The liberalization of the Sri Lankan economy in 1977 and the privatization of state enterprises in the ensuing years, created a need for competition policy and rules-based regulatory systems to address distributional concerns. However, the integration of these newer external regulatory processes into the policy framework was slow due to an ongoing civil war, pressures to finance the burgeoning fiscal deficit and the related move to opt for rapid privatization. In addition, the policy and governance milieu, institutional structures, and legal framework within which these reforms were finally formulated and implemented did not allow for an effective competition and regulatory regime. This paper describes and analyzes the policy, institutional and legal framework for competition and regulation in Sri Lanka, placing them in the context of pervasive bad governance practices. It is argued that rampant political capture is the principal obstacle to the creation of effective competition and regulatory agencies. The paper also poses the following questions: how to build effective competition and regulatory institutions and systems and to create the conditions for good regulatory governance in a milieu where bad governance is omnipresent; should the competition and regulation reform process rely more on a \"market approach\" to the delivery of public interest; can such an approach actually guarantee insulation from political influence, given that vested interests with political connections are not confined to the state sector alone; and what impact will such an approach have on equitable growth and poverty alleviation.It is suggested that these should form the basis for the Sri Lankan component of the CRC competition, regulation, and regulatory governance research and capacity building programme over the next few years.
Manchester, UK, CRC Working Paper, No. 40, 33 pp.