The Council for Liberal Democracy was founded in 1981 by Chanaka Amaratunga, a long standing member of the United National Party which was then in government. He felt at the time, in a climate of increasing government controls, that there should be an organization committed to liberal values which had long been forgotten in Sri Lanka. He thought this particularly necessary in a context in which, though the UNP government had introduced aspects of an open economy, this was without the theoretical framework that would ensure expansion of freedom in other areas and therefore contribute to the wider social success of the innovations.

The CLD broke with the UNP conclusively in 1982, over the referendum which postponed parliamentary elections for six years. After four years of trying to promote liberal thinking, in particular with regard to constitutional reforms that would promote devolution along with separation and reduction of powers at the center, Dr Amaratunga and several of his associates established the Liberal Party in February 1987.

Though the Party never established itself as an electoral success, given the need in Sri Lanka for small parties to ally themselves with larger groupings that tend to swamp their individual identity, it has continued to have an impact as a think tank. It contributed seminally to the manifestoes put forward by Mrs Bandaranaike and Gamini Dissanayake as Presidential candidates in 1988 and in 1994.

In 1996 Dr Amaratunga died in a car accident, which led to a reduction in party activity since no one else was in a position to work full time for the Party with the intellectual commitment he brought to bear. Nevertheless, in the Presidential election of 2000 the Party put forward its own candidate, Prof Rajiva Wijesinha, who came 6th in a field of fifteen, a success that served to advance the image of the party. Though parliamentary and local elections have been disappointing since, through an alliance under the banner of the Party, the Liberal Party is now the majority in the Ratnapura Municipal Council, allowing it to nominate the Mayor.

The Party is a long standing member of the Council of Asian Liberals and Democrats, and Prof Wijesinha was interim Chairman of CALD in 1999/2000. The Party has been a member of Liberal International since 1987 and has contributed to developing a framework for Liberalism in Asia through the publication of ‘Liberal Values for South Asia’ in 1998, a project sponsored by the Friedrich Naumann Stiftung. Prof Wijesinha has also conducted workshops on Liberalism in India, Pakistan, Nepal and Afghanistan, and has helped in the development of liberal groups in some of those countries, in a context in which the theoretical framework of politics in South Asia was dominated previously by sectarian and statist theories.