President Mahinda fly to Delhi

* President Mahinda fly to Delhi - Sri Lanka Guardian
* Sri Lanka opposition accuses President Rajapaksa of plotting coup- The Times - UK
* Presidential election tomorrow andanalysts cautious on promises - Fiscal position ‘in danger’ * No matter who wins, India's stake in Lanka will go up- Times of India

President Mahinda fly to Delhi
Monday, January 25, 2010 (January 25, Colombo, Sri Lanka Guardian)
According to information reaching through reliable sources confirm, President Mahinda Rajapakse is now flying to Delhi in a special jet. It is unclear why the President has decided to fly to Delhi suddenly without engaging in the election process.

One source confirmed that the President made arrangements with the Indian political leadership to have an urgent meeting as the indications of voting in the election are expected to be unfavourable for him. The President is expected to request for Indian military intervention to prevent his opponent Gen Sarath Fonseka becoming the President.

It is unclear how India could pre-empt and militarily intervene to thwart a democratic decision of the people.

When Sri Lanka Guardian contacted a source close to the President Mahinda Rajapakse, he rubbished the claim of Mahinda’s desperation and said, ‘the President is flying to Delhi for a special religious pooja at a Hindu temple somewhere in Delhi’.
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From The Times January 25, 2010
Sri Lanka opposition accuses President Rajapaksa of plotting coup

Chandrika Kumaratunga, right, came out in support of General Fonseka, left
Ralph Michael in Colombo Sri Lanka’s opposition accused President Rajapaksa yesterday of planning to stage a coup if he did not win tomorrow’s fiercely contested election.

Opposition leaders backing Sarath Fonseka, the former army chief who is the main challenger to Mr Rajapaksa, cited troop movements and plans to block the results and gag the independent media.

“In the face of inevitable defeat the Rajapaksa regime seems to be conspiring to thwart the democratic process,” Mangala Samaraweera, a former Foreign Minister who supports General Fonseka, said.

The general, who led the military campaign that defeated the Tamil Tiger rebels in May, said that the Government had moved 15 armoured personnel carriers to Colombo, the capital, and recalled senior army officers considered disloyal.

The President’s office denied the allegations and said it was confident that Mr Rajapaksa, who dismissed General Fonseka as army chief last year, would easily win the first election since the defeat of the Tigers.

Diplomats and political analysts said that the leading candidates, who have split the vote of the Sinhalese majority, appeared to be neck and neck when the campaigning ended on Saturday. They also warned that the two men’s rivalry, which observers say has caused at least four deaths, could spiral out of control — especially if the election result is disputed.

Mr Rajapaksa, 65, announced on Saturday that he had ordered the police to take “stern action” against anyone disrupting peace and democracy in Sri Lanka. “I will not hesitate to call for the armed forces if the police and the STF [Special Task Force] fail to ensure peace and democracy in society,” he said.

Mr Rajapaksa, who called the election early to capitalise on the Tigers’ defeat, suffered one of his biggest setbacks yet yesterday when his predecessor, who is also the matriarch of the ruling party, declared her support for General Fonseka.

Chandrika Kumaratunga, who was President until 2005, is an influential political figure in Sri Lanka. Her father, a former Prime Minister, founded the Sri Lanka Freedom Party that Mr Rajapaksa heads.

“I took the decision to end four years of silence, as I am concerned about the violence, intimidation and corruption,” she said after meeting General Fonseka. “Our party has deteriorated in recent years and I see an opportunity to revive it through a change of the culture of violence, intimidation, corruption and nepotism.”

The leaders of the opposition alliance backing General Fonseka said that they had appealed to police and security forces not to carry out any illegal orders.

“We have to be ready now to protect our franchise,” said Ranil Wickremesinghe, a former Prime Minister who leads the opposition United National Party. “We are making counter plans. We will get on to the streets if necessary.”

General Fonseka, 59, has accused the Government of politicising the 275,000-strong army by installing loyalists as senior commanders and forcing some to speak out against him. He said that he had the support of the lower ranks. “We are 100 per cent certain that the military and police will not carry out the orders [to seize power],” he said.

