Sri Lanka's Economy Starts to Snap Back

THE task of rebuilding Sri Lanka's economy is beginning in earnest. Even before terrorist violence subsided across the South Asian democracy, plans were quietly implemented to coordinate an overall strategy for economic growth.

A cornerstone of that strategy is an influx of $500 million in annual loans from foreign donors - vital to the quest for foreign exchange. These loans, as well as foreign investment, will be integrated in an ambitious plan based on moving existing industry to upscale product lines.

Growth of the economy this year may exceed 1988's level of 3.5 percent, if World Bank projections are accurate. Three engines of the economy - tea, textiles, and rubber production - were largely spared damage by either Tamil separatists or Marxist extremists.

Tourism, however, which is a vital source of revenue and jobs, dropped sharply from the 460,000 visitors tallied in 1982. Revenue from tourism collapsed to less than $80 million two years ago as European and North American visitors canceled winter trips.

The newly elected regime of Ranasinghe Premadasa has pledged to continue along the path that brought generally encouraging results in previous years. This includes privatization of transport, economic liberalization, and expansion of export processing zones.

There is, for example, the $1 billion Mahaweli Project, a vast irrigation and rural-development program that will harness resources across the eastern sections. ``This is the largest project of its kind anywhere,'' a specialist at the Asian Development Bank says. ``It will relieve economic imbalances like underemployment'' - conditions that fueled social unrest.

Before the violence of recent years, the former British colony - which used to be known as Ceylon - was often termed ``the next Taiwan.'' A merchant class was growing. Reforms had opened the island to foreign investment as import substitution policies were abandoned. The port at the capital city of Colombo underwent a costly modernization plan that places it as South Asia's major transshipment center.

For these reasons, development plans in the nation of 16.4 million were treated seriously by impartial observers. By social indexes such as infant mortality, access to sewerage, and public health, the country is on a par with advancing economies of Asia such as Malaysia and Thailand. The literacy rate is 90 percent, and Sri Lanka launched a housing program seen as a model for all development countries.

During the 1970s, yearly growth rates of 6 percent led to strides in light manufacturing. The Colombo export processing zone attracted $300 million worth of foreign investment, and more than 30,000 direct jobs were created.

``Reputation as reliable low-cost producer helped out,'' according to Mark van Fleet, director of Asian-Pacific affairs at the United States Chamber of Commerce. D.N. Lawrence, executive director of Colombo-based John Keels Holdings, a major diversified business group, asserts that ``worker training was succeeding'' before violence, since ``we were never relying on a low-wage base indefinitely.''

Most major multinational investors maintained operations during the years of violence.

Singer, NCR, Pfizer, and Korea's Hyundai are cautiously optimistic about their respective performance this year. Attempts to diversify foreign investment, reducing the share held by textiles, have not achieved results.

Japan's Toshiba and Mitsui are active. A special political relationship between Tokyo-based corporations and Sri Lanka fosters commercial gains that will spawn a handful of investments in the $5 million-to-$15 million range in months ahead. This relationship has its origins in Sri Lanka's postwar steps to champion international acceptance of a new, nonmilitarist Japan.