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. 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: 20.1 million.
Annual growth rate: 1.1%.
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--14/1,000. Life expectancy--72 yrs. (male); 77 yrs. (female).
Work force: 7.04 million (excluding Northern and Eastern provinces).

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.
Political parties: Janatha Vimukthi Peramuna, National Freedom Front, Jathika Hela Urumaya, Sri Lanka Freedom Party, Tamil National Alliance, United National Party, Tamileela Makkal Viduthalai Pulikal, Sri Lankan Muslim Congress, National Unity Alliance, Ceylon Workers' Congress, Up-Country People's Front, several small Tamil and Muslim parties, Marxists, and others.

Economy (2007)
GDP: $32.3 billion.
Annual growth rate: 6.8%. 
Natural resources: Limestone, graphite, mineral sands, gems, and phosphate. 
Agriculture (12% of GDP): Major products--rice, tea, rubber, coconut, and spices.
Services (60% of GDP): Major types--tourism, wholesale and retail trade, transport, telecom, financial services. 
Industry (28% of GDP): Major types--garments and leather goods, rubber products, food processing, chemicals, refined petroleum, gems and jewelry, non-metallic mineral-based products, and construction.
Trade: Exports--$7.7 billion: garments, tea, rubber products, jewelry and gems, refined petroleum, and coconuts. Major markets--U.S. ($2.1 billion), U.K., India. Imports--$11.3 billion. Major suppliers--India, Singapore, Hong Kong, China, Iran, Malaysia, Japan, U.K., U.A.E., Belgium, Indonesia, South Korea, U.S. ($227 million).

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 20 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 1.1%. Sri Lanka is ethnically, linguistically, and religiously diverse.

Sinhalese make up 74% of the population and are concentrated in the densely populated southwest. Sri Lankan Tamils, citizens whose South Indian ancestors have lived on the island for centuries, total about 12%, live throughout the country, and predominate in the Northern Province.

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, chose to remain in Sri Lanka and have since been granted Sri Lankan citizenship.

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 Rajapaksa. The JVP later broke with the SLFP and left the government, but has often supported it from outside.

Presidential elections were held in November 2005. Mahinda Rajapaksa became President, and Ratnasiri Wickramanayake became Prime Minister. The current government has a majority in the Parliament through a coalition with a number of small minority parties and the backing of 17 dissident UNP members.

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.

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. The U.S. Government in November 2007 froze the U.S.-held assets of the Tamils Rehabilitation Organisation, a charitable organization associated with the LTTE.

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 and Resumption of Conflict
In December 2001, with the election of a new UNP government, the LTTE and government declared unilateral cease-fires. In February 2002, the Government of Sri Lanka (GSL) and LTTE signed a ceasefire agreement sponsored by peace process facilitator Norway. Peace talks began in Norway in December 2002. The Tigers dropped out of talks in February 2003, however, claiming they were being marginalized. In July 2004, the first suicide bomb since 2001 struck Colombo.

In March 2004, Eastern Tiger commander Karuna broke with the LTTE, going underground with his supporters. In March 2006, the Karuna faction registered a political party, the Tamil People's Liberation Tigers (TMVP). The LTTE and the Karuna faction have targeted each other in low-level attacks since that time. In late 2007, Sivanesethurai Chandrakanthan ("Pillaiyan") took over the leadership of the TMVP.

Over 30,000 Sri Lankans died in the December 2004 tsunami, and hundreds of thousands of others fled their homes. In June 2005, the GSL and LTTE reached an agreement to share $3 billion in international tsunami aid. However, the agreement was challenged in court and was never implemented. In August 2005, the LTTE assassinated Foreign Minister Lakshman Kadirgamar, an ethnic Tamil. Parliament passed a state of emergency regulation that has been renewed every month since then.

During the November 2005 presidential election, the LTTE enforced a voting boycott in areas under its control. As a result, perceived hard-liner and Sri Lanka Freedom Party (SLFP) leader Mahinda Rajapaksa won by a narrow margin. Low-level violence between the LTTE and security forces escalated. In December 2005, pro-LTTE Tamil National Alliance MP Joseph Pararajasingham was assassinated within a GSL high security zone in the eastern town of Batticaloa.

