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COUNTRY BRIEFS


INTRODUCTION

Sri Lanka (formerly Ceylon) is an island in the Indian Ocean, lying east of the southern tip of the Indian subcontinent, from which it is separated by the Palk Strait. Sri Lanka is about the size of Tasmania, with an area of 66,000 square km, including 870 square km of inland waters. The population of Sri Lanka is 20.5 million, with 2.2 million people living in the capital city of Colombo. Other major cities include Gampaha (2 million people), Kurunegala (1.4 million people) and Kandy (1.3 million people). Sri Lanka's official languages are Sinhala and Tamil, although English is commonly used in government and is spoken competently by about 10 per cent of the Sri Lankan population. The major ethnic groups are the Sinhalese (74 per cent), Tamils (18 per cent) and Muslims (7 per cent). The major religions in Sri Lanka are Buddhism (69 per cent), Hinduism (15 per cent), Christianity (8 per cent) and Islam (7 per cent). The currency is the Sri Lankan Rupee.

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CIVIL CONFLICT

From mid 1983 Sri Lanka was afflicted by a serious civil conflict between the government forces and the Liberation Tigers of Tamil Eelam (LTTE). Hundreds of thousands of people were displaced by the fighting and it is estimated that over 70,000 people were killed.

The conflict followed the most destructive explosion of communal rioting in the history of Sri Lanka. The riots proved a turning point in Tamil militancy. Through a ruthless strategy of elimination of any opposition, the LTTE , under the leadership of Velupillai Prabhakaran, became the largest and most powerful Tamil group. It began a major military campaign against the Sri Lankan Government, with its main aim the establishment of a separate Tamil state, Tamil Eelam, in the north and east.

In February 2002, the Sri Lankan Government and the LTTE signed an agreement for an indefinite ceasefire, which was supervised by a small peace monitoring mission led by Norway. Six rounds of peace talks were held between September 2002 and April 2003 when the LTTE suspended participation, citing dissatisfaction with the pace of progress towards granting interim regional autonomy in the north and east.

The ceasefire came under mounting pressure in 2004, following a split between the eastern and northern 'wings' of the LTTE , violence between the two, allegations by the LTTE leadership of government involvement in the split, and threats of a return to war. The then Sri Lankan Foreign Minister, Mr Lakshman Kadirgamar, was assassinated on 12 August 2005 in Colombo. The violence escalated in December 2005 and January 2006, including attacks by the LTTE in the north and east. The Sri Lankan Government and the LTTE met in Geneva in February 2006 for talks on the implementation of the ceasefire agreement. However further surges in violence in April and May 2006 led to the cancellation of further scheduled talks.

In early January 2008, the 2002 ceasefire agreement was abrogated by the Sri Lankan Government and the end of the ceasefire came into effect on 16 January 2008. The armed conflict intensified as the Sri Lankan Government sought to reclaim large areas under LTTE control in the Vanni region in northern Sri Lanka. By April 2009, the Sri Lankan Government had reclaimed all areas under LTTE control except for a small area of land on the northeast coast. On 18 May, the Defence Ministry announced that LTTE leader Prabhakaran and several other senior LTTE leaders had been killed in fighting. On 18 May 2009, the Sri Lankan Government formally announced its military victory over the LTTE and its regaining of complete territorial control over Sri Lanka. On 19 May 2009, Sri Lankan President Rajapaksa delivered a 'victory' speech to Parliament.

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THE LTTE

Successive Australian Governments have consistently and strongly opposed all forms of terrorism, including LTTE terrorist acts.

On 21 December 2001, the Minister for Foreign Affairs gazetted the LTTE as a terrorist organisation for asset freezing purposes in accordance with Australia's obligations under United Nations Security Council Resolution 1373 of 28 September 2001. Consequently, it is a criminal offence in Australia to use or deal with assets owned or controlled by the LTTE , or to provide assets to the LTTE , whether directly or indirectly.

