Economy of the conflict region in Sri Lanka : from embargo to repression

Abstract

This monograph examines the nature, extent, and causes of economic and social decline in Sri Lanka's Northern and Eastern Provinces—a region that has endured civil war between the Government of Sri Lanka and the Liberation Tigers of Tamil Eelam (LTTE) for the past quarter century. Based on analysis of primary source data, the study examines the economies of Northern and Eastern Provinces by district and sector; reveals the extent of the economic devastation, social marginalization, and poverty of the conflict region; and explores the challenges of reviving the economy during the recent ceasefire period.The monograph shows that the single most important cause of the economic and social decline in Northern and Eastern Provinces was the economic embargo imposed by the Sri Lankan government between 1990 and 2001. Following the Ceasefire Agreement signed in February 2002, economic repression by the LTTE, including illegal tolls on vehicle traffic, customs duties, and sales taxes—along with the earlier expulsion of the entrepreneurial Muslim community—seriously impeded economic recovery before renewed hostilities broke out in December 2005 and the formal end of the ceasefire in January 2008. Due to national and global economic changes since the beginning of the civil war, the study argues against a return to the economic conditions and structure of the pre-war period. Rather, Northern Province has the opportunity to take advantage of the human capital and strong Tamil diaspora to play a significant role in the global knowledge-based economy, and Eastern Province is well-positioned to become a highly productive industrial region with a significant tourism industry.