Financial Times

Tsunami shock turns to war fears
Around this time last year the nation was still stunned by the tsunami shock that was sprung on us by nature. While we are still struggling to recover from the effects of that natural disaster, we start the New Year faced with the fearsome prospect of renewed hostilities given the manner in which the Tigers are blatantly violating the ceasefire and killing servicemen in the north. While the damage caused by the tsunami is slowly being repaired and economic growth quietly picking up, another war would have disastrous consequences for the economy with repercussions that would be far more serious than that caused by nature’s wrath and the oil price shock.

Quarterly GDP growth rates had been ticking along at a steady clip last year with manufacturing activity and the services sector performing well and exports increasing along with foreign remittances, indicating that we have weathered the initial impact of the end of textile quotas and managed to cope with sky high oil prices. Fortunately, the weather gods had been kind to us last year and we had good rains with the Central Bank reporting that the next drought cycle is not expected to emerge until 2008. This augurs well for both agriculture and hydropower generation on which this country still has an unhealthy level of dependence.

Although there were some initial fears about political stability, given the narrow margin of victory of the new president and the lack of an outright parliamentary majority for the ruling coalition, these seem to have abated and the new regime looks set to stay the course.

Now however, as 2006 dawns, we face the spectacle of familiar growls emanating from the Tigers in the north. The spate of attacks on military patrols in the past few weeks has rung alarm bells in corporate boardrooms and caused the stock market to crash, although the sell off of shares appears to be confined largely to nervous local investors as brokers report that foreigners have been on the buying side.

The private sector, led by the Ceylon Chamber of Commerce, was to move over the weekend to seek a dialogue with the government to prevent the situation from deteriorating further. The Tiger attacks are no doubt aimed at putting pressure on the government to give in to the LTTE’s demands. The Tigers, and their foreign backers, know full well that violence and fears of a resumption of the Eelam war would cripple the economy.

The Tigers are bound to raise the stakes and we had better be prepared for a few spectacular attacks in Colombo designed to maximise their media impact.
While most informed observers of the situation believe that neither the terrorists nor the government can afford to start an all out war again because of international pressure, the shadow war that has been started by the Tigers could intensify in the months ahead.

The prospect of more claymore mine and fragmentation grenade attacks has raised fears that the economic revival and concurrent prosperity this country has enjoyed since the ceasefire was signed could be reversed. This country has had more than its fair share of tragedy and, as a nation, we are now at a crucial phase in our history.

We may have to decide whether we are going to allow one of the most cruel and genocidal terrorist outfits this planet has seen this past century to bully us into submission, and sacrifice the Tamil people and much of the north and east along with two-thirds of our coastline, so that the rest of us could live it up in the leftover rump state, or pay the economic price for not bowing to terrorism.

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