Peace pays in Sri Lanka

Analysis
By Jeremy Scott-Joynt
BBC News Online business reporter, Colombo

President Kumaratunga (R) has been critical of the peace process

A year into Sri Lanka's long-awaited ceasefire, the peace dividend is easy to perceive.

After two decades of strife, normal life and trade is returning to both the Tamil-dominated north and the Sinhala-majority areas elsewhere.

One sign of the walls coming down: FedEx, the international parcel service, is delivering to Jaffna, the north's biggest city and one shut off from the outside world throughout most of the conflict.

And of course, the biggest peace dividend of all is a year with no terrorism-related deaths: a dramatic contrast with the 65,000 lives lost in the island state over the previous 20 years.

Vested interest

According to the government, the secret is simple.

We asked the Tigers: 'Do you want immediate money in your hand, giving up the chance of reindustrialisation, or do you want to play the long game?' Prof GL Peiris Constitutional Affairs Minister

Previous attempts at making peace between the Liberation Tigers of Tamil Eelam (LTTE) - the Tamil Tigers, as they are known - have foundered, it believes, on an all-or-nothing approach.

Professor GL Peiris, who is both constitutional affairs minister and the government's chief peace negotiator, says the key is understanding that economic resurrection is as much an LTTE aim as political liberation.

"They are concerned with the consequences of conflict on their people rather than the causes," he told a recent conference in Colombo.

"The problem in the past was that the Tigers mistrusted the government's commitment to addressing economic issues."

The next important step is a donor conference in Japan in June this year.

At that point, Professor Peiris believes the momentum will really build as money starts flowing from the International Monetary Fund, the World Bank, the Asian Development Bank and bilateral donors.

Bumps in the road

Economic growth will hit 5.5% this year, after a 3% expansion in 2002, the forecasters at the Economist Intelligence Unit predict.

Already inflation has slid from almost 14% at the start of 2002 to some 10% at the end.

Falling defence spending, growing international trade and rising interest among international investors is contributing to swelling foreign exchange reserves, up more than a quarter to $1.7bn in December 2002 from a year earlier.

The situation, however, may be more precarious than the cheery picture would suggest.

For a start, the government is nursing a budget deficit of almost 10% of national output - a gap that is proving hard to bridge.

Private investment commitments are nowhere near as big as the government would like.

Political wrangles

And on the political front, things have recently turned rather sticky.

The Tigers say 11 of their members died in the recent sinking of a boat

The Sri Lankan navy recently sank a rebel boat it said was carrying smuggled weapons, killing 11 people on board and risking a Tiger boycott of peace talks in Tokyo.

Still, the LTTE leadership seems to believe that its best shot at a profitable peace lies with the current government.

Prime Minister Ranil Wickremasinghe's United National Front (UNF) cabinet sits in uneasy cohabitation with President Chandrika Kumaratunga and her People's Alliance (PA) after winning December 2001 parliamentary elections.

The UNF victory allowed the peace process, stalled since an abortive ceasefire in 1995, to restart.

But since December 2002 Mrs Kumaratunga has had the power to dissolve parliament - and mutterings from the PA suggest that she may not be far from using it.

Trade-off

As far as the PA is concerned, the government is giving up too much to the Tigers.

Throughout the years in which Jaffna and the north were cut off from the outside world, the Tigers levied their own taxes to help pay both for civilian services and for their cadres of soldiers.

The habit dies hard, and the taxation, largely carried out at ground level, persists much to the PA's ire, when it comes to government goods, funds and equipment.

The frequent hartals - closures of shops and businesses under Tiger orders to protest at some government slight - are a further source of aggravation.

And as for the donor conference, the PA line is that the Tamils will reap the benefits of new donor loans while the majority Sinhala population assumes the burden of paying them back.

Economic factors could also come into play, to the PA's advantage.

"The government is trying to cut back on the heavy subsidies it applies to staple goods," said Kilbinder Dosanjh of the Economist Intelligence Unit.

"As people get used to peace, that kind of day-to-day issue is going to get much more important."

'All or nothing'

The PA's impatience is demonstrated by its alliance with the hardline nationalist JVP, which still wants an explicit Tiger surrender.

The biggest protest yet against the government's peace efforts

"The people on the ground - on both sides - have spent the last 20 years being indoctrinated into thinking in all-or-nothing terms," one high commissioner told BBC News Online.

"Neither the Tamil nor the Sinhala elites are really doing enough to lay that to rest."

The government insists that the peace process is inevitably bumpy, acknowledging that settling the question of how to share government revenues in Sri Lanka's federal future is going to be tough.

"We told the LTTE that if they insisted on taxing people as they do, industrialists would be deterred from setting up shop in the north," Professor Peiris said.

"Public policy is all about choices, so we asked: 'Do you want immediate money in your hand, giving up the chance of reindustrialisation, or do you want to play the long game?'"

But opinion remains divided about whether it will get the chance.

If the talks and ceasefire last through to the donor conference in June, diplomats say, things will continue to look good.

President Kumaratunga may have other ideas, though. If she calls an election, all bets about the future of Sri Lanka and economic recovery will be off.