The conflict is not the only reason for the slowdown in Sri Lanka’s (SL’s) economic development, but the nationalisation process which took place in the 1970s was also another contributory factor, said European Commission’s (EC’s) Head of Delegation Ilkka Uusitalo at a breakfast meeting which was held in Colombo on Friday.

The nationalisation process in the 1970s was undertaken by President Chandrika Bandaranaike Kumaratunga’s mother the late Sirima Bandaranaike, whose Government (which she headed) ruled the country for a period of seven years, from 1970-77.

"It is surprising how little one hears about that process," said Uusitalo. Increasing politicisation and political interference in public administration and police and increasing corruption linked to the rising crime rate which brings about questions relating to good governance are the other reasons, he said.

"Much could be done despite the war. But the end of the conflict is the key issue," the Ambassador however said. The World Bank says that the conflict in SL reduces growth by 2%-3% per year, Uusitalo said.

He further said that SL needs to grow at the rate of 7% to 8% to achieve economic development, and added that a growth rate of between 4% to 5% was not enough ‘to change the country.’

"If one compares SL’s situation with countries such as Thailand, Korea and Malaysia that were either at the same level or below that of SL in the 1960s, the picture is very bleak," the Ambassador said. In Thailand, the per capita income at present is US$ 2000, In Malaysia it is US$ 3,400, Korea US$ 8,500, while in Sri Lanka, the per capita income is US$ 850, Uusitalo said.

He further said that the IMF’s Standby loan of US$ 253 million has to be repaid in five years. It is being given to restore macroeconomic stability, rebuild reserves and improve public sector financing.

SL has already received half the loan proceeds under this standby arrangement. The balance will be received in 14 months, after long term structural issues have been addressed by the Government, with the balance payment being made in four tranches.

"This action by the IMF is a step before the Poverty Reduction and Growth Facility (PRGF) loan," said Uusitalo. He said that the Government’s letter of intent (LOI) to the IMF spells out what actions the Government propose to take in order to receive the balance tranches.

"The LOI, which is the Government’s policy statement, includes their economic aims," said Uusitalo. But the big question mark is the war expenditure. It is assumed that war expenditure would go down and oil prices prices would be at around US$ 25. "But it is hovering at around US$ 30 and the war expenditure which was assumed to go down last year, actually increased by 50%," said Uusitalo.

He also said that the private sector must also request and support changes. "The private sector has a bigger role to play in SL other than on economic issues," he said.

There is also a lot of expectations about foreign direct investment (FDI). "FDI was ‘good’ in 1999, but not so in 2000. SL cannot expect FDI unless the conflict is solved, he said, adding that Sri Lanka has missed a ‘lot’ of opportunities in the past.

The Government is faced with several vexing economic questions. External factors, such as the oil prices don’t help the situation. "Because this can’t go on, Government will have to take certain unpopular policy decisions," the Ambassador added.

Regarding re-admission of illegal immigrants to their country of origin, he said that thousands of illegal immigrants enter Europe each year. "Human smuggling is big business. In Sri Lanka, processing of false documents and false testimonies about imaginary persecution goes on," Uusitalo said.

"Therefore, we hope to cooperate in this matter," he said. The people indulging in human smuggling make huge amounts of money. US$ 10,000 is paid to access Europe illegally. "We want to cooperate with Sri Lanka on this matter," the Ambassador added. (PA)