Can you give us some background information on the recent political and economic developments in Sri Lanka?

We took over the country at a time when the economy was in absolute tatters. There was no vision for the economy; no plan at all for economic development and the previous government in their 17 years of ruling had done so many ad hoc things.

The positives elements were that we had a highly educated population, the human resource base was excellent and we had a good infrastructure, comparatively for a third world country. People were willing to be committed to do things.
I would say that the main differences that we were able to make in the economy were, first to give a clear vision and a detailed plan of action. For the first time since independence, the Sri Lankan economy began to be planned in a systematic and organized manner.

This was one of the first things I did when I went to the Finance Ministry. I had to restructure the Finance Ministry as well, which was not done for the past 150 years. I insisted that every Ministry formulate a six-years plan, since elections are held once in six years. This six-years plan was then broken in to one-year action plans, with work targets for every Ministry.

Soon after we came into power, we had to go in for a presidential election. Three months after I was elected Prime Minister, I was re-elected as the President of the country. Due to this factor we could hardly do any work during the first three months. However, even during intense election campaign, as the Minister of Finance, I used to sit with important Ministries and with Ministries that were in a bad shape.

After the elections we started to work in a systematic way. We had a lot of obstacles such as the public sector, which had utterly and completely broken down. This was one of our biggest problems and challenges. No more than 10% of the public sector knew how to work. There were many reasons for this, with the main reason being that the previous two successive governments had not at all thought of restructuring, reorganizing and retraining the public service to face up to the new tasks of the new world and specially the free market economy.

The last government brought in a new culture of political violence that was practiced against the public service and against the entire population. Public servants were not willing to be agonized, robbed and killed by the Politicians of that era. They were severely punished, sacked from their employment and transferred from pillar to post. I knew of a person who was transferred 13 times in one year. I also knew of another man who was transferred seven times and a lady transferred six times in six months and thousands of people like that for doing nothing wrong. They were all efficient, honest government officers who did not agree to a wrong political line of action. But those who agreed to crooks and rob together with the Ministers did so and survived. But they did not govern or administrate.

Those who refused either left the country or the public service or joined the private sector. Those who remained just hide in corners and lost the habit of working for 17 years. Actually when we came in, people that I knew when I was in the public service from 1972 to 1977, people who were extremely honest and efficient officers, were totally powerless and useless. I brought them back to work for us but they had lost the habit of working. So all these things had made the public service completely dead. That was our biggest problem. Secretaries of Ministries did not know how to do a simple chart. So I had to retrain them for two years. This was one of the reasons why I held five Ministries at the beginning, as against the two I hold now.

The first year I sat as Minister of Finance, I identified the 12 most important developmental Ministries at that time, and I personally reviewed their progress every month. There were times I used to sit with Ministers for over 7 hours at a stretch and finish with them at midnight.

So thereby we were able to give a vision, an action plan, methods of work, training programs and we managed to bring the economy back to working standards. We streamed lined a lot of things and formulated new systems for the first time in the countries history, in order to minimize corruption. We printed and published guidelines for the first time in order to tender procedures to follow. Parallelly, part of our vision was to strengthen the fundamentals of the economy, which was also in a bad shape. We had huge budget deficits and in addition, inflation was at 14%, bank interest rates was at an average of 25%, unemployment rate was at nearly 14%, which were all impossible to maintain for an developing country.

Our priority was to correct them and within six months we were able to bring the inflation rate to 4%. But when the war started, it went up again, still we were able to keep the rate at roughly 8% for the past six years. Interest rates were reduced drastically from 25% to 16%, to 15% until the last six months when it went up again. We brought down the unemployment rate that was at nearly 14%, to around 8%.

We concentrated on improving the foundations and strengthening the economic base. I got personally involved in investigating cases of bribery and corruption. Whenever I heard of something, even during my holidays or days off, I personally directed investigations because I believed that the change had to come from the top, as corruption was so rooted. We were not able to eliminate corruption, but we managed to bring an atmosphere that minimized it at top levels. At the beginning, the business community and the country at large started to realize that some things were happening and somebody was trying to correct things. So when people heard about corruption they did not feel frightened to come out and tell me. But we haven't finished the job.

Then we also had the serious problem of cleaning up the mess that the last government had created. The pervious government privatized forty-two states owned industries along with state owned tea plantations and enterprises that were netting in the largest amount of foreign exchange. Out of this 42 industries and enterprises that were privatized by the previous government, 36 were privatized in an incorrect and corrupt manner. Where the Government said that this business should be sold for 900 million it was sold for 100 million. This 100 million too was lent to the buyers from the state owned banks and the buyers have not still paid back! All the privatization by the previous government was done in this manner. This was their privatization; under value the business, Loan State funds, run it for some time, made their money and ran away. By the time my government came in, half of them were closed, the workers were on the road without their salaries paid for years and the others were about to close. This was a very serious challenge. Then our government had to spend about 5 to 6 billion to bring these people back to working condition. Now we have corrected most of them and they are now running well. Now we have brought in foreign investors and good strong foreign companies.

