From: vperera@silver.ucs.indiana.edu (vicumpriya perera)
Subject: News Article: Better late than never
Organization: Indiana University, Bloomington IN.
Date: Fri, 10 Apr 1992 01:35:16 -0500



Sri Lanka: continued reform spurs economic growth.
--------------------------------------------------

BUSINESS AMERICA, 01/13/92
COPYRIGHT U.S. Government Printing Office 1992

By John Simmons
  The economic liberalization trend that is currently sweeping South 
Asia began first, and has progressed furthest, in Sri Lanka.  
Starting in 1977, and accelerating in 1989, the Sri Lankan 
government has pursued a policy agenda designed to wean the economy 
from state control and to allow market forces to play a greater 
role. 
  In conjunction with the implementation of economic and trade 
liberalization measures, the Sri Lankan government has also sought 
to strengthen its commercial relationships with key trade partners.  
These efforts led to the signing of three bilateral trade agreements 
with the United States in September 1991.  The accords include a 
treaty for avoidance of double taxation; a bilateral investment 
treaty which grants U.S. firms national treatment in most 
industries; and an agreement to protect intellectual property rights 
which gives Sri Lanka one of the strongest IPR regimes in the 
developing world.  These agreements will provide an important 
foundation for encouraging expanded bilateral commercial relations 
and are an important step in helping Sri Lanka shed its socialist 
past. 
  Traditionally, Sri Lanka's economy had been dominated by state-
owned industries and a heavily regulated and protected domestic 
private sector.  Export earnings have relied almost exclusively on 
apparel, a few plantation crops (tea, coconut, rubber), and the 
services sector, particularly tourism and shipping.  The current 
reform efforts have sought to reduce government-direction of the 
economy and encourage greater participation by foreign firms through 
privatization of government-owned companies, tariff reductions, and 
easing of barriers to foreign investment. 
  The initial phases of the privatization program have focused on 
smaller manufacturing operations and transportation companies.  
Plans to divest larger establishments, state-owned banks, and the 
plantations sector have been delayed in the face of opposition from 
labor unions fearing job losses.  The government had intended to 
privatize 46 state-owned enterprises in 1990.  Ultimately, only 
seven were actually sold. 
  In the first round of tariff reductions the maximum rate was 
dropped to 50 percent, with duties currently averaging about 35 
percent.  The next objective is to create a simplified four-tier 
tariff schedule (10, 20, 35, and 50 percent).  However, the 
government continues to impose a duty of 100 percent on letters of 
credit used to purchase luxury items. 
  Sri Lanka has also adopted the region's most liberal import 
licensing regulations, having eliminated licensing requirements for 
all but about 250 items.  Approximately 20 percent of Sri Lanka's 
imports currently require licenses, the majority being passenger 
vehicles. 
  The Sri Lankan government has initiated an aggressive campaign to 
encourage greater foreign investment, although these efforts have 
focused primarily on establishing export-oriented ventures in the 
country's three export processing zones.  Still, regulations 
governing approval of foreign investment projects and foreign equity 
participation have been eased.  Bureaucratic involvement in business 
activities has also lessened and 10 percent--or some 40,000--
government jobs have been eliminated.  U.S. investment in Sri Lanka 
remains modest, however, comprising about $25 million of a total of 
$500 million. 
  While the implementation of the reform program is ongoing, Sri 
Lanka's economy appears to be responding to these efforts.  Economic 
growth reached 6.2 percent in 1990 and is expected to be 
approximately 5 percent in 1991.  This is a startling performance 
considering the loss of exports and earning remittances arising from 
the Gulf War and heightened military activity against separatist 
elements in the northern and eastern parts of the country.  Despite 
these developments, business confidence in Sri Lanka remains firm 
and tourist arrivals are continuing to rebound. 
  In spite of the reforms and the strong economic performance, Sri 
Lanka remains a limited market for U.S. firms.  Total income among 
Sri Lanka's population of 17 million is comparable in purchasing 
power to a mid-sized American city.  Annual U.S. exports total 
approximately $140 million, with wheat sales making up two-thirds of 
this amount.  Although the United States is Sri Lanka's largest 
trading partner, the bulk of bilateral trade is composed of U.S. 
purchases of apparel.  These account for approximately two-thirds of 
the entire bilateral trade volume and 80 percent of U.S. imports. 
  For American firms exploring trade or investment opportunities in 
Sri Lanka, prospects appear bright for continued strong economic 
growth and further policy liberalization.  Industries offering the 
greatest potential for U.S. firms include apparel and textile 
manufacturing equipment, plantation crop processing, pharmaceuticals 
and medical equipment, computer equipment, and telecommunications. 


THE END. 
_____________________________________________________________________