Q+A-Sri Lanka’s Rajapaksa tests popularity with parliament poll

Sri Lanka’s newly-re-elected President Mahinda Rajpaksa has dissolved parliament and called elections on April 8, hoping to cash in on his popularity following the end of the 25-year war against Tamil separatists.[ID:nSGE6180CF]

Here are some questions and answers on the political and economic implications

WHY WAS THE PARLIAMENT DISSOLVED NOW?

Parliament’s term was ending this year, but by advancing the election, Rajapakse is aiming to deny his rivals any time to recover from the Jan. 26 presidential election defeat. Since Rajapaksa’s re-election, his chief rival and former army commander General Sarath Fonseka has been arrested on military offences along with his supporters, a move which analysts say will reduce the strength and fighting power of the opposition.

A victory in the election will give Rajapaksa the legislative power to make sweeping changes in the country. He needs a two-thirds majority to implement a campaign promise to change Sri Lanka’s constitution aimed at a political solution for ethnic minority Tamils and Muslims. But, much will depend on what the changes are going to be.

WHAT WILL BE THE FALLOUT OF FONSEKA’S ARREST ? WHAT ARE THE RISKS?

The opposition is likely to use the arrest of Fonseka as a rallying point to regroup at the April polls. Road protests, strikes, and labour unrest could have a ripple impact on the $40 billion economy, which is poised to grow over 6 percent this year due to post-war economic optimism and high foreign investments.

But Rajapaksa has made clear that he is not shy about using the considerable organs of the state at his disposal, as has been the case with many of Sri Lanka’s previous presidents. Also, while Fonseka was a hero to many Sri Lankans for his relentless pursuit of the Tamil Tigers, it was Rajapaksa who won the presidential election with a landslide margin of 18 percentage points.

WHAT ABOUT THE ECONOMY/FINANCIAL MARKETS?

Sri Lanka’s booming stock market <.CSE> has been keeping up a record pace since the end of the war in May, gaining 125 percent in 2009 to earn it a spot among the world’s best performers. It was resilient throughout the bumpy election campaign and since Rajapaksa was declared the winner, it hit new record highs on almost every day. A lot of that is driven by local buying, since foreign investors are net sellers. Analysts and investors say that since the war is gone, the politics don’t make a huge difference. What matters is whether Rajapaksa sticks to pledges made to the IMF to rein in a budget deficit and improve the country’s macroeconomic fundamentals.

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