The first priority for us was to strengthen the fundamentals of the economy and the second was to accelerate rural infrastructure development. Without infrastructure development, we know that no other development would come. We have also identified the private sector as the main engine of growth. Private sector had to be provided with infrastructure for them to come in. Only 32% of the rural areas were electrified. So we privatized that and today after 6 years, it is about 53%. For 100 years of usage on telephones in this country, there were only
150 000 telephones. Today without counting the mobile phones there are 500 000. In five years we increased this by four times. For the first time we are beginning to build expressways. The joint Colombo Port and airport development project has intensified because we see Colombo developing as an air sea cargo hub in the region. Dubai is the only other large one in the region.

Of course all these achievements have taken much longer than they should have because of the inefficiency of public service and in some cases because of corruption. We have upgraded and modernized our airline. We have also a program to bring in local and foreign private sector into our major infrastructural companies, in order to bring in modern management, technology and funds. We have partially privatized our national airline, our Telecom company, part of the port; badly privatized companies and plantations have been re privatized in a more efficient manner. They are all running well now. But we own the majority of shares of these companies. The government has earned a lot of money on that respect and we have kept a policy of bringing in some of the best international and largest companies into this. This is to bring in new technology and good management and obviously that builds up our image.

In the port we have the biggest shipping company in the world, P&O, and NTT, the largest Telecom Company in the world. Emirates airways, one of the largest airline operators in this region, came in for Airlanka.

So, by planning the economy, restructuring the Finance and planning ministries in order for things to happen, properly by improving the economic image of the country, we have been able to attract large and good foreign investors into the country. Foreign investments to the country have increased in a small way even with the war going on and bombs exploding from time to time. We believe that there is a quite a lot of safety, excluding the North and East and this is one reason for investors to come in. It is also because Sri Lanka is a country along with Philippines, which gives foreign investors the best incentives. We have an educated population and investors like to come here because they say that it is much easier to work with our work force. Our laws are much better for this purposes that most other countries in the region. I am not saying we are better than the West. Levels of corruption and bureaucratic blocks are much lower than in other countries, though we are not sufficiently satisfied with cleaning of our institutions. I see these as major priorities for keeping the economy afloat.

I had a long discussion with IMF officials very recently. Many decisions that were taken would not have been taken, by most other countries, governments and politicians, with the kind of problems we face with a war going on like this and with a totally irresponsible opposition, which gets to the road for the slightest thing. Most other governments would not have had the courage to take the economic decisions we did. Apart from the fact that I am not afraid to take decisions, the main reason is that I understand the basics of economics and I know that if certain decisions are not taken it can get serious, very fast. I can also see that there are Ministers who only think of votes so they can get to power and gain popularity. But when I explain it to them even to the extent of giving them lessons in economics for about half and hour in cabinet, they accept my plans. This is because most of them are not economists. The deputy Minister of Finance is a good economist and therefore I have been able to keep the body and soul of the economy together. All this had happened while the military expenditure increased by 110% per annum over what it was under last government. Every year it had gone up by 110% and last year alone, it went up by more than treble, because there were some military set backs and we had to do a lot of purchases.

As far as the ongoing peace talks are concerned, what progress has been made in that regard?

I had lengthy discussions with various groups and the possibilities of peace today are far better than what they were ever before. There are substantial reasons like the LTTE being weak and the security forces are much stronger than they were. In the past we have been balancing the economy and the war. But last year, due to a series of serious military set backs, and due to the fact that we could not bring the LTTE in for peace talks for six years, we decided that even if it was going to harm the economy to continue with the conflict. We had to go ahead and buy military equipment for the first time, which I did not buy earlier. And this made a difference. LTTE lost half of its cadres, because of the modern military hardware we had. So they knew that the equation was going against them militarily.
Secondly the international community began to realize that LTTE were not little lambs of liberators of Tamil people but enemies of them who were absolute terrorists. Therefore we began to clamp down on the LTTE in the western countries where they had a completely open door policy, since they engaged in every thing that was illegal, like drug trafficking human smuggling and extortion. LTTE did a lot with this freedom. Therefore with the United States and the UK banning them, in addition to Malaysia and India banning them earlier and other countries tightening the screws on them as well. LTTE realized that they could not go on for a long time unless they came into the democratic process. Therefore they said, that they would come for peace talks, unconditionally. But then they have been laying conditions, one after another. When we fulfil one, they come out with another and this third one, we can not agree under any circumstances, until such time they come to the negotiation table and discussions become successful. From the beginning we have been saying that we would consider lifting the ban. Though we did not agree for a seize fire, we are now ready to temporary halt military operations if they do come for negotiations and then consider extending it, if things move on the right direction. But even up to now, they have not given a thing. Nevertheless there is one thing the LTTE did, which they did not do in the past, and that is to call for a unilateral truce, which has made a big difference in the right direction. They have also told the Norwegian facilitators that they have agreed for some thing less than the separate State, for which we have been totally against from the beginning.