The result, which is due on Wednesday, will depend to a large extent on how Sri Lanka’s 2.5 million Tamils vote. Many blame Mr Rajapaksa and General Fonseka for alleged war crimes last year.
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Presidential election tomorrow and analysts cautious on promises
Fiscal position ‘in danger’
By Devan Daniel
A Citigroup report on Sri Lanka’s presidential elections to be held tomorrow says the promises made by President Mahinda Rajapaksa and his rival Rtd. General Sarath Fonseka to increase public sector wages and subsidies may prove to be difficult to implement given the state of the country’s public finances — a warning often repeated by economist and analysts with the Central Bank being more vocal.

"Both candidates promise higher public sector salaries and larger subsidies, although this may be difficult to implement given the fiscal deficit stipulations required by the IMF’s (US$ 2.6 billion) Stand-By Arrangement," said a Citigroup report titled ‘Sri Lanka Macro Flash: Elections — What can We Expect on January 26’.

The stipulations of the IMF for Sri Lanka’s budget deficit is based on the government’s own targets set on the Fiscal Management Responsibility Act, where the deficit — historically underestimated at each budget — is expected to reach five percent of GDP by 2011.

The government proposes to achieve this target by rationalising public spending and broadening the tax net, without introducing new taxes.

While the IMF is confident the government could reach the budget deficit of seven percent for 2009, data is yet to come in for analysis.

According to available data for the first nine months of 2009, the budget deficit has grown by 30 percent to US$ 322.6 billion, which works out to 6.5 percent of GDP.

The deficit for the corresponding period of 2008 was Rs. 246.9 billion, 5.6 percent of GDP. By the end of 2008, the deficit reached Rs. 340 billion and 7.7 percent of GDP. The original estimate for the budget deficit was Rs. 293 billion, 7 percent of GDP.

On the positive side, during the first nine months of 2009, revenue collection had improved by 12 percent but recurrent public spending increased by 19 percent, while capital spending on long term infrastructure declined by 2.7 percent.

Going into 2010, the Central Bank warned that the fiscal position was in a precarious position and the government should therefore desist from increasing public sector wages and reckless spending.

Analysts warn that since public sector wage increases are captured in GDP figures economic growth may not be real.

They said 2010 would be a difficult year with parliamentary elections to be held next.

"It is unlikely we will have fiscal stability this year irrespective of who comes in to power," an analyst told the Island Financial Review.

Infrastructure development and integration of the North and East to the rest of economy would require more government spending while expenditure on public health, education and other subsidies are expected to continue.

"If we are not careful about the budget deficit we could have problems financing the deficit. Now that we are a Middle Income country, concessionary loans may be hard to come by which means the country would have to borrow at market rates. Inflation is waiting in the sidelines to catch up with us if we are not careful and so is the spectre of high interest rates," a dealer told the Island Financial Review.

Dealers said investors remained uncertain in the run up to the presidential election and domestic borrowings had also dried up.

Public debt has increased to Rs. 4,154 billion in 2009 compared to Rs. 3,578 billion the previous year.

According to the Central Bank, government debt was 105 percent that of the country’s Gross Domestic Product (GDP) in 2002. In 2004 it came down to 102.3 percent and has since declined gradually to reach 81.1 percent in 2008.

In 2004, the outstanding debt stock amounted to Rs. 2.139 trillion with the domestic debt stock amounting to Rs. 1.143 trillion. In 2008, the outstanding debt stock reached Rs. 3.578 trillion.

However, the government’s debt stock increased to 84.4 percent of GDP in 2009. The estimated outstanding debt stock amounts to Rs. 4.154 trillion with the domestic component reaching Rs. 2.407 trillion.

If MR wins a second term...

The Citigroup report said Rajapaksa’s election manifesto focuses on developing employment generating infrastructure projects in key areas such as ports, aviation, energy, roads and housing.

It said Rajapaksa also proposes to conform to the devolution of power to the provinces under the 13th Amendment.

"A victory for President Rajapaksa would in our view bring two key benefits: (1) policy continuity, and (2) infrastructure development," Citigroup said.

Economists and analysts speaking to the Island Financial Review agreed that this would be the case, but warned that infrastructure development alone would not help unless there was more fiscal discipline.

Some dealers said they expected the exchange rate to remain stable throughout the year while inflation is expected to reach around 8 percent for 2010.

Economists and analysts said despite winning the war and placing the country on the trajectory for strong economic growth, the government’s recklessness in some areas of public spending (such as the upkeep of a large number of ministers and some infrastructure projects a few analysts termed ‘ego projects’) and corruption levels could put pressure on sustainable and equitable development.

If SF wins...

