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Assessing Privatization in Sri Lanka:
Distribution and Governance
MALATHY KNIGHT-JOHN
and P. P. A. WASANTHA ATHUKORALA
389
In Sri Lanka, privatization is ideologically allied to the liberalization process
that jumpstarted the economy in 1977. It was only a decade later, however,
that privatization became a state policy, and after 1989 that the sale of public
enterprises began to gather momentum. This slow start to privatization
is largely attributed to the continued use of state-owned enterprises (SOEs)
as vehicles of employment and political patronage (Knight-John 1995).
The 1977–89 period, characterized by macroeconomic instability and political
violence, was not conducive to rigorous reform efforts. During the first
wave of privatization (1989–94), the government divested 43 commercial
enterprises (typified as relatively less complex), raising about rupees (Rs.)
11.6 billion.1 The second wave of privatization (1995–present), which has witnessed
the divestiture and restructuring of several public utilities and major
ventures in the services sector, amounts to Rs.46.2 billion.
More recently, the need for structural reforms, including privatization, has
been accentuated by the country’s dismal economic performance, stemming
from a series of adverse external shocks, domestic political uncertainties,
and entrenched structural rigidities. In 2001, the economy recorded a negative
real growth rate of 1.5 percent—the first economic contraction since
12
Malathy Knight-John is a research fellow at the Institute of Policy Studies in Colombo, Sri Lanka. P.P.A.
Wasantha Athukorala is a lecturer in the department of economics at the University of Peradeniya, Sri
Lanka. The authors gratefully acknowledge Saman Kelegama and other colleagues at the Institute of
Policy Studies for their valuable comments on earlier drafts of this chapter.
1. In this chapter, the term divestiture refers to both a partial and total sale of state assets to
private parties...