So, those are the two new positive achievements. But they are putting in a lot of obstacles to the process so that it drags on, and they don't have to come for talks. Though they said that they are not going to talk about Eelam (Separate State.) I do not think that they are happy about it. But as we do not believe in violence and war, and since this government came into power on a mandate for peace in addition to other things, and since I want to end this war as fast as possible, we are still trying hard. I won't say that hopes of negotiations are over, but the LTTE is not playing the game well and they are breaking their own promises and agreements every month.

However, there is a narrow window of opportunity, and we are taping at that window, as long as it is possible. We know that this kind of thing does not happen easily. (If you look at the Israel Palestinian, and IRA and all that.) But there is hope and we will keep pushing for peace.

Our biggest strength in this matter is that the majority of the Sri Lankan people including Tamil and the Sinhalese want peace, and they are confident that this government is capable of bringing a peace that will be fair to all people. Even the Tamil people, excluding the LTTE, believe in it. But they are frustrated, since they expected solutions fast and they did not have it as fast as they expected. But they still have hopes that this government can do something, and that is our biggest strength. We will keep trying. Talking to the LTTE is not the only solution this government proposes. We have found many other solutions, which we have been presenting all these past years, like the constitutional reforms, we plan with or without the LTTE, which will give the rights to the minorities.

We have tried very hard to bring the constitution's reform, but have failed up to now because the main opposition party is opposing it. But still we are going ahead with it. We have done a lot of work convincing the Sinhala majority that the Tamil people had to be given their rights and this should be done politically and not through war and weapons. For the first time we have taken a risk and gone to the people talking about it, without regard to the fact that we will lose votes. This has had its effects and this is why people are talking about it. Of course we have racist minorities, but in a democratic process you need opposition. We don't however take then seriously.

What is the role of Sri Lankan women in the economic growth of the country?

Women are the backbone of the Sri Lankan economy. They're the major work force in the three major foreign exchange earning industries in the country. I think Sri Lanka will soon become like the beehive… where the women work and men are just disposable goods!

What about women's rights in Sri Lanka?

Women do not have too many problems in the Business world as they get equal pay and equal employment opportunities. When women and men compete for employment, vast majority of women get selected. The private sector had conformed to this. So we hardy need a women's liberation movement.

We have brought in a lot of laws to protect women from rape and abuse and child abuse. I had a special task force for this. We have also created a child protection Authority, which may be the only institution of such kind, looking at child abuse in the entire third world. This also deals with problems that affect women. As you know, in developing countries, there are problems of child abuse from their own relatives and others. The tourism industry too is adding to it.
There has been a lot of progress made by them. They go to people and conduct awareness programs and also organize women and children against alcohol. Through the help of places of religious worship and the local police, they go to parents and even to illicit alcohol brewers and talk to them and get them to close their illicit places. They even talk to fathers and uncles who are involved in child abuse or people involved in general alcoholism against women.
Sri Lanka was the most alcoholic consuming nation in the world when we came. Today though it is not a great achievement, we have gone down to either 9th or 10th position. We have special programs and a special task force to look into alcohol and Tobacco abuse.

I recently read in the papers, that the Sri Lankan Lesbian movement has won an international award. This also proves that women do not have problems! They may have problems, but we do not need militant organizations to solve them! With the world's first women Prime Minister and another women President from Sri Lanka, we should not be here, if we had not solved women's problems.

The one problem I see is that we do not have enough women's representatives in the peoples elected organizations. Parliament has very few women. This has to be corrected.

What message would you address to the international business community?

My fervent message is to invite them to see what Sri Lanka offers. We have had bad press publicity because of few bombs going out within Colombo from time to time. But there are equal numbers of bombs going off in the city of London as well! But the rest of the time it is safe. The business investment climate is excellent and it is amongst the best two in Asia. It is a nice beautiful country with a lot of wild life, and people can have pleasant weekends while peacefully conducting business during the week.

We are supposed to be amongst the top ten richest bio diversity places in the world. People are very surprised, since this is a small land area of 65 000 square kilometers. This is fast disappearing, and we are trying to do things to correct it. We are a growing economy. We have a growth rate of about 6%, and we have maintained an average growth rate of 4% to 5% over the past six years. The economy is healthy. We did not crash during the east economic crash. We were able to hold head. Last year we had major problems with the rising of fuel prizes and the excessive military expenditures; we were forced to make additional adjustments and surprised out of budget estimates. A lot of people were predicting that the economy would crash. We were able to hold it; the economy is strong. There is lot of political stability even with a military conflict going on in one part of the country.

For the first time in 53 years of independence, the same party got re-elected. The President also got re-elected. Under the British two party systems, we always had in the past a change in the elections.
Our vision is to build Sri Lanka as one of the top two or three major hubs of this part of Asia for finance and services hub - and this should be very attractive to investors.

We have also signed what is India's first free trade agreement. It has opened up vast vistas of opportunities to any foreign investors who come here, because it is the second largest market in the world.
From Sri Lanka, foreign investors can access the Indian market under not so stringiness conditions. Given the fact that we have very easy and profitable inventive scheme for investors, it is more cost effective to invest here, manufacture and export to India.