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Q+A-The last days of Sri Lanka’s long war?

[Reuters, Monday, 27 April 2009 17:29 No Comment]

Sri Lanka on Monday promised to stop using heavy weapons in its fight to finish off the Tamil Tiger rebels, responding to mounting international calls to protect tens of thousands of civilians in the war zone.

 

Here are questions and answers about what happens next on the Indian Ocean island:

 

WHAT HAPPENS NOW ON THE BATTLEFIELD?

This is all but certain to be the last conventional battle in a war that has raged off and on since 1983. The Liberation Tigers of Tamil Eelam (LTTE) control less than 10 square km (3.8 square miles) of coconut groves along the coast. The area is surrounded by water on three sides, and troops on the fourth. Based on the government’s announcement, fighting is now going to be close-quarters as troops pick their way across what satellite images shows to be a sea of makeshift tents. Military officers, speaking privately, say the advance has been slowed by fields of land mines and LTTE snipers. Already, the army has been deploying snipers, commandos and special forces troops alongside infantrymen.

 

AND WHEN THAT BATTLE IS OVER?

The government’s focus will immediately shift to the post-conflict situation. That means containing potential hit-and-run attacks by remaining LTTE fighters in hiding, and quelling any moves by a group that has vowed no surrender and has a strong international support network. There is also the enormous task of clearing northern Sri Lanka of thousands of landmines and hidden weapons caches. The government will also be under pressure to rapidly resettle the nearly 200,000 civilians who have escaped Tiger areas this year, getting them out of refugee camps that have been criticised by the United Nations. President Mahinda Rajapaksa is counting on at least $1 billion in development aid to help restart the economy in northern Sri Lanka.

 

WHAT WILL THE END OF THE WAR MEAN FOR THE ECONOMY?

It will no doubt be a boost, but Sri Lanka’s $40 billion economy — long one of the strongest in South Asia — is reeling. That’s due to the global economic crisis, low foreign exchange reserves and falling prices for its main exports of garments and tea. Tourism, which has managed well enough since the war started in 1983, is also taking a beating this year. Economic growth is expected to hit an eight-year low of around 2.5 percent after 6.0 percent in 2008. The government is negotiating a $1.9 billion International Monetary Fund loan to help boost reserves hovering at less than six weeks of import cover and a balance of payments shortfall.

 

The rupee has also <LKR=> progressively fallen to new lows — it hit a record low of 120.80/121.10 on Thursday. The huge civilian exodus in the last week drove five days of gains on the Colombo Stock Exchange <.CSE>, but most traders expect it to start moving purely on fundamentals soon. With the cost of credit declining but still high and global conditions so tough, the picture is less than rosy.

 

HOW DOES THE GOVERNMENT PLAN TO MEET THOSE CHALLENGES?

Besides the IMF loan, which analysts say has prompted the central bank to stop supporting the rupee, it is banking on economic revival in the north and linking markets there with those in the capital Colombo, in the south. Tourism operators are already seeking external investors to build new properties and upgrade existing ones to bring the island back to its former glory as a top tropical destination. Rajapksa has been an advocate of local production, especially agricultural output, but has been criticised for keeping import taxes high. The central bank has also eased its tight monetary policy which has brought interest rates down. Investors hope that will spur more access to credit, more economic activity and a rise in shares on the bourse.

 

WHAT ABOUT POLITICS?

It is a very safe bet that Rajapaksa will be able to win another term. His commitment to ending a war previous leaders could not has won him big fans among the Sinhalese majority, and he has splintered the opposition. Rajapaksa’s United People’s Freedom Alliance coalition swept polls over the weekend in the Western Province, which includes Colombo and has traditionally been the stronghold of the main opposition United National Party. Local media is rife with speculation Rajapaksa will call a presidential election before it is due in late 2011 to capitalise. Rajapaksa’s allies say an early poll is likely, but that no one but the president knows when that will be.

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