DEFENCE SEMINAR 2012 “TOWARDS LASTING PEACE & STABILITY”

1. DEFENCE SEMINAR 2012 “TOWARDS LASTING PEACE & STABILITY” Post-conflict Reconstruction, Resettlement, Rehabilitation, Reintegration and Reconciliation “Economic Reconciliation” Presented by: Ajith Nivard Cabraal Governor Central Bank of Sri Lanka on 10th August, 2012

2. The term “Reconciliation” is derived from conciliatus, or “coming together”… • Process refers to mending “shattered relationships” between two parties and could include • Social reconciliation • Political reconciliation • Economic reconciliation • Focus on Economic Reconciliation

3. At the end of the 3-decade conflict,the North and East lagged behind… • Education and health services - at a basic level • Roads, highways, and railways - virtually non-existent in many parts of the Provinces • Transport facilities - minimal • Banking and financial services - limited • Even data from these two Provinces - not available to measure the extent of the weaknesses. The conflict hindered economic growth of the country and deprived the population of the North and East of economic opportunities

4. Much had to be done soon to restore normalcy in the North and the East… • Rapid de-mining • Speedy resettlement • Rapid restoration of Livelihood • Extensive infrastructure restoration and upgrade • Sustained investment in the North and the East • New initiatives by the Banking Sector

5. Three years after the end of the conflict, what has happened in terms of economic reconciliation?

6. Disbursement of thousands of bank loans “fast tracked”! Northern Province - Cumulative Amount Granted (2010 – Jul’12) Eastern Province - Cumulative Amount Granted (2010 – Jul’12) Rs.mn Rs.mn Jul’ 12 Jul’ 12

7. Large Number of Beneficiaries of Bank Loans at concessionary rates… Northern Province - Number of Beneficiaries (2010 – Jul’12) Jul’ 12 Eastern Province - Number of Beneficiaries (2010 – Jul’12) Jul’ 12

8. Bank branch network grew rapidly in the North and East... Northern Province Eastern Province

9. Leading to substantial Banking penetration in the North and East...

10. New infrastructure investments in 2011 to 2014 are also being made… Range of Investments: • Rehabilitation of key roads, railroads, hospitals, and bridges • Restoration of industries that closed down because of the violence • Implementation of large scale irrigation schemes • Implementation of projects for providing electricity and water • Establishment of vocational training centres, and technical colleges for skills development • Upgrade of fisheries harbours • Development of tourist attractions • Rehabilitation of village tanks, canals, and minor irrigation systems • Reconstruction of damaged houses and shopping areas • Provision of furniture, equipment for schools and hospitals • Provision of boats, fishing gear, etc. for fishermen

11. In 2012, the major investments in the North will increase by 25%... Rs mn Source: Ministry of Finance and Planning

12. Major investments have been planned in the East too, in 2012… Rs. Mn Source: Ministry of Finance and Planning

13. Considerable improvements in Economic Indicators have been observed… Northern Province Eastern Province

14. Agriculture and fisheries have also posted record growth… • Fish Production (in MT’’000) • Average Daily Milk Production (in Litres) Source: DCS, Ministry of Fisheries , CBSL

15. Cultivation of Paddy has been growing…

16. In “BREAKOUT NATIONS”, Ruchir Sharma describes the methodology adapted by the Sri Lankan authorities… “To restart the economy in the former war zone, the government has established vocational training centers and low-interest loan programs, distributed boars and livestock, and begun building roads and bridges. Banks are returning, big retail chains are setting up shop, and domestic airlines are flying to Jaffna and Trincomalee again.”

17. When reflecting on the post-conflict period, it is clear that the cost of the humanitarian effort was a vital investment… • Many previous governments did not pursue “Defeat of terrorism by military means” with enthusiasm, because of the perceived massive “cost” that it was supposed to entail, and the tough economic decisions that needed to be taken as a consequence.

18. Overall, extraordinary economic benefits have accrued to the country after the conflict… • Return to a high economic growth trajectory – 8% • Greater efficiency in allocation of all economic resources • Higher utilisation of production and capital capacities: eg. Ports, tourism, and marked productivity improvement • Improved political and economic stability and investor confidence • “Brain drain” changing to “brain gain” • Improved fiscal management leading to better macroeconomic fundamentals • Prevention of regular destruction of property and loss of lives, which took a heavy toll on the economy and morale of investors

19. In “BREAKOUT NATIONS”, Ruchir Sharma also talks of Sri Lanka being poised to become a “Breakout nation”… “The civil war is over, the process of healing is under way, and there is every chance that Sri Lanka will again become a ‘breakout nation’.”

20. In late 2009, the conflict affected regions entered into a high growth path even though the country’s growth was low…

21. The end of the conflict contributed to high growth in many lagging provinces in 2010…

22. Economic growth in 2011 was even better in those conflict-affected provinces…

23. In “BREAKOUT NATIONS”, Ruchir Sharma also speaks specifically about the North and East… “The flood of state spending drove growth in North and East provinces up to 14 per cent in 2009 and 2010, and forecasters are expecting the region to grow at above 13 per cent for several more years, making it the fastest-growing area of the country.”

24. The success over the past three years has been possible because… • The authorities prepared for the post-conflict period, before the conflict ended • They worked to the plan • They displayed deep commitment and genuine interest • They made the required investment and allocated the necessary resources • The continuous support and leadership was provided by H.E. the President

25. However, this is only the beginning… • The process of reconciliation has produced substantial benefits to the entire country, and in particular, to the people of North and the East. • In that context, various forces within and outside our nation (however well meaning they may sound) should not be allowed to destroy the unity or distract the stakeholders from fulfilling their mission.

26. In “BREAKOUT NATIONS”, Ruchir Sharma describes Sri Lanka as a country where there was a real “peace dividend”… “Well documented by those who study it, mainly at agencies like the World Bank and the UN, the “peace dividend” is real, and Sri Lanka is poised to be a big beneficiary.”

27. In “BREAKOUT NATIONS”, Ruchir Sharma expresses optimism about the benefits of reconciliation… “The North and East provinces which account for 30 per cent of Sri Lanka’s land and 15 per cent of its population, were largely war zones. With the nation whole again, achieving a 7 to 8 per cent growth rate over the next decade should be well within reach.”

28. Reconciliation is a continuous journey, not a destination…. • An Ambassador has announced recently that: “Healing the wounds of war is not limited to reconstructing roads”… • But, remember… If the roads were not reconstructed, and economic development was not encouraged, wounds will never be healed, whatever else may be done… • At the same time, Reconciliation is vital for all communities in all parts of the country, and wonderful for business too!!