faced by Tamils in these provinces however is small compared with people in other countries emerging from prolonged conflict, because of a unique phenomenon: the rest of Sri Lanka experienced economic growth during the war. While many countries – Afghanistan, Mozambique and Sierra Leone to name just three – have had to grapple with the destruction of the formal economy, "two decades of conflict in Sri Lanka in the 1980s and 1990s have paradoxically been a time of strong economic growth", says Rajesh Venugopal, research fellow at Queen Elizabeth House in Britain's University of Oxford. According to government and Central Bank figures, the Sri Lankan economy grew at a steady 5% a year in the 1990s, and the number of poor households actually fell from 30.4% in 1990 to 26.7% in 1996. Exports tripled in the first 15 years of the conflict. The reforms which generated such surprising growth transformed the country from a plantation export based economy to a free market-oriented de-regulated economy. Venogopal, says "The conflict has not been at odds with economic development at all but rather has advanced side by side, in step with parallel changes in the government's development policy."

He attributes some of this economic success to the war itself. The continued high security conditions and state of emergency, for instance, allowed the government to carry out World Bank-proposed structural reforms and liberalization plans without meeting the kind of civil unrest that such reforms have sparked in many other countries. Also the population's distraction with war gave the government space and reason to privatise many state-owned corporations. But Venogopal is quick to distance his research from any simple cause-and-effect relationship. Sri Lanka's ruling elite, he says, did not deliberately "start the war in order to mask their reform agenda" – no more than their "quest for a peaceful solution in the conflict signifies the end of the reforms."

Nevertheless, the privatization of some of the largest national companies – including the national airline, gas and telecommunications companies and major tea plantations – occurred in the early 1990s, when the war raged at its fiercest. "The war has in perverse ways cushioned the effects of the reforms," including cuts in jobs and welfare subsidies, says Venugopal. Whether these impressive growth figures translated into improved living standards is another matter however. Kamal Fernando, a businessman living in the capital Colombo, says: "My income has increased, but costs of basics like electricity, transport and food have increased above that. Luxuries I could afford ten years ago are beyond my income now." Jehan Perera, an economist and director of the NGO National Peace Council, says although reforms pushed through during the war years improved productivity and growth, the country continued to pay through the nose for the war. Funds for education, health and poverty reduction stagnated while military spending sky rocketed. A third of the 2000 budget was spent on defence, while 8% went into health and 14% into education. Defence spending nearly doubled from $360 million in 1995 to $521 million in 2000.

The business community also tends to look at the war years as a bleak economic period. "There may have been growth, especially in the export-led sectors, but many important sections of the economy continued to suffer during the war," says Prema Cooray, chairman of the Ceylon Chamber of Commerce and Industry. "Tourism [the fourth largest industry] was hit badly and the stock market crashed during the last two years of the war." Sri Lankan social scientist Dr Darini Rajasingham-Senanayake, now based at New York University, counters what she calls the "myth of the economic boom during the war period". She says that this growth did not take into account the social costs of the war and the utterly backward conditions of the north and east, which existed without electricity, health and education. Nor has there been any proper analysis of who benefited from the donor-led economic reforms programme carried out during the war years.

What worries many observers is that the present peace process may be turning into another platform for donor-backed reforms: a billion-dollar North-East Rehabilitation Fund is being administered by the World Bank in Colombo. And international donors are strongly pushing for further privatization and cuts in farm subsidies. But in demanding an LTTE-led interim administration, the LTTE have shown they would like direct control of finances and economic development of the north and east. Although they have not spelt out a plan for economic development, the rebels have already laid the groundwork by establishing their own banks, credit schemes and plans to electrify rural villages using solar and wind power.

About the author: Tharuka Dissanaike is a Sri Lankan journalist and former features editor of the Sunday Observer.

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