: Thursday6/10/2011October, 2011, 01:21

Key political risks to watch in Lanka

President Rajapakse enjoys a two-thirds parliament majority, and opposition parties — facing intra-party conflicts after successive election defeats — are unable to stop the government implementing new laws

Reuters/Colombo

Sri Lanka successfully managed to negate attempts for a Western-led push for a war crimes investigation at recently concluded UN Human Rights Council sessions, but the island nation has said it is getting ready to face fresh attempts with the support of friendly nations.
Demand for war crime probe
Western nations are still pushing the island nation for an independent probe for killing thousands of civilians in May 2009, the final stages of the Sri Lanka’s 25-year war against separatist Tamil Tiger rebels.
Amnesty International last month said between 10,000 and 20,000 civilians were killed in the war’s last months, but a national inquiry has failed so far to investigate war crimes by both the army and Tamil rebels.
Canada, for the first time, has publicly criticised Sri Lanka over its human rights record, setting the scene for a confrontation at a Commonwealth summit later this month.
At the UNHRC meeting, Canada brought a resolution to suggest that the next session in March should discuss a war crimes report by Sri Lanka’s Lessons Learned and Reconciliation Commission (LLRC), due to be presented to President Mahinda Rajapakse on November 15.
A United Nations advisory panel’s report says there is “credible evidence” both sides committed war crimes, which the government hotly contests. Many of the allegations originated with pro-Tiger sources or propaganda outlets.
Since the Tigers have been wiped out, that leaves only the government to possibly face justice over what the report says could be thousands of deaths.
Rajapakse’s government argues its attempts to reintegrate rebels must be given time, and says it is on guard to block Western moves to push forward a war crimes probe.
What to watch:
Report by LLRC, whose credibility has been questioned by local and international rights groups.
How Sri Lanka responds to fresh war crime allegations at Commonwealth summit in Perth, on October 28-30.
Any credible steps Sri Lanka will take to probe war crime evidence, at least to defuse mounting international pressure.
Further down the line, will there be an independent investigation and sanctions?
New anti-terrorism rules
Despite ending tough wartime emergency rules, the government introduced a new anti-terrorism law early last month, seen by many as a move to suppress Rajapakse’s political opponents.
Rajapakse enjoys a two-thirds parliament majority, and opposition parties — facing intra-party conflicts after successive election defeats — are unable to stop the government implementing new laws.
The new anti-terrorism rules, in addition to the pre-existing Prevention of Terrorism Act, would maintain high security zones that were established during the war.
What to watch:
Whether the government continues to use wide powers under anti-terrorism laws to suppress its opponents.
Whether the laws are used to control minority Tamils in former war zones, moves which have led Tamils to press Western nations against Rajapakse’s government.
Tussle with IMF
The central bank has been intervening in the foreign exchange market in order to prop up the rupee despite the International Monetary Fund asking it to limit its intervention due to the decline in Sri Lanka’s foreign exchange reserves.
In response, the IMF has said there has been no timetable set for a review of Sri Lanka’s progress under a $2.6bn loan, the precursor to disbursement of the programme’s eighth tranche.
Though that delay will not be an immediate problem for Sri Lanka, which had around $8.1bn in reserves by the end of July, the possibility of ratings reviews may be a concern if sustained interventions deplete reserves.
The central bank has already said the country will see a balance of payment surplus by the end of 2011, which will help to ease pressure on the currency.
What to watch:
The central bank’s response to the IMF’s request that it limit intervention and selling dollars in foreign exchange market.
Whether the IMF releases the loan tranche, which could boost investor sentiment.
Investment climate: Sri Lanka’s $50bn economy expanded 8.2% in the second quarter and the central bank has said there is a high possibility of achieving the estimated record 8.5% full-year growth.
Annual inflation eased to 6.4% in September year-on-year and the central bank puts the end-December target at between 5 and 6%, while private sector credit growth has started to slow down.
Rajapakse said at the start of October that natural gas has been found off the coast in the Mannar basin, in a well Cairn India, said required more exploration to see if it is commercially viable.
Post-war investments have picked up, with 2011 first half foreign direct investment reaching $413mn, almost double the same period in 2010.
Large investments in ports have come primarily from China, the main actor in Sri Lanka’s post-war redevelopment.
Those deals tend to be shrouded in mystery, so rumours of corruption abound. Many multinational companies have shied away, while Indian companies have also been aggressively moving in.
Since the end of the war, Sri Lanka has been increasingly reliant on China, India, and Russia for infrastructure loans and investments.
The central bank is unlikely to cut its already low monetary policy rates in the near term, but may gradually reduce them over the medium to long term to spur growth policy.
What to watch:
Commercial viability of the natural gas find.
Economic effects of big investments, and whether they trickle down to boost per-capita income. Whether the ease and transparency of doing business in Sri Lanka improves.
Macroeconomic stability, and whether inflation stays under control.