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With the British conquest of the whole country in 1815, Sri Lanka became
one more addition to the far-flung British Empire. From then on, economic
activity in the country came to be geared principally towards satisfying
the consumption appetites and production needs of the rapidly expanding
West European markets.
During the period of World War II, the war conditions that made the
traditional sector become really dependant on imports. With the war,
exports and exports and their prices came under government control. All
export products had to be sold under bulk purchase contracts to the
British government at pre war prices, which were considerably below the
market prices of the time. In contrast, prices of import goods trebled and
for the most part became unobtainable. Because the country was geared
to the war effort, local production of rice and other food crops slumped.
4. Saman Kelegama, Gamani Corea, Economic policy in Sri Lanka: issues and
debates (SAGE 2004) p. 55
Since export earnings remained stagnant, increased imports were
financed by running down the accumulated foreign reserves. Internally,
the government’s budgets were in deficit from the beginning, even during
the period of the 1950-51Korean War boom. With the depletion of foreign
reserves and the collapse of the boom, continuing trade deficits caused a
severe foreign exchange crisis. Resource was had at first to drawings from
the IMF. This being inadequate, import controls were introduced and
import substitution adopted. But, import substitution was not aimed at
satisfying the real needs of the people and import substitution industries
were dependent on imported raw materials and imported technology.
Therefore it was found to be no answer to the foreign exchange crisis.
Despite the effects of 1983 ethnic riots and 1988-1989 JVP uprising, in
welfare sector, Micro credit for farmers, completion of Mahaweli project,
SAARC multilateral economic cooperation had been achieved in J.R.
Jeyawardena government period.
2001 period was the first recession in the countries history, in which
power shortages, budgetary problems were emerged.
From 2005 during the period of President Mahinda’s period the war
successfully ended. And right now government has a policy which is going
through the mid way as it claims, neither mercantilist nor capitalist policy
which resulted in considerable amount of Economic growth as Sri Lanka
has been placed in the List of Middle income countries.