In February 2006, exactly four years after the ceasefire agreement was signed, the GSL and LTTE renewed their commitment to the agreement at talks in Geneva. There was a lull in violence until April 2006, when an explosion rocked a Sinhalese market in Trincomalee, followed by limited Sinhalese backlash against Tamils. Several days later, an LTTE suicide bomber attacked the main army compound in Colombo, killing eight soldiers and seriously wounding Army Commander General Fonseka. The government retaliated with air strikes on Tiger targets. In June 2006, an LTTE suicide bomber succeeded in killing Army third-in-command General Kulatunga in a suburb of Colombo.

The European Union banned the LTTE as a terrorist organization on May 30, 2006. In June 2006, GSL and LTTE delegations flew to Oslo to discuss the future of the Scandinavian-led Sri Lanka Monitoring Mission (SLMM). The Tigers refused to sit for talks with the GSL and instead demanded the SLMM remove any monitors from EU-member nations.

Heavy fighting in August 2006, the worst since the 2002 ceasefire, killed hundreds of people and caused tens of thousands to flee their homes when the Tamil Tiger rebels clashed with government forces in the north and east. In September 2006, the government carried out the first major seizure of enemy territory by either side since the 2002 ceasefire when it drove Tamil Tiger rebels from the entrance of the strategic Trincomalee harbor.

In October 2006, the LTTE attacked a Navy bus convoy at a transit point in Habarana, killing 90 sailors, and a few days later, attacked the Sri Lankan Navy Headquarters in Galle, a major tourist destination in the far south. Peace talks in Geneva at the end of October ended with no progress. The LTTE attempted to assassinate the Defense Secretary by bombing his motorcade in December 2006, but he escaped unharmed.

Government troops took control of the LTTE's eastern stronghold of Vakarai in January 2007, resulting in thousands more internally displaced persons. In March 2007, the Tamil Tiger rebels launched their first-ever air attack, which targeted the Katunayake Air Force base adjacent to Bandaranaike International Airport. By July 2007, however, the government had recaptured the remaining territory held in the Eastern Province from the Tigers. In November 2007, a Sri Lankan Air Force bomb killed LTTE political chief and number two leader, S.P. Tamilchelvan. Also during that month, the LTTE detonated a bomb in a busy Colombo shopping center, killing 17 and wounding many more.

In January 2008, the government announced that it was unilaterally abrogating the 2002 ceasefire agreement. Government forces stepped up their campaign to assert control over the northern areas still led by the LTTE. The LTTE resisted government advances into the north and carried out attacks on economic and civilian targets in the south.

In May 2008, elections were held for the first time to fill the newly created Eastern Provincial Council covering the Ampara, Batticaloa, and Trincomalee districts. Although opposition parties alleged widespread vote-rigging, the government's United People's Freedom Alliance in a coalition with the TMVP secured the majority in the new Provincial Council, and TMVP leader Sivanesethurai Chandrakanthan ("Pillaiyan") was sworn in by President Rajapaksa as Chief Minister.

GOVERNMENT
Under 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.

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 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. As a result, the Provincial Councils have never functioned effectively. Devolution proposals under consideration as a means of finding a political solution to the ethnic conflict foresee a strengthening of the Provincial Councils, with greater autonomy from central control. Predating the accord are municipal, urban, and rural councils with limited powers.

Principal Government Officials
President--Mahinda Rajapaksa
Prime Minister--Ratnasiri Wickramanayake
Ambassador to the United States--Jaliya Wickramasuriya
Ambassador to the United Nations--H.M.G.S. Palihakkara

Sri Lanka maintains an embassy in the United States at 2148 Wyoming Avenue NW, Washington, DC 20008 (tel. 202-483-4025).

POLITICAL CONDITIONS
Sri Lanka's two major political parties--the UNP and the SLFP--embrace democratic values, international nonalignment, and encouragement of Sinhalese culture. 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 violence is largely confined to the Northern and Eastern provinces, which are 6 to 8 hours by road from the capital. Economic targets included the airport in July 2001, the Colombo World Trade Center in October 1997, and the central bank in January 1996. 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. After a lull following the 2002 ceasefire, LTTE-perpetrated terrorist bombings directed against politicians and civilian targets have become more common in Colombo, Kandy, and elsewhere in the country. LTTE terrorist activities have generally been aimed at destabilizing Sri Lanka politically, economically, and socially. LTTE attacks on key political figures include the attempted assassinations of Social Affairs Minister Douglas Devananda in November 2007 and of Secretary of Defense Gothabaya Rajapaksa in December 2006, the assassination of Army General Kulatunga in June 2006, the attempted assassination of Army Commander General Fonseka in April 2006, the assassination of Foreign Minister Lakshman Kadirgamar in August 2005, the killing of the Industrial Development Minister by suicide bombing in June 2000, and the December 1999 attempted assassination of President Kumaratunga. The LTTE is also suspected of being behind the assassinations of two government ministers in early 2008.

