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The UNP "national government" emerged victorious in the March 1965 elections, capturing more than 39 percent of parliamentary seats, compared to SLFP's 30.2 percent. One of the first actions of the new government, led by Senanayake, was to declare that the nation's economy was virtually bankrupt. Senanayake also announced his intention to improve relations with the United States. (In 1963 the United States had suspended aid to Sri Lanka because of Bandaranaike's nationalization of foreign oil concerns.)
The government tried to develop a mixed economy with an emphasis on the private sector. Between 1965 and 1970, private sector investment was double that of the public sector, thereby reversing the trend set in the previous administration. Despite the UNP's emphasis on the private sector, the economy generally failed to show a major improvement. This failure was partly caused by a nearly 50 percent increase in the cost of rice imports after a worldwide shortage in 1965 and a concurrent steep decline in the price of Sri Lanka's export commodities. In 1966 the UNP government was forced to declare a state of emergency to ward off food riots. Senanayake reduced the subsidized weekly rice ration by half. The reduction remained in effect throughout the remainder of the "national government" period and contributed greatly to UNP's defeat in the 1970 general elections.
The UNP paid more attention to Buddhist sensitivities than it had in the past, and in an effort to widen the party's popularity, it replaced the Christian sabbath with the Buddhist poya full-moon holiday. This action satisfied Buddhist activists but alienated the small but powerful Roman Catholic lobby. The UNP also tried to earn favor with the Tamils by enacting the Tamil Regulations in 1966, which were designed to make Tamil a language officially "parallel" to Sinhala in Tamilspeaking regions. Sinhalese activists immediately expressed hostility toward the Tamil Regulations. Civil violence ensued, and the government was forced to proclaim a state of emergency that lasted for most of the year.
Source: U.S. Library of Congress