In 1966 the government established the Ceylon Tourist Board, vesting in it the responsibility for invigorating the tourist industry. The board, operating as an autonomous corporation, was charged with promotional as well as organizational responsibilities. Most provisions for tourists were in the private sector, but the board had facilities in areas where private ones were considered inadequate.
Tourism expanded rapidly after 1966. The main attractions are the beach resorts of the southwestern coastal region, but many tourists also visit the ancient cities of the dry zone, the historic city of Kandy, and the mountainous region dominated by tea plantations. Between 1976 and 1982, the number of tourist arrivals increased at an annual rate of almost 24 percent, reaching a peak of 407,230 before declining to 337,342 arrivals in 1983 as a result of the Tamil insurgency. More than half the arrivals were from Western Europe.
Serious civil disturbances starting in July 1983 and the subsequent violence badly affected tourism. Total arrivals were 230,106 in 1986, down 43 percent from 1982. To ease the plight of the industry, the government provided various concessions to hotels, such as the rescheduling of loans and the reduction of the turnover tax from 10 percent to 5 percent. The Ceylon Tourist Board also undertook a crash promotion program in an attempt to restore the island's image in world tourist markets. Tourist arrivals in the first six months of 1987, however, showed a decline of 23 percent compared with the same period the previous year. In early 1988, the outlook was for further contraction.
In 1988 it remained unclear whether the policies of economic liberalization Sri Lanka has pursued since 1977 would succeed in their principal goals of employment, wealth creation, and economic diversification. Although increased rice production, the growth of textile manufacturing, and an improved infrastructure were successes that could be attributed to the post-1977 policies, these gains came at the cost of a mounting foreign and domestic debt and declining living standards for the poor. In the mid-1980s, the declining security situation began to have an increasingly negative impact on the economy, and in early 1988 economic prospects for the 1990s appeared to be linked at least in part to a resolution of the ethnic conflict.
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