The end of the long civil war in Sri Lanka in 2009 generated widespread expectations of a peace dividend that would enable the country to embark on a period of sustained economic growth. Recent developments have dampened that optimism, however, rekindling fears that Sri Lanka's tale of missed opportunities may continue. After showing remarkable resilience during decades of war and conflict, the Sri Lankan economy has failed to capitalize on the window of opportunity presented by the end of the military conflict. In the aftermath of military victory, there has been a sharp reversal of trade liberalization and a marked shift back towards nationalist-populist state-centered economic policies, reflecting the pressures of resurgent nationalism, an unprecedented concentration of political power in a small ruling group, and the influence of some powerful vested interests. Unfortunately, a return to the failed past policies of inward-oriented development strategies offers no viable solutions for the problems confronting small, capital- and resource-poor countries in today's globalized world. Sri Lanka must change both its political practices and economic policies drastically and urgently to cope with the huge development challenges facing it in an environment of global economic turbulence.
Without implication, we thank Dushni Weerakoon for sharing her insights, data and unpublished material, and participants at the meeting of the Asian Economic Panel, Keio University, Tokyo on 16–17 September 2011 for their comments and suggestions.