ECONOMY
Sri Lanka is a lower-middle income developing nation with a gross domestic product of about $32 billion. This translates into a per capita income of $1,600. Sri Lanka's 91% literacy rate in local languages, and life expectancy of 72 years rank well above those of India, Bangladesh, and Pakistan. English language ability is relatively high but has declined significantly since the 1970s.

Sri Lanka's income inequality is severe, with striking differences between rural and urban areas. About 15% of the country's population of 20.1 million remains impoverished. Civil conflict, falling agricultural labor productivity, lack of income-earning opportunities for the rural population, high inflation and poor infrastructure outside the Western Province are impediments to poverty reduction.

In 1978, Sri Lanka shifted away from a socialist orientation and opened its economy to foreign investment. But the pace of reform has been uneven. A period of aggressive economic reform under the UNP-led government that ruled from 2002 to 2004 was followed by a more statist approach under former President Chandrika Kumaratunga and current President Mahinda Rajapaksa.

Despite a brutal civil war since 1983, economic growth has averaged around 4.5%. In 2001, however, GDP growth was negative 1.4%--the only contraction since independence. Growth recovered to 4.0% in 2002. Following the 2002 ceasefire and subsequent economic reforms, the economy grew more rapidly, recording growth rates of 6.0% in 2003 and 5.4% in 2004. The December 2004 Indian Ocean tsunami killed 32,000 people, displaced 443,000, and caused an estimated $1 billion in damage. The tsunami's overall economic impact was less severe than originally feared, with the economy growing by 6% in 2005 as the damage was offset by the reconstruction effort. The economic situation in Sri Lanka is stable, but hampered by the resumption of hostilities between the government and the LTTE, escalating oil prices, and high inflation and interest rates. GDP grew by 6.8% in 2007, down from 7.7% growth in 2006. Sri Lanka's key exports such as garments and tea performed well. Remittances from foreign workers, estimated at $2.5 billion, also helped the economy.

President Rajapaksa's broad economic strategy was outlined in his election manifesto "Mahinda Chintana" (Mahinda's Thoughts), which now guides government economic policy. Mahinda Chintana policies focus on poverty alleviation and steering investment to disadvantaged areas; developing the small and medium enterprise (SME) sector; promotion of agriculture; and expanding the already enormous civil service. The Rajapaksa government rejects the privatization of state enterprises, including "strategic" enterprises such as state-owned banks, airports, and electrical utilities. Instead, it plans to retain ownership and management of these enterprises and make them profitable.

The future of Sri Lanka's economic health primarily depends on political stability, return to peace, and continued policy reforms--particularly in the area of fiscal discipline and budget management. Rising oil costs and the 24-year conflict have contributed to Sri Lanka's high public debt load (86% of GDP in 2007). Sri Lanka needs economic growth rates of 7-8% and investment levels of about 30% of GDP for a sustainable reduction in unemployment and poverty. In the past 10 years, investment levels have averaged around 25% of GDP.

Sri Lanka depends on a continued strong global economy for investment and for expansion of its export base. The government plans an ambitious infrastructure development program to boost growth. It hopes to diversify export products and destinations to make use of the Indo-Lanka and Pakistan-Sri Lanka Free Trade Agreements, GSP Plus treatment by the European Union and other regional and bilateral preferential trading agreements.

The service sector is the largest component of GDP at around 60%. In 2007, the service sector continued its strong expansion, fueled primarily by strong growth in telecom, trading, transport, and financial services. Public administration and defense expenditures increased in 2007 due to resumption of hostilities, expansion of public sector employment, and the expenses associated with maintaining a 106-minister cabinet. There also is a growing information technology sector, especially information technology training and software development. The tourism sector has been impeded by the volatile security situation.

Industry accounts for 28% of GDP. Manufacturing is the largest industrial subsector, accounting for 18% of GDP. The construction sector accounts for 6% of GDP. Mining and quarrying account for 2% of GDP. Electricity, gas and water account for 2% of GDP. Within the manufacturing sector, food, beverage, and tobacco is the largest subsector in terms of value addition, accounting for 46%. Textiles, apparel, and leather is the second-largest sector with 24% of value addition. The third-largest sector in value added terms is chemical, petroleum, rubber, and plastic products.

