About the CBI

February 2006

Background Note: Sri Lanka

The Sri Lanka flag is yellow with two panels; the smaller hoist-side panel
has two equal vertical bands of green (hoist side) and orange; the other
panel is a large dark red rectangle with a yellow lion holding a sword, and
there is a yellow bo leaf in each corner; the yellow field appears as a
border around the entire flag and extends between the two panels.

PROFILE

OFFICIAL NAME:
Democratic Socialist Republic of Sri Lanka

Geography
Area: 65,610 sq. km. (25,332 sq. mi.); about the size of West Virginia.
Cities: Capital--Colombo (pop. est. 1.3 million--urban area). Sri
Jayewardenepura-Kotte is the officially designated capital and is the site of
Parliament, but it is currently only an administrative center. Other
cities--Kandy (150,000), Galle (110,000), Jaffna (100,000).
Terrain: Coastal plains in the northern third of country; hills and mountains
in south-central Sri Lanka rise to more than 2,133 meters (7,000 ft.).
Climate: Tropical. Rainy seasons--light in northeast, fall and winter, with
average rainfall of 50 in.; heavy in southwest, summer and fall, with average
rainfall of 200 in.

People
Nationality: Noun and adjective--Sri Lankan(s).
Population (2003): 19.4 million.
Annual growth rate: 0.08%.
Ethnic groups (2002): Sinhalese (74%), Tamils (18%), Muslims (7%), others
(1%).
Religions: Buddhism, Hinduism, Islam, and Christianity.
Languages: Sinhala and Tamil (official), English.
Education: Years compulsory--to age 14. Primary school attendance--96.5%.
Literacy--91%.
Health: Infant mortality rate--15/1,000. Life expectancy--71 yrs. (male); 76
yrs. (female).
Work force: 7.2 million.

Government
Type: Republic.
Independence: February 4, 1948.
Constitution: August 31, 1978.
Suffrage: Universal over 18.
Branches: Executive--president, chief of state and head of government,
elected for a 6-year term. Legislative--unicameral 225-member Parliament.
Judicial--Supreme Court, Court of Appeal, High Court, subordinate courts.
Administrative subdivisions: Nine provinces and 25 administrative districts.
(The northern and eastern provinces, however, have been technically jointly
administered since 1988.)
Political parties: Janatha Vimukthi Peramuna, Jathika Hela Urumaya, Sri Lanka
Freedom Party, Tamil National Alliance, United National Party, several small
Tamil and Muslim parties, and others. The Sri Lanka Freedom Party and the
Janatha Vimukthi Peramuna, along with several small leftist parties, operate
under an umbrella organization known as the "United People's Freedom
Alliance." The United National Party and several other smaller parties
operate as the "United National Front."

Economy (2003)
GDP: $18.4 billion (est. 2003).
Annual growth rate: 5.9%.
Natural resources: Limestone, graphite, mineral sands, gems, and phosphate.
Agriculture (20.1% of GDP): Major products--rice, tea, rubber, coconut, and
spices.
Services (53.6% of GDP): Major types--tourism, transport, telecom, banking
and finance.
Industry (26.3% of GDP): Major types--garments and leather goods, food
processing, chemicals, refined petroleum, wood products, basic metal
products, and paper products.
Trade: Exports--$5.1 billion: garments and footwear, tea, rubber products,
jewelry and gems, refined petroleum, and coconuts. Major markets--U.S. ($1.8
billion), U.K., Germany, Japan, Belgium. Imports--$6.4 billion. Major
suppliers--India, Hong Kong, Singapore, Japan, Taiwan, South Korea, U.K.,
U.S. ($155 million). [U.S. data]

PEOPLE
The Democratic Socialist Republic of Sri Lanka (formerly known as Ceylon) is
an island in the Indian Ocean about 28 kilometers (18 mi.) off the
southeastern coast of India with a population of about 19 million. Density is
highest in the southwest where Colombo, the country's main port and
industrial center, is located. The net population growth is about 1.3%. Sri
Lanka is ethnically, linguistically, and religiously diverse.

