By Feizal Samath
COLOMBO, Jan 21 2008 (IPS)

While the Norway-brokered ceasefire between the Sri Lankan government and Tamil separatist militants finally failed, last week, it did provide a six-year window of prosperity to this island nation torn by a festering ethnic conflict.

Chandra Jayaratne, a well-known business leader and former chairman of the powerful Ceylon Chamber of Commerce (CCC), said regional disparities have been a major issue with the western region, where Colombo is located, accounting for close to 50 percent of the economy – estimated to be worth 28 billion dollars.

“Under the ceasefire there was a lot of progress in infrastructure development and the war-affected regions benefited most in development that was carried out by private-public sector partnerships,” Jayaratne told IPS in an interview.

On Jan. 2, Colombo announced withdrawal from the ceasefire, accusing the main rebel group, the Liberation Tigers of Tamil Eelam (LTTE), of taking advantage of it to rearm and pursue its goal of carving out a separate homeland for ethnic Tamils who form 12 percent of the population of 20 million people in the north and east of the island. The Sinhalese, who make up 74 percent of the population, are concentrated in the south and west.

Going by a July 2004 study undertaken by the economic affairs division of the government’s Secretariat for Coordinating the Peace Process (SCOPP), economic growth (GDP) in the Tamil-dominated northern province grew by an annual average of 12.6 percent during the ceasefire, compared to 3.4 percent during the pre-ceasefire period.

It said GDP in the east, which together with the north bore the brunt of the 25-year-old conflict, rose by 10.1 percent per annum while the ceasefire was functional as compared to 4.6 percent before it was signed in February 2002.

Jayaratne and other economists said the return to war once again sees Sri Lanka losing a golden opportunity to develop faster and leapfrog its economy to the level of the Asian Tigers. These countries (Singapore, Malaysia, South Korea and Taiwan) lagged far behind this once prosperous Indian Ocean island in social and economic development during the 1940s.

Growing clashes between government troops and the LTTE over the last two years, coupled with increasing bomb attacks on civilian targets by the rebels, saw the government calling off the ceasefire.

After Norwegian peacekeepers and a Scandinavian-led ceasefire monitoring group left Sri Lanka, last week, government and the rebels prepared for a fresh round of warfare, triggering anxiety and concern among Sri Lanka’s civilian population.

Security has been tightened in the capital city with more roadblocks and checkpoints installed, while paramilitary guards have been posted at all schools as the country went into a state of high alert.

Some 70,000 people have died in one of the world’s longest-running insurgencies launched to back minority Tamil demand for self-rule or autonomous powers in the north and east. The Tamils say they are being discriminated against in such areas as education and employment.

Muttukrishnan Sarvananthan, a economist with experience in analysing the war-affected regions, believes one of the biggest benefits of the ceasefire – which ran parallel to peace talks between the two warring groups – was the free movement of goods and people on the A-9 highway which links the Tamil-dominated north and the Sinhalese-dominated south. “For the first time Sinhalese civilians from the south visited Jaffna, while Tamils from the north came to Colombo. It opened all kinds of trade and service opportunities,” he said.

Jaffna, once the seat of the Tamil insurgency, saw shops filled with consumer durables unseen earlier as Colombo’s biggest companies waded in after years of restrictions due to conflict. Billboards announced the arrival of the latest televisions, washing machines, computers, video decks, mobile phones and other electronic goods.

Foreign tourists were able to visit the north on the A-9 highway, sections of which ran through LTTE-controlled territory. Groups of Tamil children visited the south to interact with peers, while business boomed in the services, agriculture and fisheries sectors.

Saravananthan said the ceasefire encouraged foreign investors to return to Sri Lanka and the Colombo stock market hit record levels. Tourism recovered lost ground and top leisure companies were ready to redevelop the east, considered to have some of the best beaches in the world. The real estate sector saw unbelievable growth as condos sprung up in the capital due to demand from Sri Lankan expatriates.

Much more could have been achieved if a massive development plan, worth 4.5 billion US dollars and funded by western donors, had gotten off the ground. The money was pledged at a donor meeting in Tokyo in June 2003. This was announced a few weeks after the LTTE suspended peace talks, setting out conditions, including the creation of a temporary administrative unit led by the rebels, to oversee development in the north and east.

Jayaratne said the cost of doing business had come down, partly because war-risk insurance premiums were substantially reduced in the transport of goods into and out of the country. “That has gone up once again,’’ he said.

Economic and social integration between the north and the south – considered key to resolving the ethnic conflict and building stakes in peace – had noticeably picked up while the ceasefire was valid.

Saravananthan said the years 2002 to 2005 were the most productive. In 2003, the economy grew by 6 percent, declined to 5.4 percent in 2004 but picked up again in 2005 – primarily because of huge inflows of tsunami-related foreign aid which led to a record 7.4 percent growth in 2006.

The SCOPP analysis showed that the most positive feature of the ceasefire period was the phenomenal growth of the agricultural sector in the north and the east. Private sector investment in the two regions also increased in certain areas such as banking, retail trade and information communication technologies.

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