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 Post subject: Politics hurting Sri Lanka’s investment climate
 Post Posted: Tue Jun 28, 2005 2:15 am 
Politics hurting Sri Lanka’s investment climate

@ DM

COLOMBO, June 27 (AFP) - Sri Lanka's investment prospects are being hurt by continued political instability, the Asian Development Bank and the World Bank said Monday as the government struggled to retain its coalition partners.

A joint survey by the two multilateral lenders said Sri Lanka's investment climate remained unattractive due to continued instability, weak infrastructure and poor access to finance despite gains in reducing corruption.

The survey, the first comprehensive analysis of the factors that are inhibiting investment, domestic and foreign, urban and rural, will be released Tuesday, the World Bank said in a statement.

“The report suggests that steps taken towards establishing a peaceful solution to the conflict and improving political stability will spur investment in Sri Lanka,” the statement said.

The statement came as President Chandrika Kumaratunga's minority government faced threats of losing more coalition partners over a controversial aid sharing deal with Tamil Tiger rebels.

Kumaratunga's main Marxist ally left the government earlier this month while two more allies have threatened to quit.

“Achieving a permanent peace is undoubtedly one of the important steps Sri Lanka can take toward improving its investment climate,” the Bank's country director for Sri Lanka Peter Harrold said.

“If we are to achieve sustainable poverty reduction in Sri Lanka, we must raise the overall level of investment.”

The Central Bank earlier this year reported that the island's drawn-out Tamil separatist conflict which claimed over 60,000 lives between 1972 and 2002 cost the economy dearly, with growth slowed by two percentage points annually.

The World Bank statement said that the survey found that small businesses in Sri Lanka's rural areas were also hampered by poor transport, limited access to the formal financial sector and frequent power outages.

“Although the island boasts a dense road network as much as 90 percent of it is in poor condition because of lack of maintenance.”

The survey points out that this dramatically increased travel times and contributed to almost half of all agricultural produce spoiling before reaching a market, the statement said.

Companies in the island's embattled northern and eastern regions affected by the conflict developed coping strategies, such as reducing their inventory or producing from a residential location, the Bank said.

On the brighter side, the Sri Lanka's telecommunications sector was hailed as a success story. Similar gains were made in the garments, plantations and airline sectors.

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