Sinhalese make up 74% of the population and are concentrated in the densely
populated southwest. Ceylon Tamils, citizens whose South Indian ancestors
have lived on the island for centuries, total about 12% and live
predominantly in the north and east.

Indian Tamils, a distinct ethnic group, represent about 5% of the population.
The British brought them to Sri Lanka in the 19th century as tea and rubber
plantation workers, and they remain concentrated in the "tea country" of
south-central Sri Lanka. In accordance with a 1964 agreement with India, Sri
Lanka granted citizenship to 230,000 "stateless" Indian Tamils in 1988. Under
the pact, India granted citizenship to the remainder, some 200,000 of whom
now live in India. Another 75,000 Indian Tamils, who themselves or whose
parents once applied for Indian citizenship, now wish to remain in Sri Lanka.
The government has stated these Tamils will not be forced to return to India,
although they are not technically citizens of Sri Lanka. In October of 2003,
an act of Parliament granted citizenship to several thousand of these "tea
estate" Tamils.

Other minorities include Muslims (both Moors and Malays), at about 7% of the
population; Burghers, who are descendants of European colonists, principally
from the Netherlands and the United Kingdom (U.K.); and aboriginal Veddahs.
Most Sinhalese are Buddhist; most Tamils are Hindu. The majority of Sri
Lanka's Muslims practice Sunni Islam. Sizable minorities of both Sinhalese
and Tamils are Christians, most of whom are Roman Catholic. The 1978
constitution, while assuring freedom of religion, grants primacy to Buddhism.

Sinhala, an Indo-European language, is the native tongue of the Sinhalese.
Tamils and most Muslims speak Tamil, part of the South Indian Dravidian
linguistic group. Use of English has declined since independence, but it
continues to be spoken by many in the middle and upper middle classes,
particularly in Colombo. The government is seeking to reverse the decline in
the use of English, mainly for economic but also for political reasons. Both
Sinhala and Tamil are official languages.

HISTORY
The actual origins of the Sinhalese are shrouded in myth. Most believe they
came to Sri Lanka from northern India during the 6th century BC. Buddhism
arrived from the subcontinent 300 years later and spread rapidly. Buddhism
and a sophisticated system of irrigation became the pillars of classical
Sinhalese civilization (200 BC-1200 AD) that flourished in the north-central
part of the island. Invasions from southern India, combined with internecine
strife, pushed Sinhalese kingdoms southward.

The island's contact with the outside world began early. Roman sailors called
the island Taprobane. Arab traders knew it as "Serendip," the root of the
word "serendipity." Beginning in 1505, Portuguese traders, in search of
cinnamon and other spices, seized the island's coastal areas and spread
Catholicism. The Dutch supplanted the Portuguese in 1658. Although the
British ejected the Dutch in 1796, Dutch law remains an important part of Sri
Lankan jurisprudence. In 1815, the British defeated the king of Kandy, last
of the native rulers, and created the Crown Colony of Ceylon. They
established a plantation economy based on tea, rubber, and coconuts. In 1931,
the British granted Ceylon limited self-rule and a universal franchise.
Ceylon became independent on February 4, 1948.

Post-Independence Politics
Sri Lankan politics since independence have been strongly democratic. Two
major parties, the United National Party (UNP) and the Sri Lanka Freedom
Party (SLFP), have generally alternated rule.

The UNP ruled first from 1948-56 under three Prime Ministers--D.S.
Senanayake, his son Dudley, and Sir John Kotelawala. The SLFP ruled from
1956-65, with a short hiatus in 1960, first under S.W.R.D. Bandaranaike and
then, after his assassination in 1959, under his widow, Sirimavo, the world's
first female chief executive in modern times. Dudley Senanayake and the UNP
returned to power in 1965.

In 1970, Mrs. Bandaranaike again assumed the premiership. A year later, an
insurrection by followers of the Maoist "Janatha Vimukthi Peramuna" (JVP, or
"People's Liberation Front") broke out. The SLFP government suppressed the
revolt and declared a state of emergency that lasted 6 years.