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POLITICAL OVERVIEW

Political life in the Democratic Socialist Republic of Sri Lanka since independence in 1948 has been marked by a commitment to the democratic process. Power has fluctuated between two main political parties – the leftist Sri Lanka Freedom Party (SLFP), which is the major party in the present People's Alliance (PA) coalition of President Mahinda Rajapaksa, and the centre-right United National Party (UNP). The current Prime Minister is Mr Dissanayake Mudiyanselage Jayaratne. The President is considered both the Head of State and Head of Government.

Constitutional changes since independence include the conversion in 1972 by the SLFP-led government of the late Prime Minister, Mrs Sirimavo Bandaranaike, from a Constitutional Monarchy to a Republic, but with the retention of a Westminster style of government. In 1978, the elected UNP Government of Mr J R (Junius Richard) Jayawardene introduced a Presidential system in which executive power was concentrated in the hands of a President elected for a six-year term. The Office of Prime Minister, and a Cabinet drawn from Parliament, were retained but were clearly subordinate to the President.

Mr Rajapaksa, the ruling People's Alliance candidate, was elected President on 17 November 2005. Defections to the Government of 18 disaffected UNP members and the six Sri Lankan Muslim Congress members in January 2007 meant that President Rajapaksa's centre-left Government was able to govern with a majority. Since the conclusion of military hostilities in May 2009, eight provincial council elections have been held.

On 26 January 2010, Presidential elections were held nation-wide – the first time in over two decades that voting could take place in all parts of the country due to the end of the conflict. On 27 January, the Sri Lankan Commissioner for Elections, Mr Dayananda Dissanayake, announced that Mr Rajapaksa had been re-elected for a second six-year term as the President of Sri Lanka. The Sri Lankan Supreme Court ruled on 2 February that the second term would start on 19 November 2010.

On 8 April 2010, Parliamentary elections began. The formal election results were announced by the Elections Commissioner on 21 April, following re-polling on 20 April in two districts. President Rajapaksa's United People's Freedom Alliance (UPFA) finished with 144 seats. DM Jayaratne was sworn in as the new Prime Minister of Sri Lanka. A major cabinet reshuffle followed. Basil Rajapaksa became the Minister for Economic Development and Professor GL Peiris replaced Rohitha Bogollagama as the new Minister for External Affairs.

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ECONOMIC OVERVIEW

Sri Lanka is characterised by high levels of literacy (91 per cent) and life expectancy (75 years) and a low rate of infant mortality (14 per 1,000 live births), figures comparable to those of developed countries. Its success in generating economic growth has been improving since the end of the conflict in 2009.

Sri Lanka began economic liberalisation, and a move away from socialism, after the UNP's defeat of the left-leaning SLFP government in 1977. Sri Lanka's export-oriented policies have seen a shift from a reliance on agricultural exports to an increasing emphasis on the services and manufacturing sectors. The services sector accounts for almost 60 per cent of GDP. Manufacturing, the fastest growing sector, is dominated by the garment industry. The agriculture sector, though decreasing in importance to the economy, nevertheless accounts for around 12 per cent of national output and employs more than one third of the workforce. The public sector remains large, with the state continuing to dominate in the financial, utilities, health and education sectors.

Sri Lanka, a contracting party to the General Agreement on Tariffs and Trade (GATT) from 1948, ratified the Marrakesh Agreement in June 1994 to become a founding member of the World Trade Organization (WTO). The country historically has been one of the driving forces for trade liberalisation in the region and is particularly active in the South Asian Association for Regional Cooperation (SAARC). In 1998, Sri Lanka signed a free trade agreement (FTA) with India, the first stage of which came into force in February 2000. Sri Lanka is one of a number of countries that have expressed an interest in joining APEC (Asia Pacific Economic Cooperation).

Sri Lanka has seen strong economic growth of 7.5 per cent in 2011, according to the International Monetary Fund (IMF), due to improving economic fundamentals and the introduction of reforms to the tax system and financial sector since the end of the conflict in May 2009. However, the IMF cautions that the country must continue to implement reforms to maximise its growth potential and ensure the benefits of growth are broadly distributed.

