This chapter explores the politics of market reform in Sri Lanka and its relationship to the escalating ethnic conflict during the J.R. Jayewardene period of 1977–88. It describes how the exacerbation of the ethnic conflict in these years occurred in the context, and as a largely unintended by-product, of a larger political strategy directed primarily at winning consent for a radical programme of marketisation. In doing so, it also draws a broader conclusion that due to certain enduring features in the structure of Sri Lankan electoral politics, market reforming governments are inherently in a weak position to implement state reforms of the calibre necessary to address the ethnic conflict.

This broader conclusion has particular relevance in understanding the political strategies and coalitions that emerged subsequently in the 1990s under Presidents Premadasa and Kumaratunga. It also provides a broad analytical framework to evaluate the failure of the ambitious peace process from December 2001 to April 2004 under the United National Front (UNF) government of Ranil Wickremasinghe. Wickremasinghe explicitly crafted a two track parallel agenda of accelerated market reforms and deep concessions on the ethnic conflict. Leaving aside the specificities of this project and the many idiosyncratic problems in its formulation and implementation (see for example Bastian 2005 and Venugopal 2009), the comparative historical experience of the 1980s provides insights as to the inherent limitations of this approach.

Introduction

In 1977, the UNP government of J.R. Jayewardene initiated a landmark change in the direction of Sri Lanka's economic policies.