In 1972, Mrs. Bandaranaike's government introduced a new constitution, which
changed the country's name from Ceylon to Sri Lanka, declared it a republic,
made protection of Buddhism a constitutional principle, and created a weak
president appointed by the prime minister. Its economic policies during this
period were highly socialist and included the nationalization of large tea
and rubber plantations and other private industries.

The UNP, under J.R. Jayewardene, returned to power in 1977. The Jayewardene
government opened the economy and, in 1978, introduced a new constitution
based on the French model, a key element of which was the creation of a
strong executive presidency. J.R. Jayewardene was elected President by
Parliament in 1978 and by nationwide election in 1982. In 1982, a national
referendum extended the life of Parliament another 6 years.

The UNP's Ranasinghe Premadasa, Prime Minister in the Jayewardene government,
narrowly defeated Mrs. Bandaranaike (SLFP) in the 1988 presidential
elections. The UNP also won an absolute majority in the 1989 parliamentary
elections. Mr. Premadasa was assassinated on May 1, 1993 by the Liberation
Tigers of Tamil Eelam ("LTTE" or "Tigers"), and was replaced by then-Prime
Minister Dingiri Banda Wijetunga, who appointed Ranil Wickremesinghe Prime
Minister.

The SLFP, the main party in the People's Alliance (PA) coalition, returned to
power in 1994 for the first time in 17 years. The PA won a plurality in the
August 1994 parliamentary elections and formed a coalition government with
Chandrika Bandaranaike Kumaratunga as Prime Minister. Prime Minister
Kumaratunga later won the November 1994 presidential elections and appointed
her mother (former Prime Minister Sirimavo Bandaranaike) to replace her as
Prime Minister. President Kumaratunga won re-election to another 6-year term
in December 1999. In August 2000, Mrs. Bandaranaike resigned as Prime
Minister for health reasons, and Ratnasiri Wickramanayaka was appointed to
take her place. In December 2001, the UNP assumed power, led by Prime
Minister Ranil Wickremasinghe. Chandrika Kumaratunga remained as President.
In November of 2003, President Kumaratunga suddenly took control of three key
ministries, triggering a serious cohabitation crisis. In January 2004, the
SLFP and the JVP formed a political grouping known as the United People's
Freedom Alliance (UPFA). In February, President Kumaratunga dissolved
Parliament and called for fresh elections. In these elections, which took
place in April 2004, the UPFA received 45% of the vote, with the UNP
receiving 37% of the vote. While it did not win enough seats to command a
majority in Parliament, the UPFA was able to form a government and appoint a
cabinet headed by Prime Minister Mahinda Rajapakse.

Presidential elections were held in November 2005. Mahinda Rajapakse became
President, and Ratnasiri Wickremanayake became Prime Minister.

Communal Crisis
Historical divisions continue to have an impact on Sri Lankan society and
politics. From independence, the Tamil minority has been uneasy with the
country's unitary form of government and apprehensive that the Sinhalese
majority would abuse Tamil rights. Those fears were reinforced when S.W.R.D.
Bandaranaike triumphed in the 1956 elections after appealing to Sinhalese
nationalism. His declaration that Sinhala was the country's official
language--an act felt by Tamils to be a denigration of their own tongue--was
the first in a series of steps over the following decades that appeared
discriminatory to Tamils. Tamils also protested government educational
policies and agriculture programs that encouraged Sinhalese farmers from the
south to move to newly irrigated lands in the east. The decades following
1956 saw intermittent outbreaks of communal violence and growing
radicalization among Tamil groups. By the mid-1970s Tamil politicians were
moving from support for federalism to a demand for a separate Tamil
state--"Tamil Eelam"--in northern and eastern Sri Lanka, areas of traditional
Tamil settlement. In the 1977 elections, the Tamil United Liberation Front
(TULF) won all the seats in Tamil areas on a platform of separatism. Other
groups--particularly the Liberation Tigers of Tamil Eelam (LTTE or Tamil
Tigers)--sought an independent state by force.