"On the other hand," Citigroup said, "Fonseka’s pledges suggest he would: (1) help weed out the causes of profligacy in public finances through improved governance and an independent audit commission, and (2) take more conciliatory measures towards appeasement and resettlement of the Tamil minority, which would go down well with the international community."

Economists and analysts agree that ending corruption and implementing the 17th Amendment would go down well with the economy, some suggesting it would be a prerequisite for sustainable inclusive development.

But uncertainty behind the UNP-JVP coalition is the biggest drawback and this could delay investments until such time the alliance proves itself.

Some dealers said UNP economic policies could lead to a depreciation of the rupee leading to double digit inflation.

"If this happens Central Bank’s independence would be validated and they would have to tighten its monetary policy to curtail inflation and then interest rates would increase once again," a dealer said.

Economists found it difficult to explain the economic implications of a Fonseka victory.

"The UNP and JVP have not indicated how they plan to run the economy. Fighting corruption and executive presidency is top on their list. While ending corruption is crucial, diluting powers of the president is debatable. There is uncertainty about the economic implications as the Fonseka camp has not been very clear on this," an economist said.

According to Citigroup, this gives Rajapaksa a slight edge.

"At this juncture, it appears that Rajapaksa may be marginally better positioned to deliver on promises. This is because Fonseka’s coalition government has varying ideologies (the JVP is generally know to have leftist leanings while UNP is more pro-market), which could make implementing reforms more difficult," it said.

An analyst summed the presidential election tomorrow in these terms: "On the face of it, the choice is between corruption and chaos. Voting has much to do with trusting and hoping."

Note from the Business Desk…

The comments from economists and analysts were gathered over a period of time since the presidential election was announced last year. None of them wanted to be quoted saying they were free to express their views on condition of anonymity.
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No matter who wins, India's stake in Lanka will go up
Indrani Bagchi, TNN, 26 January 2010, 02:48am டைம்ஸ் ஒப் இந்தியா
NEW DELHI: A closely fought election in Sri Lanka on Tuesday will be watched closely in India, but notwithstanding the result, India's investment in its island neighbour will only increase. Working quietly after coming under criticism, India is now on its way to outgunning Chinese presence in Sri Lanka.

The election -- the first after the war with LTTE ended -- was a shoo-in for President Mahinda Rajapakse until his former friend and general Sarath Fonseka became the combined Opposition candidate, and proved to be a formidable rival. With the Tamil National Alliance (TNA, formerly allied closely to the LTTE) openly declaring itself in favour of Fonseka, both sides are now wooing the Tamil minority. That itself opens up the field in Tuesday's election.

What's significant in these elections is that India has become virtually a non-story -- neither of the candidates nor the vocal voters have really made India an issue. Both Fonseka and Rajapakse are comfortable with India, a feature that, like in Bangladesh, will facilitate increased Indian investment in Sri Lanka. But no one is willing to take a call on the election.

Finally, India seems to be getting a fix on how to deal with its neighbourhood. After Sheikh Hasina's visit, Bangladesh has been elevated to priority by India, but in Sri Lanka, the maturing of the Indian presence is the real story.

From the time India sent in 250,000 family rescue packs to the internally displaced persons during the war and rendered vital assistance to the war itself, it has moved to qualitatively change its largely positive ties with Sri Lanka. In 2010, India has already given $105 million in assistance to the country, making it the single largest grant in one year to any country. Although Bangladesh was the latest country to hit the $1 billion mark in assistance from India, Sri Lanka has moved way beyond the pledges and is actually showing results on the ground.

For the new president, the imperatives are clear: a political package for the north, empowerment in the east, speed up reconstruction and send the IDPs back home.

For the latter, India already has seven demining teams at work on the ground while starting a comprehensive agriculture initiative (Afghanistan is the other country where India is focusing on agriculture). But its big projects -- running over $700 million -- will be to work on connectivity in the north, particularly through two big railway projects, which India actually swiped from China. The northern railway project and the Medavachiya-Talaimanar railway will put the north on the Sri Lanka map again, but equally important, it will be the point of connectivity with India too.

Importantly, India has not been its normal lazy, timorous self when clearing projects in Sri Lanka. Thanks to strong political direction, Indian officialdom has been nothing short of fleet-footed in Sri Lanka, a benchmark Bangladeshis should hold India to.

A rejuvenated CEPA, an interconnected electrical grid and the railway projects are all awaiting a signing ceremony -- the signature will be of either Fonseka or Rajapakse during their first official visit.