Transforming Conflict with an Economic Dividend: The Sri Lankan Experience
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Date
2005
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Abstract
Peace can generate an economic dividend, which can be further increased by
appropriate economic reform. This dividend can in turn be used to raise popular support for
conflict-resolution measures along the road to achieving a final political settlement, a strategy
that characterizes the recent period in Sri Lanka. However, despite an increase in economic
growth following the cessation of hostilities between the LTTE and the government, no
substantial dividend has materialized for either government supporters in the South or LTTE
supporters in the war-torn Northeast. The causes of this failure include delays in disbursing aid
which would have eased adjustment to economic reforms—resulting in cuts to public spending that
affected Southern households—and weak institutions that impeded the effective use of aid in the
Northeast. The Sri Lankan experience highlights some important lessons for both government
and donors on making use of an economic lever for consolidating a peace process and conflict
resolution. It also highlights some of the dangers in relying too much on economic levers to
consolidate a peace process when levels of mistrust are high.
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Keywords
Sri Lanka, Conflict resolution, Economic dividend, Foreign aid, LTTE