down of new economic activities. those outcomes, together with the resulting higher levels of inflation would have kept sri lanka trapped in the vicious cycle. accordingly, through negotiations, the sri lankan authorities were able to convince the imf that sri lanka would commit itself to building its reserves, but would do so, while allowing the exchange rate to adjust according to economic fundamentals and market conditions, instead of forcing an artificial, sharp depreciation of the currency. the sri lankan authorities also took the view that lower tax rates would spur growth and ultimately increase revenues, and based on such view, they were able to convince the imf that it would be better to lower tax rates and encourage economic activity. subsequent economic outcomes have since confirmed the wisdom of both these moves by the sri lankan authorities! although this trio of major challenges have now been effectively addressed through the application of unconventional wisdom, sri lankan authorities realize that they must continue to practice innovation in order to reach their long term goals. at the same time, sri lanka must also preserve the country ’ s peaceful environment and political stability, in order to make these outcomes sustainable. in this regard, sri lanka is now facing a fresh challenge, where human rights advocates of the us and the west, are focusing on the last phases of the 30 year war on terror, and raising certain human rights issues and prescribing various “ foreign ” solutions to those perceived issues. in this situation too, just as conventional economists did not appreciate the practical benefits of the innovative economic strategies, theoretical human rights activists also do not seem to appreciate sri lanka ’ s strategy of ushering long lasting peace to its communities in a practical and effective manner, without inflicting further anxiety, pain and anguish on the people. sri lanka is a vibrant, practising democracy and a country with a 2500 year history, emerging out of a long and bloody conflict. it has the maturity and the ability to deal with issues confronting the country, in accordance with its own systems, culture and democratic traditions. so far, all sri lankans have been able to enjoy peace, by practising a hybrid system of restorative justice and rapid economic and political development. in that background, it is vital that the country is not pushed into “ foreign - grown ” solutions of international agencies and others, who unfortunately, sometimes appear to be influenced by certain human rights crusaders, who have been well - known terror activists in the past. it is also worthy to recall that, in its commitment to the

free from that grip! to escape, a radical change in policies and perspectives was needed, and sri lanka responded by introducing several bold policy initiatives across several fronts : excessive monetary expansion was contained through unconventional monetary policies such as tight quantitative tightening ; recurrent fiscal expenditure was curtailed while preserving public investment for infrastructure development ; monetary and fiscal policies were - coordinated to bring about overall macroeconomic stability ; new foreign investment was targeted through a steady pipeline of major projects and investments in government bonds. these new measures led to an average annual growth of 7. 5 % over the four years, 2010 to 2013 and thus, the vicious cycle was converted into a new virtuous cycle, with inflation in single digits, shrinking debt to gdp ratios, and low interest rates. in 2009, sri lanka also faced another major challenge : the threat to its external account. the effect of global financial crisis had impacted sri lanka, and large scale overseas bond redemptions had resulted. it was soon clear that some external support was required to stave off this challenge, and sri lanka decided to avail itself of the imf facilities via a stand - by arrangement ( sba ). the key bis central bankers ’ speeches objective of the sba was for sri lanka to build up its foreign reserves to more comfortable levels to meet the uncertain global environment. the issue however was that the imf, in its conventional wisdom, was insisting that sri lanka sharply depreciates its currency in order to curb its trade and current account deficits which, in their view, would help the country to build up reserves. the imf also held the view that sri lanka must significantly increase government revenue by raising taxes. in theory and normal circumstances, imf ’ s suggestions may have had merit. however, the sri lankan authorities who had a deep practical understanding of the socio - economic challenges facing sri lanka, held a different view. the authorities ’ view was that since the conflict had ended, there was an urgent need to reconstruct the terror - affected areas, which covered almost one third of the country ’ s land mass, and two thirds of its coastal belt. new economic activities had to be promoted for the peace dividend to be realized. such new activities would necessitate a high import expenditure, which in turn, would create new capacity for economic growth. in such circumstances, if the sri lankan rupee were to depreciate i sharply, it would lead to a significant reduction in the imports necessary for reconstruction and a slow -