The ethnic violence that has shaken this tropical island nation during the past week has inflicted serious damage on Sri Lanka's free-market, foreign investment-oriented economy, economic analysts here say.
Apart from the measurable property damage resulting from a wave of arson and looting across the country, which may run as high as $300 million, prospects for the growth of foreign investment that President Junius R. Jayewardene has counted on to turn an ailing economy around have diminished as a result of the attacks by members of the indigenous Sinhalese majority on the Tamil minority of Indian origin, economists said.
Douglas Liyange, secretary of the Ministry of State, said, "We are very worried. The damage is so extensive and so calculated to damage the economy that it goes beyond a racial conflict. We have had racial conflicts before and they have not gone this far."
The government lifted the 24-hour curfew for a few hours Monday morning so people could buy food, The Associated Press reported from Colombo. An unspecified number of members of three banned leftist political parties were arrested, but violence appeared to be subsiding.
In greater Colombo alone, the Tamils, who represent only 9 percent of the 1.6 million population but own a third of the business establishments, can no longer be counted on as a mainstay of the economy.
Half of the 4,100 Tamil-owned businesses have been destroyed by fire, and nearly a quarter of the 141,400 Tamils here have been left homeless.
Nationwide, more than half of the wholesale and retail trade is controlled by the 3.5-million Tamil minority. The total population is 15 million, of which 73 percent is Sinhalese.
S.S. Jayawickrama, secretary of the Ceylon Chamber of Commerce, said there would be a domino effect on the Sinhalese business community because many Tamil traders who were wiped out will be unable to pay their bills.
Other Sri Lankan economic analysts predicted that the unofficial 20 percent inflation rate and the 14 percent unemployment rate will rise in the 1983 statistics and that the foreign exchange rate will worsen with as much as a 25 percent depreciation of the rupee against the dollar.
In potential long-term effects, foreign investment is where the most damage has been caused, economists said.
Since 1977, Sri Lanka has aggressively encouraged foreign investment. particularly in export-oriented, labor-intensive projects, in an effort to generate foreign exchange and reduce unemployment.
Jayewardene, who six years ago rewrote the constitution and elevated himself from the prime minister's post to an executive presidency, transformed the once-socialist economy into a free-wheeling capitalist economy largely based on the model of Singapore. The Reagan administration praised Jayewardene and described Sri Lanka as a model for Third World development.
Since 1978, when the present system of monitoring foreign investments was established, a total of 170 industrial projects were approved inside a free-trade zone here and 535 projects outside the zone, for a total value of $534 million.
Minister for Lands Gamini Dissinayake announced on television last night that 150,000 jobs had been lost since the violence began. During that time 17 major manufacturing plants were destroyed. These figures contrast with the cushion of 24,000 new jobs that the government had proudly announced had been created in the free-trade zone.
As recently as June, the commercial section of the U.S. Embassy here had issued an economic trends report that offered a "reasonably good" prospect for 5 to 6 percent growth in the gross national product, and said that recent events had "set the stage for a period of political stability and economic consolidation through at least the end of this decade."
The basis for that optimism was Jayewardene's election to a six-year term in October and his retention of a five-sixths majority in Parliament for six years as a result of decisive victories in by-elections in May and in a national referendum last December that extended the life of his Parliament.
Western economic analysts and banking sources estimated that about a third of all investment in Sri Lankan industry, commerce and banking and finance services is foreign. While no wholly owned foreign industries were targeted in the arson attacks and while there has been no indication that any of them intend to leave, the rioting is certain to make them reluctant to invest in expansion.
Since about 35 percent of the work force in Colombo's foreign-owned industrial plants is Tamil, and many of the 35,000 Tamil refugees here plan to return to the predominantly Tamil northern provinces, the foreign companies will immediately be faced with the problem of finding a new work force.
The government yesterday revised its official death toll upward, saying that between July 25 and July 29, 179 persons were killed by civilians in ethnic violence. Almost all the victims were Tamils.
The figure, which independent sources said appears to be low, includes 53 Tamil prisoners who were massacred in two attacks by Sinhalese in Colombo's Welikada Prison, but does not include looters and other persons killed by government troops.
The government began making security prepartions for the safe transport here from northern Tamil provinces of 17 members of Parliament who belong to the Tamil United Liberation Front, which has served as a buffer between the government and the separatist guerrilla organization, the Tamil Tigers.
The front's members of Parliament are to be brought here for a session Parliament called for Thursday to adopt a constitutional amendment which, in effect, will spell the end of the Tamil party in active politics. Announced by Jayewardene last week, the amendment would ban from the Parliament any member who advocates separatism.