US embassy cable - 03COLOMBO1478

UNCLAS SECTION 01 OF 02 COLOMBO 001478 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA, SA/INS, EB/CBA 
DEPT PLEASE PASS TO USTR, EXIM, TDA 
MANILA FOR USADB 
 
E.O. 12958:  N/A 
TAGS: EINV, EFIN, ELAB, ETRD, KTDB, PGOV, BEXP, CE, OPIC, ECONOMICS 
SUBJECT:  Sri Lanka Country Commercial Guide, FY 2004 
 
REF:  STATE 128494 
 
1.  Below is the Executive Summary of the Sri Lanka 
Country Commercial Guide, FY 2004.  Per reftel, Post 
has sent the entire text of the Guide to Washington 
agencies, and will be uploading the guide to CS 
intranet soon. 
 
BEGIN TEXT. 
 
Country Commercial Guide 
 
Sri Lanka 
 
Fiscal Year 2004 
 
EXECUTIVE SUMMARY 
 
2.  In 2003, Sri Lanka is expected to realize many 
political, economic and social rewards won through 
the cessation of armed conflict and the government's 
continuing peace initiatives.  The year 2002 was a 
turning point for the country.  After almost 20 
years of armed conflict, the new government signed a 
ceasefire agreement with the Liberation Tigers of 
Tamil Eelam (LTTE). The initial agreement developed 
into an ongoing peace process supported by the Sri 
Lanka people and the international community. 
Eighteen months of peace has allowed positive 
economic growth and plans for reconstruction of the 
war-torn areas.  Negotiations with the LTTE 
continue, though not always smoothly, into 2003. 
The outcome is uncertain, but the relative peace and 
stability brought by the cease-fire has created 
cautious optimism and increased activity by both the 
domestic population and the international business 
community. 
 
3.  The government has moved to capitalize on the 
peace by pushing reform and reconstruction at home 
and attracting assistance and investment from 
abroad. The commitment of $4.5 billion at a June 
2003 donor conference in Tokyo gives the government 
substantial resources to carry out its national 
objectives of rebuilding physical and social 
infrastructure and spurring economic growth.   These 
objectives are identified in the Prime Minister's 
policy framework document, "Regaining Sri Lanka", 
which also includes the government's poverty 
reduction strategy.  A portion of these funds ($1.5 
billion) will be spent to rebuild the areas most 
affected by the conflict - the north and east. 
Numerous projects have been identified for this 
financing, a combination of grants and concessional 
loans. 
 
4.  To implement reforms, and realize the goal of 8 
percent annual growth, the government is focusing on 
progress in the peace process, and utilization of 
the increased flow of donor assistance in a quick 
and transparent manner.  Earlier efforts to enhance 
private sector growth continue, including reforms in 
financial markets, labor, land, fiscal policy, 
telecom and privatization of state-owned 
enterprises.  A new Information and Communication 
Technology initiative, eSri Lanka, aims to 
electronically connect and service the entire 
country.  The labor force is being enhanced with 
education, skills training and a focus on 
productivity.  Hoping to use trade to spur growth, 
Sri Lanka is emphasizing its central position in the 
region and key shipping lanes, Free Trade Agreements 
with its neighbors and its relatively friendly 
business climate to grow into a regional hub for 
manufacturing, commerce and transport. 
 
5.  The private sector also has responded to the 
peaceful environment with increased business 
activity and investment.  Sri Lanka's economy 
expanded by 4 percent in 2002, and further progress 
was made on macroeconomic stabilization.  Largely 
driven by services, GDP growth was 5.5 percent in 
the first quarter of 2003, and this pace is expected 
to continue through the year.  The SARS epidemic did 
not spread to Sri Lanka and tourism increased. On 
the negative side, in mid-May, southern Sri Lanka 
experienced extensive damage from severe flooding, 
though the impact on overall growth will be minimal. 
6.  The government has committed itself to reducing 
corruption; however, problems remain.  Tender 
procedures are opaque, decision making is slow, 
enforcement of IPR rights is uneven, and 
bureaucracy, caused by a large public sector, 
hinders efficiency. Though the Prime Minister's 
party is strongly supported for its peace 
initiatives, tensions between the political parties 
of the Prime Minister and the President threaten 
domestic stability.   Progress depends on the 
continuation of the peace process, policy 
adjustments, private sector development and 
structural reforms. Though still faced with 
substantial economic, social and political 
challenges, Sri Lanka accomplished much in 2002, a 
fact recognized by the international community. 
This external support, coupled with growing internal 
confidence creates the foundation for sustained 
growth and stability in 2003 and beyond. 
END TEXT. 
 
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