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Q+A – Sri Lanka’s mounting political unrest

[Reuters, Friday, 12 February 2010 16:52 No Comment]

Hundreds of Sri Lankan lawyers staged a silent march in the capital on Friday in a third day of street protests aimed at winning the release of losing presidential candidate Sarath Fonseka.

Here are some questions and answers on the political and economic implications of unrest in the island following the end of a 25-year war against Tamil Tiger separatists last year.

WHAT DOES THE OPPOSITION PLAN TO DO NOW?

The opposition has seized on Fonseka’s arrest to try and recover ground following President Mahinda Rajapaksa’s sweeping election victory last month. It plans to press on with nationwide protests leading up to parliament elections scheduled for April 8. The thrust of the campaign would be to portray Rajapaksa as an anti-democratic leader. Separately, led by Fonseka’s wife, the opposition has mounted a legal challenge to his arrest, petitioning the Supreme Court that his detention in military custody was a violation of fundamental rights.

WHAT WILL THE GOVERNMENT DO?

Rajapaksa is hoping that a victory for his party in the parliament election would silence all of his critics, following his own win in the presidential election last month. By advancing the election, he is aiming to deny the opposition much time to recover ground. The ruling party is expected to mobilise state resources including the government-controlled media to counter the opposition.

WHAT WILL BE THE IMPACT ON THE POST-WAR ECONOMY?

Sri Lanka’s $40 billion economy is poised to grow over 6 percent this year on post-war optimism, but it could take a hit if unrest persists and foreign investment slows. The stock market was among the world’s top performers with 125 percent return last year. Foreign investor confidence surged after the IMF approved a $2.6 billion loan in July. Since then, foreigners have invested $1.6 billion in government securities. But this year, foreign investors have already sold a net of 4.3 billion rupees worth shares and around 1.8 billion rupees since the election results were announced last month.

Analysts, however, say over the longer term the issue of whether Rajapaksa will stick to the IMF budget deficit targets and improve macroeconomic fundamentals will matter more than the current round of political instability. If the IMF pulls out, Sri Lanka could see a rapid withdrawal of foreign funds, a rating downgrade, and commercial borrowing rates rising just as the country’s central bank is eyeing a 10-year $500 million bond issue after April.

WHAT ARE INTERNATIONAL IMPLICATIONS?

[Full Coverage]

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