The US$50 billion economy was hit by a balance of payments crisis in early 2009 and received a US$2.6 billion IMF loan. Persistent high budget deficits forced the Sri Lanka Government to rely on short-term financing from international markets. The global shock resulted in a sudden stop to this financing. Capital outflows and intervention by the central bank to prevent the exchange rate from depreciating – exacerbated by a decline in demand for Sri Lanka's exports – resulted in a significant loss of international reserves which, despite the recent rebound in capital inflows, remain low. On 24 July 2009, the IMF Executive Board approved Sri Lanka's request for a stand-by arrangement in an amount equivalent to $US2.6 billion to support the country's economic reform program.

Over the past two years, the Sri Lankan economy has started to rebound. The unemployment rate hit a record low of 4.3 per cent in early 2011. According to the IMF, Sri Lanka's fiscal position is still weak but the country's high public debt to GDP ratio, at 82 per cent, is falling steadily and inflation has eased.

Annual inflation soared to 22.6 per cent in 2008, driven by demand, higher oil prices and depreciation of the rupee. Inflation fell sharply to 3.4 per cent in 2009, due to a fall in oil prices and the impact of the global financial crisis, before rising to 6.9 per cent by the end of November 2011.

Approximately 800,000 Sri Lankans work abroad, 90 per cent in the Middle East, and send about $4 billion in remittances to Sri Lanka each year. This is second only to the textile industry, which is the major source of foreign exchange earnings.

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DECEMBER 2004 TSUNAMI

The 26 December 2004 tsunami devastated Sri Lanka. Over 35,000 people were killed and approximately 418,000 were displaced. Around 65 per cent of the country's fishing fleet of 29,700 boats was either damaged or destroyed. The tsunami affected economic activity, particularly in the fishing, hotels and restaurants, banking, small industry, domestic trade and transport sectors. The Sri Lankan Government's Reconstruction Strategy has estimated the total recovery cost to be US$2.2 billion.

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BILATERAL RELATIONSHIP

Australia has good bilateral relations with Sri Lanka, underpinned by trade and investment flows, education, immigration, strong people-to-people links and development cooperation. Australia's Sri Lankan community is estimated at 110,000 people.

Australia is committed to assisting the economic and social development of Sri Lanka. As the situation in the country improves, Australia is beginning to shift focus from short-term humanitarian support in conflict-affected areas to long-term development assistance.

In 2010-11, Australia provided $52.5 million in development assistance to Sri Lanka. The Government will provide $43.5 million in development assistance to Sri Lanka for 2011-12 for demining, reconstruction of schools and houses damaged during the civil conflict, and to help disadvantaged people find work, start a business or restart sustainable farming or fishing activities. Since 2009, AusAID has supported the clearance of land mines and unexploded ordnance from 74 square kilometres of land and the reconstruction of around 4,600 homes and 20 schools in northern Sri Lanka.

For further information please see the AusAID website (http://ausaid.gov.au/).

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BILATERAL ECONOMIC AND TRADE RELATIONSHIP

Two-way trade between Australia and Sri Lanka in 2010-11 was valued at $335 million, with exports totalling $213 million. Vegetables, dairy products and wheat were the main merchandise exports. Tea, clothing and rubber tyres were Australia's main imports from Sri Lanka.

Education plays a significant role in the relationship, with Australia the leading provider of tertiary education services to Sri Lanka. About 5,500 Sri Lankan students currently attend tertiary and vocational institutions in Australia. A number of Australian tertiary providers operate distance education facilities in Sri Lanka including Monash College, an affiliate of Monash University, the Australian College of Business and Technology, an affiliate of Edith Cowan University, and Royal Melbourne Institute of Technology (RMIT). The University of Southern Queensland provides a distance learning program in Sri Lanka which is offered by the Institute of Chartered Accountants of Sri Lanka.

Among the largest Australian investments is Ansell's Ansell Lanka rubber products plant in Biyagama, which is one of the largest foreign investments in an industrial plant in Sri Lanka.

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Last Updated: January 2012

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