Sri Lanka's military victory over a 26-year long insurgency has come at a high cost to the nation's economy. With the war over, many Sri Lankans are now turning their attention to rebuilding the country's battered economy.

A high-end fashion store in the heart of Colombo once thrived on the thousands of foreign tourists who came here every year. Now, the only foreigners browsing the clothing racks are usually aid workers, diplomats or journalists.

The decline in tourism - one of Sri Lanka's biggest sources of foreign revenue - is just one of the financial hardships the country has faced during its long civil war. The Inflation rate is in the double digits. The country is facing budget shortfalls and high trade deficits.  Defense spending is at an all-time high.

Residents confident about future
But, with the war over, many Sri Lankans express confidence that this Indian Ocean island of 21 million people will bounce back as one of South Asia's economic jewels.

One of them is Channa Banduthilake, the store's manager.

"The country has been suffering for the past 30 years. Now that is over, I do not think it is correct of any one of us to expect a massive boom in the next two or three days," he said.

He says it will take at least another two or three years for the economy to recover.

But the Sri Lankan stock market had a big boost this week, with stocks climbing more than 23 percent - a gain that many economists here attribute to post-war euphoria.

Business counting on government help

Still, many business leaders in Sri Lanka are counting on their government to help the economic recovery.

Kishu Gomes is a business leader in Colombo and a former head of the Sri Lanka Chamber of Commerce.

"I believe that government will have to play a key role. Not many business organizations would be willing to make investments to get back in their livelihoods. I do not think business organizations have the capacity to do that," he said.

Cash reserves low

Part of the reason they do not have that capacity is because the country is in serious financial trouble.

Sri Lanka's foreign cash reserves are low - too low, some economists say.

It owes nearly $1 billion in foreign debt this year, and is having trouble generating revenues. Its biggest exports such as tea, coffee and textiles have been hit by the global economic downturn.

Country seeks IMF bailout

Sri Lanka is seeking a $1.9 billion bailout by the International Monetary Fund. But the United States and Britain want to tie the funds to Sri Lanka's handling of human rights abuses and its treatment of the nearly 300,000 war-displaced civilians, mostly Tamils, in government-run relief camps in the north.

Sri Lankan human rights minister, Mahinda Samarasinghe, says his government is committed to resettling most of the displaced within the first year. He says the country needs them to help rebuild the north after a quarter-century of war.

"The economic downturns we have had to face as a result of this instability, we have learned a lot of lessons. We are going to work very hard to ensure that the mistakes that were made in the past will not be made again. And the final objective is to unite all our people and give them a better life in the future," he said.

Tamils are important contributers to economy

Among those mistakes, he says, is alienating many in the Tamil community - both here and abroad - who can contribute to the country's economic recovery.

Even with an annual per capita income at $1,400, Sri Lanka is more prosperous than India, its northern neighbor and a rising star in South Asia's economy.

But, the big hope of many in the business community is a revival of tourism and the money that could bring.  Business leaders say they are pinning their hopes on a rediscovery of one of Sri Lanka's most famous treasures: its endless sun-drenched, white-sand beaches.