In 1983, the death of 13 Sinhalese soldiers at the hands of the LTTE
unleashed the largest outburst of communal violence in the country's history.
Hundreds of Tamils were killed in Colombo and elsewhere, tens of thousands
were left homeless, and more than 100,000 fled to south India. The north and
east became the scene of bloodshed as security forces attempted to suppress
the LTTE and other militant groups. Terrorist incidents occurred in Colombo
and other cities. Each side in the conflict accused the other of violating
human rights. The conflict assumed an international dimension when the Sri
Lankan Government accused India of supporting the Tamil insurgents.

Indian Peacekeeping
By mid-1987, India intervened in the conflict by air-dropping supplies to
prevent what it felt was harsh treatment and starvation of the Tamil
population in the Jaffna Peninsula caused by an economic blockade by Colombo.
Under a July 29, 1987, accord (the Indo-Lanka Accord) signed by Indian Prime
Minister Rajiv Gandhi and President Jayewardene, the Sri Lankan Government
made a number of concessions to Tamil demands, which included devolution of
power to the provinces, merger--subject to later referendum--of the northern
and eastern provinces, and official status for the Tamil language. India
agreed to establish order in the north and east with an Indian Peace-Keeping
Force (IPKF) and to cease assisting Tamil insurgents. Militant groups,
although initially reluctant, agreed to surrender their arms to the IPKF.

Within weeks, however, the LTTE declared its intent to continue its armed
struggle for an independent Tamil Eelam and refused to disarm. The IPKF found
itself engaged in a bloody police action against the LTTE. Further
complicating the return to peace was a burgeoning Sinhalese insurgency in the
south. The JVP, relatively quiescent since the 1971 insurrection, began to
reassert itself in 1987. Capitalizing on opposition to the Indo-Lankan Accord
in the Sinhalese community, the JVP launched an intimidation campaign against
supporters of the accord. Numerous UNP and other government supporters were
assassinated. The government, relieved of its security burden by the IPKF in
the north and east, intensified its efforts in the south. The JVP was crushed
but at a high cost in human lives.

From April 1989 through June 1990, the government engaged in direct
communications with the LTTE leadership. In the meantime, fighting between
the LTTE and the IPKF escalated in the north. India withdrew the last of its
forces from Sri Lanka in early 1990, and fighting between the LTTE and the
government resumed. Both the LTTE and government forces committed serious
human rights violations. In January 1995, the Sri Lankan Government and the
LTTE agreed to a cessation of hostilities as a preliminary step in a
government-initiated plan for peace negotiations. After 3 months, however,
the LTTE unilaterally resumed hostilities. The government then adopted a
policy of military engagement with the Tigers, with government forces
liberating Jaffna from LTTE control by mid-1996 and moving against LTTE
positions in the northern part of the country called the Vanni. An LTTE
counteroffensive begun in October 1999 reversed most government gains and by
May 2000 threatened government forces in Jaffna. Heavy fighting continued
into 2001.

Peace Process
In December 2001, with the election of a new UNP government, the LTTE and
government declared unilateral cease-fires. In February 2002, with Norwegian
Government facilitation, the two sides agreed to a joint cease-fire accord.
The peace process has continued apace, affecting Sri Lankans politically,
economically, and socially in numerous and overwhelmingly positive ways.
After holding six rounds of talks, the LTTE withdrew from the negotiation
process in April 2003. At this time, the informal peace process continues on
the ground and both sides continue to observe the February 2002 ceasefire. In
May 2004, the new UPFA government and the LTTE committed themselves in public
and in discussions with the Norwegian facilitators to resuming the
negotiation track.

LTTE violence, including the assassination of approximately 40 Tamil alleged
opponents from 2002 through 2003, is largely confined to the north and
eastern provinces, which are 6 to 8 hours by road from the capital. Before
the advent of the peace process, LTTE-perpetrated terrorist bombings directed
against politicians and civilian targets were common in Colombo, Kandy, and
elsewhere in the country. In July 2001, an LTTE suicide squad attacked the
Bandaranaike International Airport outside of Colombo and destroyed a large
number of military and civilian aircraft. In early March 2004, a faction of
the LTTE from the east of the country broke off from the main organization
and declared itself an independent body. In April, the main LTTE largely
subdued this factional uprising in fighting that left up to 30 people dead.

