Sri Lanka is heading into election mode, after President Mahinda Rajapaksa's government said early presidential and parliamentary polls will be held by April. Sri Lanka's opposition parties have formed an alliance to challenge President Mahinda Rajapaksa's government in upcoming presidential and parliamentary elections. Expecting Rajapaksa to win re-election to a second six-year term is still a safe political bet, in spite of growing union threats and the emergence of former army commander General Sarath Fonseka as a potential challenger. Already, trade and university student unions which back the opposition JVP, Sri Lanka's main Marxist party, have threatened slowdowns from Nov. 11. Past election seasons have shown they can disrupt normal economic life. The first shot was fired by workers from the state-owned oil company in a four-day slowdown last month to demand pay raises Rajapaksa promised to deliver after the war ended, but has not. Fonseka has been silent on his plans, but his presidential candidacy would split Rajapaksa's core nationalist vote base because he could no longer lay sole claim to the war victory at the ballot box. That could derail Rajapaksa's plans to have a two-thirds majority in parliament, which would give him the votes to change the constitution. Although foreign direct investment into Sri Lanka has picked up now the war is over, investors say there are plenty of reforms that need to be made on both the macro- and microeconomic levels. Doing business can be a tricky affair in Sri Lanka. Under Central Bank Governor Ajith Nivard Cabraal, inflation has fallen from record levels last year to single digits. But, the president in his capacity as finance minister cut state bank lending rates in half, in a move analysts say was driven more by election politics than sound fiscal management. Central bank officials said they were not made aware of that decision, normally their purview, until after it happened. Any sign of an erosion in fiscal policies laid down by the central bank, which were instrumental in the negotiations to secure a $2.6 billion International Monetary Fund (IMF) loan. Credit rating agencies say adherence to the IMF plan is crucial to international investor confidence in Sri Lanka, which last month issued a $500 million sovereign bond. Any signs that Cabraal is being sidelined so the government can dish out the usual election-season largesse, which could run it afoul of the IMF. Western countries, and groups in the Tamil diaspora who supported the Tamil Tigers, are pressing for some kind of accountability for thousands of civilian deaths at the end of the war. Sri Lanka is adamant its soldiers fought in proportion to the LTTE threat and did not violate international law. The US State Department, at the behest of Congress, prepared an overview report of potential war crimes which hit the government and Tamil Tigers in equal measure last month. The European Union's executive has also recommended Sri Lanka be suspended from a trade preference called GSP Plus, which has been a boon to the nation's apparel industry, its biggest earner of foreign exchange. The government is adamant it can live without GSP Plus, and diplomats say the government's lack of interest in answering the accusations will make it hard to reverse the negative recommendation. The exigencies of the upcoming election, where anti-Western sentiment is a strong vote-getter, mean there is unlikely to be much compromise until polls are over, by which time it could be too late. In the case of the US war crimes report, Sri Lanka has promised to investigate. One big risk is how the government handles roughly 260,000 Tamil war refugees who fled fighting in the waning months of the war, and are now being held in military-run camps. Western countries, India and the United Nations are pressing the government hard to send them home, and Rajapaksa has said 70-80 percent will be resettled by January. So far, about 15,000 have been sent home, and last week the government said it had begun moving at least 40,000. Those pressuring Sri Lanka say holding them will breed resentment detrimental to reconciliation between the Tamil minority and the Sinhalese majority. The Tamil Tigers are finished as a guerrilla fighting force, but there are still well-financed members of its international network out there and no shortage of Tamils raised on the LTTE's virulent propaganda who are furious at how the war ended. Sri Lanka says there is minimal threat, but military and police checkpoints are ubiquitous in the capital, Colombo. The broad message is that the military and intelligence agencies are not finished neutralizing remnants of the Tiger networks responsible for assassinations and suicide bombings. A gradual easing of security will indicate greater government confidence it has finished the LLTE. Any attack credibly attributed to Tiger remnants. It would likely be shrugged off quickly by investors.