Agriculture has lost its relative importance to the Sri Lankan economy in recent decades. It employs 31% of the working population, but accounts for only about 12% of GDP. 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.

Trade and Foreign Assistance
Sri Lanka's exports (mainly apparel, tea, rubber, gems and jewelry) are estimated at $7.7 billion and imports (mainly oil, textiles, food, and machinery) were estimated at $11.3 billion for 2007. The resulting large trade deficit was financed primarily by remittances from Sri Lankan expatriate workers, foreign assistance, and commercial borrowing. Sri Lanka must diversify its exports beyond garments and tea. Garment exports face increased competition since the 2005 expiration of the worldwide Multifiber Arrangement. Sri Lanka's exports to the European Union (EU) increased sharply in 2006-2007 due to duty-free entry of goods under the EU GSP Plus program, granted in 2005 to help Sri Lanka rebuild after the 2004 tsunami. The GSP Plus program expires at the end of 2008 and its renewal is uncertain. The tea industry is challenged by a shortage of plantation labor and by growing competition.

Exports to the United States, Sri Lanka's most important single-country market, were estimated to be around $2.1 billion for 2007, or 27% of total exports. As a result of the GSP Plus program, the EU as a whole is Sri Lanka's biggest export market. For many years, the United States has been Sri Lanka's biggest market for garments, taking almost 50% of total garment exports. India is Sri Lanka's largest supplier, accounting for 21% of imports valued at over $2.6 billion. United States exports to Sri Lanka were estimated to be around $230 million for 2007, consisting primarily of wheat, electrical apparatus, textiles and specialized fabrics, medical and scientific equipment, plastics, and paper.

Sri Lanka is highly dependent on foreign assistance, with the World Bank, the Asian Development Bank, Japan, and other donors disbursing loans totaling $1.4 billion in 2007. Iran is becoming the largest provider of foreign assistance. During the Iranian President's visit in April 2008, Iran committed $450 million for the Uma Oya multipurpose irrigation project. Iran is also a major lender to Sri Lanka and has provided infrastructure project loans and an interest-free credit facility for oil imports. Under this facility, Sri Lanka has imported substantial amount of oil (valued at $700 million as of June 30, 2008). Iran promised assistance for modernization of Sri Lanka's only oil refinery, though no firm commitments are in place. China has also become a major lender for infrastructure projects, such as a new port and a coal power plant. Foreign grants amounted to $275 million in 2007. While implementation of aid projects has been spotty over the years, the government is trying to improve this record by streamlining tender processes and increasing project management skills.

Labor
The unemployment rate has declined in recent years to about 6.3% in 2007. The rate of unemployment among women and high school and college graduates, however, has been 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 better matches between graduates and jobs.

Approximately 20% of the 7.04 million-strong work force is unionized, but union membership is declining. 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 plantation sector. The president of the CWC also is Minister of Youth Empowerment and Socio Economic Development. Other strong and 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.

Public sector trade unions have recently resisted government moves to restructure the state-owned electrical utility board and the petroleum company.

There are 1.5 million Sri Lankan citizens working abroad. A majority are women working as housemaids. Remittances from migrant workers, estimated at around $2.5 billion in 2007, are an important source of foreign exchange for Sri Lanka, second only to earnings from apparel exports.

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.

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. Following the 2004 tsunami, the United States is providing $135 million in relief and reconstruction assistance.

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.

Principal U.S. Embassy Officials
Ambassador--Robert O. Blake
Deputy Chief of Mission--James R. Moore
Head of Political Section--Michael DeTar
Head of Economic/Commercial Section--Kami Witmer
Management Officer--Kevin Weishar
Consular Officer--Christopher Green
Defense Attaché--Lt. Col. Lawrence Smith
Director, USAID--Rebecca Cohn
Public Affairs Officer--Jeffrey Anderson
IBB Station Manager--William Martin

The U.S. Embassy in Sri Lanka is located at 210 Galle Road, Colombo 3 (tel: 94-11-249-8500, fax: 94-11-243-7345). U.S. Agency for International Development offices are located at the American Center, 44 Galle Road, Colombo 3 (tel: 94-11-249-8000; fax: 94-11-247-2850/247-2860). Public Affairs offices also are located at the American Center (tel: 94-11-249-8100, fax: 94-11-244-9070).

IBB offices are located near Chilaw, 75 kms north of Colombo (94-32-225-5931 to 34/fax: 94-32-225-5822).