In October 1997, the U.S. Government designated the LTTE as a foreign
terrorist organization under provisions of the Anti-Terrorism and Effective
Death Penalty Act of 1996 and has maintained this designation since then,
most recently redesignating the group in October of 2003.

GOVERNMENT
Per the 1978 constitution, the president of the republic, directly elected
for a 6-year term, is chief of state, head of government, and commander in
chief of the armed forces. Responsible to Parliament for the exercise of
duties under the constitution and laws, the president may be removed from
office by a two-thirds vote of Parliament with the concurrence of the Supreme
Court.

The president appoints and heads a cabinet of ministers responsible to
Parliament. The president's deputy is the prime minister, who leads the
ruling party in Parliament. A parliamentary no-confidence vote requires
dissolution of the cabinet and the appointment of a new one by the president.

Parliament is a unicameral 225-member legislature elected by universal
suffrage and proportional representation to a 6-year term. The president may
summon, suspend, or end a legislative session and dissolve Parliament.
Parliament reserves the power to make all laws.

The 1978 constitution clearly envisaged a system where the president and the
prime minister were from the same party. Following the December 2001
parliamentary elections, the president and the prime minister were from
different parties. This led to serious cohabitation strains. In November
2003, for example, President Kumaratunga suddenly took over three key
ministries (Defense, Interior, and Mass Communications), precipitating a
serious cohabitation crisis between the two sides. In February of 2004,
President Kumaratunga dissolved Parliament and called for fresh elections.
The UPFA, while receiving enough seats in Parliament to form a minority
government, fell short of the 113 seats necessary for a majority in
Parliament. Mahinda Rajapakse of the SLFP became Prime Minister and former
Prime Minister and UNP Leader Ranil Wickremesinghe became Leader of the
Opposition. Presidential elections were held in November 2005. Mahinda
Rajapakse became President, and Ratnasiri Wickremanayake became Prime
Minister.

Sri Lanka's judiciary consists of a Supreme Court, Court of Appeal, High
Court, and a number of subordinate courts. Sri Lanka's legal system reflects
diverse cultural influences. Criminal law is fundamentally British. Basic
civil law is Roman-Dutch. Laws pertaining to marriage, divorce, and
inheritance are communal.

Under the Indo-Sri Lankan Accord of July 1987--and the resulting 13th
amendment to the constitution--the Government of Sri Lanka agreed to devolve
significant authority to the provinces. Provincial councils are directly
elected for 5-year terms. The leader of the council majority serves as the
province's chief minister; a provincial governor is appointed by the
president. The councils possess limited powers in education, health, rural
development, social services, agriculture, security, and local taxation. Many
of these powers are shared or subject to central government oversight.
Predating the accord are municipal, urban, and rural councils with limited
powers.

Principal Government Officials
President--Mahinda Rajapakse
Prime Minister--Ratnasiri Wickremanayake
Ambassador to the United States--Devinda Subasinghe
Ambassador to the United Nations--Bernard Goonetilleke, Acting

Sri Lanka maintains an embassy in the United States at 2148 Wyoming Avenue
NW, Washington, DC 20008 (tel. 202-4834025).

POLITICAL CONDITIONS
Sri Lanka's two major political parties--the UNP and the PA--embrace
democratic values, international nonalignment, and encouragement of Sinhalese
culture. Past differences between the two on foreign and economic policy have
narrowed. The SLFP, however, envisions a broader role for the state in
general.

Sri Lanka has a multi-party democracy that enjoys considerable stability
despite relatively high levels of political violence. LTTE terrorist
activities, generally aimed at destabilizing Sri Lanka politically and
economically, have included assassination of politicians--killing the
Industrial Development Minister by suicide bombing in June 2000; the December
1999 attempted assassination of President Kumaratunga; bombing of economic
targets such as the central bank in January 1996, the World Trade Center in
October 1997, and the airport in July 2001; as well as attacks on Buddhist
religious sites. In January 1998, the LTTE detonated a truck bomb in Kandy,
damaging the Temple of the Tooth relic, the holiest Buddhist shrine in the
country.

