DEFENCE SEMINAR 2012

“TOWARDS LASTING PEACE & STABILITY”Post-conflict Reconstruction, Resettlement,

Rehabilitation, Reintegration and Reconciliation

“Economic Reconciliation”

Presented by:Ajith Nivard Cabraal

GovernorCentral Bank of Sri Lanka

on10th August, 2012

1

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

2

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

3

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

4

Three years after the end of the conflict, what has happened in terms of

economic reconciliation?

5

Disbursement of thousands of bank loans “fast tracked”!

Credit Scheme 2010 2011 Jul’12Vadakkin Wasantham 1,127 1,698 2,068 Prabodini 158 460 639 Sarusara 694 3,404 6,657 Abivurdhi 18 57 78 Provincial Development 288 467 474 Saubagya 14 129 241 Total 2,299 6,215 10,157

Northern Province - Cumulative Amount Granted (2010 – Jul’12)

Rs.mn

Credit Scheme 2010 2011 Jul’12

Sarusara 316 898 1,616

Prabodini 258 657 942

Abivurdhi 118 271 333

Eastern Development 711 967 1,209

Provincial Development 103 112 138

Saubagya 14 68 154

Total 1,520 2,973 4,392

Rs.mn

Eastern Province - Cumulative Amount Granted (2010 – Jul’12)

6

Jul’ 12 Jul’ 12

Large Number of Beneficiaries of Bank Loans at concessionary rates…

Northern Province - Number of Beneficiaries (2010 – Jul’12)

Eastern Province - Number of Beneficiaries (2010 – Jul’12)

Credit Scheme 2010 2011 Jul’12Vadakkin Wasantham

9,604 3,544 3,153 Prabodini

3,193 5,341 2,367 Sarusara

10,720 27,502 26,115 Abivurdhi

108 203 114 Provincial Development

435 377 11 Saubagya

20 129 267 Total 24,080 37,096 32,027

Credit Scheme 2010 2011 Jul’12

Sarusara 5,470 9,772 10,085

Prabodini 5,837 8,423 4,724

Abivurdhi 301 876 389

Eastern Development 5,172 1,720 1,554

Provincial Development 289 32 37

Saubagya 41 135 301

Total 17,110 20,958 17,090

7

Jul’ 12

Jul’ 12

Bank branch network grew rapidly in the North and East...

Description 2009 2010 2011

Bank Branches 117 148 193

Total Deposits (Rs.bn) 92.5 108.5 121.7

No. of Accounts '000 2,497 6,037 6,046

Description 2008 2009 2010 2011

Bank Branches 126 156 192 239

Total Deposits (Rs.bn) 40.0 53.9 53.6 58.8

No. of Accounts '000 698 4,085 6,959 7,058

Northern Province

Eastern Province

8

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

Bank Branches in the North and the East

May 2009

May 2010

May 2011

May 2012

Bank Branches 157 197 250 289Other Banking Outlets 500 558 580 615ATMs 103 160 206 219

9

Branches of Non-Bank Financial Institutions in the North and the East

End 2008 End 2009 End 2010 End 2011 June 2012

LFC Branches 8 12 53 81 96

SLC Outlets 8 18 33 28 26

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

10

In 2012, the major investments in the North will increase by 25%...

Source: Ministry of Finance and Planning

Rs mn

Investments 2011 2012

Economic Infrastructure

National, Provincial & Rural Roads 20,186 27,010

Railway 8,900 14,500

Electricity 5,308 3,569

Ports/ Harbors 56 -

Irrigation & Agriculture 2,130 2,939

Water Supply 2,273 2,791

Housing 1,514 623

Social Infrastructure

Health 1,293 1,233

Education & Skills Development 1,131 954

Sports, Culture and Tourism 246 468

Resettlement & Demining 5,025 262

Livelihood 237 7,712

Other 2,631 1,783

Total 50,930 63,843 11

Major investments have been planned in the East too, in 2012…

Source: Ministry of Finance and Planning

Rs. Mn

Investments 2011 2012

Economic Infrastructure

National, Provincial & Rural Roads 12,356 9,529

Railway 1,147 1

Electricity 1,363 105

Ports/Harbors 1,591 3,548

Irrigation & Agriculture 2,459 2,796

Water & Sanitation 1,614 4,636

Housing 1,134 1,252

Social Infrastructure

Health 529 203

Education 592 1,378

Sports, Culture & Tourism 791 80

Resettlement 1,040 -

Livelihood 395 358

Other 1,600 1,489

Total 26,611 25,37512

Considerable improvements in Economic Indicators have been observed…

Indicators Unit 2009 2010 2011

Telephone Connections Number 74,729 100,381 108,520

Vehicle Stock Number 47,031 62,744 123,040

Electricity Sales Gwh 129 164 199

Northern Province

Eastern Province

Indicators Unit 2009 2010 2011

Telephone Connections Number 178,484 155,249 154,797

Vehicle Stock Number 110,760 192,260 179,508

Electricity Sales Gwh 377 418 446

13

Agriculture and fisheries have also posted record growth…

Source: DCS, Ministry of Fisheries , CBSL

Eastern Province 2009 2010 2011

Northern Province 21.9 34.4 48.5

Eastern Province 77.3 101.9 98.1

2009 2010 2011

Northern Province 34,062 45,360 62,620

Eastern Province 69,549 68,830 65,140

Average Daily Milk Production (in Litres)

Fish Production (in MT’’000)

14

Cultivation of Paddy has been growing…

Northern Province 2009 2010 2011

Paddy Cultivation

Harvest - MT ‘000 82 128 252

Extent - Ha 26,904 35,168 93,599

Eastern Province 2009 2010 2011

Paddy Cultivation

Harvest - MT ‘000 1,059 949 720

Extent - Ha 243,235 222,625 287,094

15

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.”

16

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.

17

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

18

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’.”

19

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

20

Western

Southern

Sabaragamuwa

Central

UvaEastern

North Western

North CentralNorthern

-

10

20

30

40

50

60

- 5 10 15 20 25 30

Cont

ributi

on to

the

GD

P G

row

th (%

)

Growth (%)

Provincial Gross Domestic Product (at Current Market Prices)- 2009

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

21

Western

Southern

Sabaragamuwa

Central

Uva

EasternNorth Western

North CentralNorthern

-

10

20

30

40

50

60

- 5 10 15 20 25 30

Cont

ributi

on to

the

GD

P G

row

th (%

)

Growth (%)

Provincial Gross Domestic Product (at Current Market Prices) - 2010

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

22

North Central

Eastern

Western

Southern

Sabaragamuwa

Central

Uva

North Western

Northern

-

10

20

30

40

50

60

- 5 10 15 20 25 30

Cont

ributi

on to

the

GD

P G

row

th (%

)

Growth (%)

Provincial Gross Domestic Product (at Current Market Prices)- 2011

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.”

23

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 President24

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.

25

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.”

26

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.”

27

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!!

28