September, 2003

Peace talks in Sri Lanka have prompted a mini-boom, with investors eager to profit from the potential of a country some hope will become the Singapore or Dubai of the sub-continent

Eric Ellis, Colombo

IT HAS LONG bemused visitors to the Sri Lankan capital Colombo that Galle Face Green, the vast common around which the city’s faded hotels cluster, is not green at all but a stony, patchy brown.

It’s a metaphor for a too-long troubled nation of 20 million that has struggled through a 20-year civil war on a 50-year-old infrastructure last meaningfully attended when Britain ruled the island.

But 18 months into a tenuous – but still holding – ceasefire in the brutal conflict between the Sinhalese majority which controls the government and the Liberation Tigers of Tamil Eelam, the notorious Tamil Tigers, things are changing.

The economy is enjoying a mini-boom, investors are making tentative exploratory steps and prime minister Ranil Wickremisinghe’s government has cut back on red tape. Suddenly, the much-loved ocean-side common has sprouted green tufts of grass.

It is a symbol, many hope, of better times ahead. Indeed, a succession of Hong Kong- and Singapore-based investment bankers, including those from Citigroup, Coutt’s and Credit Lyonnais, and developers, including Adrian Zecha of Singapore-based Amanresorts, have snapped up fabulous tracts of beachfront along the island’s lush south-west coast in the belief that Sri Lanka’s charm will at last fulfil its tourist potential.

However, many Sri Lankans need convincing that this time around the peace will hold.

One man who is convinced the peace talks will succeed is Sri Lanka’s youthful minister for economic reform, Milinda Moragoda. Indeed, as the politician who made the first behind-the-scenes overtures to the Tamil Tigers in 2000, Moragoda has staked his potentially bright political career on it.

The former chairman of the family-owned Mercantile Merchant Bank, 39-year-old Moragoda is regarded as a prime minister-in-waiting and perhaps the successor to Wickremisinghe if the United National Party administration retains power.

Surprisingly for a sub-continental politician – but perhaps not for an ex-banker – Moragoda’s vision is refreshingly free of ideology. Even his office is modern by Sri Lanka’s creaking local standards. The decor is modern minimalism, the air conditioning arctic. Moragoda even has his own website, www.milinda.com, adorned with the Edmund Burke quotation “the only thing necessary for the triumph of evil is for good men to do nothing”.

But the minister is doing something. He refers to the reams of red tape and restrictions that have made the economy of the Democratic Socialist Republic of Sri Lanka one of the world’s least efficient as “constraints we have made on ourselves, for various misguided reasons”.

He says that the country’s “historic ideological struggle” is no longer relevant. “What is relevant is peace and becoming a normal nation again.

“We were signaling that we were turning right, so to speak, before coming to office,” he adds.

There certainly seems to be a Pavlovian tone to this two-year-old government’s policy-making. When changes have been made to long-standing laws, even ones previously thought sacrosanct, the effect has been immediate.

“We removed a restriction on visas for Indians and immediately the tourism numbers rocketed,” Moragoda says. “It was a recognition that India has a huge middle class that can afford to travel and we are one of their closest neighbours. We want to become the Singapore or Dubai for Indians, the hub of south Asia, for a holiday or as a place to keep their funds safe and offshore.”

Similarly, the lifting (officially temporary though likely to become permanent) of a crippling 100% tax on property purchases has been met with a flood of investors, many from the tourism sector, who hope to transform Sri Lanka into a more proximate Bali for European visitors.

While it is premature to call it a peace dividend, Sri Lanka is enjoying some economic daylight since last year’s ceasefire with the Tamil Tigers. Real GDP growth in 2002 was 3.4% and is expected to expand by 5.5% this year and 6.2% next.

The government is proceeding with a divestment programme, with stakes in the notoriously inefficient fixed-line monopoly carrier Sri Lanka Telecom, Ceylon Petroleum Corporation and the Ceylon Hotels Corporation. Private funding is also being sought for critical infrastructure projects, notably for improving the decrepit road and rail systems (it takes, for example, three to four hours to drive from Colombo to the southern tourist and commercial centre of Galle, just 130km away).

But all that could be torpedoed if the peace talks fail. At the time of writing, the Tigers had stepped away from the table complaining that the impoverished north is not getting its fair share of the outlined US$3 billion of foreign aid designed to rehabilitate the country.

The separatist chief negotiator Anton Balasingham tells Asiamoney that his side is “committed to peace but the process has to be fair and in good faith”.

Furthermore, lurking in the background is the Sri Lankan Freedom Party president Chandrika Bandaranaike Kumaratunga, the head of state who, while officially sanctioning the peace talks, is effectively the opposition to Wickremisinghe’s government – a consequence of Sri Lanka’s often unwieldy cohabitation political system.