ECONOMY
With an economy of $18.4 billion (est. August 2004), and a per capita gross
domestic product (GDP) of about $950, Sri Lanka enjoyed strong growth rates
in recent years. Sri Lanka began to shift away from a socialist orientation
in 1977. Since then, the government has been deregulating, privatizing, and
opening the economy to international competition. The ethnic disputes of 1983
precipitated a slowdown in economic diversification and liberalization. The
JVP uprising in the late 1980s caused extensive upheavals and economic
uncertainty.

Following the quelling of the JVP, increased privatization, reform, and a
stress on export-oriented growth helped revive the economy's performance,
taking GDP growth to 7% in 1993. Economic growth has been uneven in the
ensuing years as the economy faced a multitude of global and domestic
economic and political challenges. Overall, average annual GDP growth was
5.2% over 1991-2000. In 2001, however, GDP growth was negative 1.4%--the
first contraction since independence. Growth recovered to 4.0% in 2002 and
5.2% in 2003.

Foreign exchange reserves, which fell by 11% in 1999, decreased further in
2000. In response, the government floated the rupee on January 23, 2001. This
led to a significant nominal depreciation in 2001, but the rupee has since
stabilized and reserves have been replenished.

In 2003, continued peace allowed further progress on macroeconomic
stabilization during the first half of the year. Some progress was reversed,
however, during the political uncertainty in November and December 2003.
Growth in 2003 was largely driven by the services sector (particularly
telecom and tourism) and trade. Both exports and imports rose over 9% in the
first 10 months. Interest rates declined. The inflation rate fell under 9%.
External reserves were sufficient to cover 5.6 months of imports. The Colombo
Stock Exchange (CSE) rebounded to become one of the better performers in the
area. The CSE rose 45% in 2002 and hit a record high in June 2003 but
performance declined at the end of the year. Fortunately, the severe acute
respiratory syndrome (SARS) epidemic did not spread to Sri Lanka, and tourism
was not severely affected. Sri Lanka's garment exporters reported a surge in
orders, shifted from China due to SARS. On the negative side, in mid-2003 Sri
Lanka experienced its worst floods in 50 years, which caused extensive damage
in south and southwestern parts of the country.

Projections for 6.5% growth in 2004 did not account for political
instability, which negatively impacted performance. The December 26, 2004
Indian Ocean earthquake and tsunami caused extensive damage in Sri Lanka. The
human and environmental tragedy was enormous: over 30,000 people were killed
and another 500,000 were displaced, and the bulk of the coastline was
affected, leaving most fishing fleets destroyed. The United States is leading
the international effort on relief and reconstruction, with damages estimated
at $1.5 billion in Sri Lanka.

The future of Sri Lanka's economic health is uncertain but is primarily
dependent on continued tsunami relief and reconstruction, political
stability, continuation of the peace process, and continued policy
reforms--particularly in the area of fiscal discipline and direct management.
Implementation of major reforms in the civil service and education sectors
and more disciplined spending and improved revenue collection would help
generate stronger economic growth. If export orientation strengthens,
weaknesses in government will have less impact on growth.

A strong global economy should help Sri Lanka maintain and even expand its
export base, while effective aid utilization will be critical in the
post-tsunami reconstruction effort. Rising oil costs in 2004, coupled with
lower government revenue, held Sri Lanka's fiscal deficit at about 9% of GDP.
The government has indicated it intends to focus on better revenue collection
mechanisms to deal with the problem. Post-tsunami investment needs may
challenge government deficit reduction strategies over the coming years. Sri
Lanka has a high debt burden (105% of GDP) and is reforming and modernizing
its debt management structures.

Other challenges include diversification from Sri Lanka's key exports--tea
and garments. Garment exports face increased competition in a quota-free era
with the 2005 expiration of the Multi Fiber Arrangement. The future of the
tea industry is threatened by a shortage of plantation labor and growing
competition. There are new efforts to diversify exports, explore tourism
potential, and improve competitiveness. The previous government had an
ambitious information and communications technology strategy to connect and
service every corner of the country. This project, if continued and
implemented successfully, could change Sri Lanka's economy and social fabric
and would take it into the information age. The government hopes to take
advantage of Sri Lanka's strategic location on shipping routes, make use of
the Indo-Lanka Free Trade Agreement, and sign free trade agreements with
other countries to achieve regional trading hub status. If peace returns and
all these efforts bear fruit, real growth could be in the 6%-7% range beyond
2004, and will help realize the government's intention of making Sri Lanka
the gateway to South Asia.

The service sector is the largest component of GDP (54%). In 2003, the
service sector continued its strong expansion, fueled primarily by strong
growth in telecom, tourism, and financial services. Public administration and
defense expenditures have remained steady. Repatriated earnings of Sri
Lankans working abroad continued to be strong. There also is a small but
growing information technology sector, especially information technology
training and software development and exports.

Manufacturing accounts for about 16% of GDP. The textile, apparel, and
leather products sector is the largest, accounting for 44% of total
industrial output. The second-largest industrial sector, at 24% of total
manufacturing output, is food, beverages, and tobacco. The third-largest
industrial sector is chemical, petroleum, rubber, and plastic products.
Agriculture has lost its relative importance to the Sri Lankan economy in
recent decades. It accounts for 20.1% of GDP and provides employment to 33%
of the working population. Rice, the staple cereal, is cultivated
extensively. The plantation sector consists of tea, rubber, and coconut; in
recent years, the tea crop has made significant contributions to export
earnings and saw production slightly decrease in 2003. Tea prices have
remained stable. The construction sector accounts for 7.4% of GDP and mining
and quarrying 1.8%. In recent years, the government has eliminated many price
controls and quotas, reduced tariff levels, eliminated most foreign exchange
controls, and sold more than 55 state-owned companies and 20 estate-holding
companies. Colombo boasts one of the most modern stock exchanges in the
region, and the Sri Lankan Government offers a range of tax and other
incentives to attract potential investors.

Trade and Foreign Assistance
Exports to the United States, Sri Lanka's most important market, were
estimated at $1.8 billion in 2003, or 38.5% of total exports. For many years,
the United States has been Sri Lanka's biggest market for garments, taking
more than 63% of the country's total garment exports. India is Sri Lanka's
largest supplier, with exports of $835 million in 2002. Japan, traditionally
Sri Lanka's largest supplier, was its fourth-largest in 2002 with exports of
$355 million. Other leading suppliers include Hong Kong, Singapore, Taiwan,
and South Korea. United States exports amounted to $155 million in 2003. Sri
Lanka is highly dependent on foreign assistance, and several high-profile
assistance projects were launched in 2003. The most significant of these
resulted from an aid conference in Tokyo in June 2003; pledges at the summit,
which included representatives from the IMF, World Bank, Asian Development
Bank, Japan, the European Union, and the United States totaled $4.5 billion.
This funding was in response to a poverty reduction strategy program laid out
in "Regaining Sri Lanka," an action paper authored by the Sri Lankan
Government, and a number of studies commissioned by the donor community that,
together, provide a basic framework for economic revival. While
implementation of previous aid projects has been spotty, the government
believes it can improve this record by streamlining tender processes and
improving project management skills.

The United States is currently leading the international efforts for tsunami
relief and reconstruction. In addition to pledging $350 million to
tsunami-affected countries, more than 15,000 U.S. military personnel were
involved in providing relief support in the affected region. Twenty-five
ships and 94 aircraft were participating in the effort. The U.S. military had
delivered about 2.2 million pounds of relief supplies to affected nations,
including 16,000 gallons of water, 113,000 pounds of food, and 140,500 pounds
of relief supplies. USAID disbursed an additional $78 million.

Labor
More than 20% of the 6.1 million-strong labor force, excluding the north and
east, is unionized. Trade union membership is on the decline. There are more
than 1,650 registered trade unions, many of which have 50 or fewer members,
and 19 federations. Many unions have political affiliations. The Ceylon
Workers Congress (CWC) and Lanka Jathika estate workers union are the two
largest unions representing workers in the heavily unionized plantation
sector. The president of the CWC also is Minister of Livestock Development
and Estate Infrastructure. The CWC's agenda includes political issues, such
as citizenship status for stateless Indian Tamils. Some of the stronger and
more influential trade unions include the Ceylon Mercantile Union, Sri Lanka
Nidhahas Sevaka Sangamaya, Jathika Sevaka Sangayama, Ceylon Federation of
Trade Unions, Ceylon Bank Employees Union, Union of Post and
Telecommunication Officers, Conference of Public Sector Independent Trade
Unions, and the JVP-aligned Inter-Company Trade Union. The unemployment rate
has declined in recent years and hovers at 10%. The rate of unemployment
among high school and college graduates, however, remains proportionally
higher than the rate for less-educated workers. The government has embarked
on educational reforms it hopes will lead to better preparation of students
and fewer mismatches between graduates and jobs. In addition, it also has
begun a youth corps program to provide employment skills to the unemployed.

FOREIGN RELATIONS
Sri Lanka traditionally follows a nonaligned foreign policy but has been
seeking closer relations with the United States since December 2001. It
participates in multilateral diplomacy, particularly at the United Nations,
where it seeks to promote sovereignty, independence, and development in the
developing world. Sri Lanka was a founding member of the Non-Aligned Movement
(NAM). It also is a member of the Commonwealth, the South Asian Association
for Regional Cooperation (SAARC), the World Bank, International Monetary
Fund, Asian Development Bank, and the Colombo Plan. Sri Lanka continues its
active participation in the NAM, while also stressing the importance it
places on regionalism by playing a strong role in SAARC.

U.S.-SRI LANKAN RELATIONS
The United States enjoys cordial relations with Sri Lanka that are based, in
large part, on shared democratic traditions. U.S. policy toward Sri Lanka is
characterized by respect for its independence, sovereignty, and moderate
nonaligned foreign policy; support for the country's unity, territorial
integrity, and democratic institutions; and encouragement of its social and
economic development. The United States is a strong supporter of ethnic
reconciliation in Sri Lanka and the peace process that began in December
2001.

U.S. assistance has totaled more than $1.63 billion since Sri Lanka's
independence in 1948. Through the U.S. Agency for International Development (
USAID), it has contributed to Sri Lanka's economic growth with projects
designed to reduce unemployment, improve housing, develop the Colombo Stock
Exchange, modernize the judicial system, and improve competitiveness. At the
June 2003 Tokyo Donors' Conference on Sri Lanka, the United States pledged
$54 million, including $40.4 million of USAID funding.

In addition, the International Broadcast Bureau (IBB)--formerly Voice of
America (VOA)--operates a radio-transmitting station in Sri Lanka. The U.S.
Armed Forces maintain a limited military-to-military relationship with the
Sri Lanka defense establishment. By February 2005, the U.S. had contributed
$67 million to Sri Lankan relief following the tsunami disaster of December
26, 2004.

Principal U.S. Embassy Officials
Ambassador--Jeffrey J. Lunstead
Deputy Chief of Mission--James F. Entwistle
Head of Political Section--Patricia Mahoney
Head of Economic/Commercial Section--Dean Thompson
Management Officer--Jane Ross
Consular Officer--Marc Williams
Defense Attaché--Lt. Col. Richard Girven
Director, USAID--Carol Becker
Public Affairs Officer-- Philip Frayne
IBB Station Manager--Glenn Britt

The U.S. Embassy in Sri Lanka is located at 210 Galle Road, Colombo 3 (tel:
94-11-2448007, fax: 94-11-2437345). U.S. Agency for International Development
offices are located at the American Center, 44 Galle Road, Colombo 3 (tel:
94-11-2472855; fax: 94-11-2472850/2472860). Public Affairs offices also are
located at the American Center (tel: 94-11-2421270/2422121, fax:
94-11-2449070).

IBB offices are located near Chilaw, 75 kms north of Colombo (94-32-55931/32/
94-72-285860, fax: 94-32-55822).