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Sri Lanka risk: Security risk(RiskWire Via Thomson Dialog NewsEdge)COUNTRY BRIEFING FROM THE ECONOMIST INTELLIGENCE UNIT RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentC47C47Security riskB39B39Note: E=most risky; 100=most risky.SUMMARY The ethnic conflict between the government and the Liberation Tigers of Tamil Eelam (LTTE) is the principal security risk. Violence has been concentrated in the north-east and east of the country. Suicide bombings by the LTTE (including one in June 2004) have in the past resulted in civilian casualties in the capital, Colombo, and could again if current tensions between the government and LTTE escalate into open war. Demonstrations are common during the election season, all too frequently accompanied by fatalities and damage. Crime levels are rising, and the civil conflict has made weapons readily available, although crimes involving firearms (often carried by deserters from the army) usually occur in areas outside the main cities. Attacks on foreigners are rare, but foreign tourists have been targeted on occasion. SCENARIOS Peace talks with the Tamil Tigers break down (High Risk) The peace process, stalled since April 2003, still faces several obstacles. Most significantly, the government cannot grant the LTTE greater autonomy without radical changes to Sri Lanka's unitary constitution. The president, Mahinda Rajapakse of the People's Alliance (PA), has rejected the LTTE's idea of an Interim Self-Governing Authority being established (an idea put forward by the group in late 2003) before the start of talks. Mr Rajapakse said during his presidential campaign in 2005 that if he won he would only hold talks based on maintaining a unitary state. His bid was backed by the Marxist Janatha Vimukthi Peramuna (JVP), which left the governing alliance in June 2005 over concessions being offered to the LTTE concerning the management of relief for tsunami-hit areas under its control. The LTTE's decision to call a boycott of the 2005 presidential election, ensuring that the candidate whose position seemed most opposed to its own won, has also raised suspicions that the group intends to use the government's hard-line stance as an excuse for taking up arms again. Rebel attacks on the security forces have increased since the election, as have complaints from Tamils of harassment by the military. The violence is especially worrying following accusations in 2005 that the LTTE was stepping up military training of civilians, stocking up on armaments and building new military facilities. A particular concern is the army's accusation that the LTTE has built a new runway and acquired two aircraft, raising the group's 'first strike' capability. Companies that may benefit from a peace dividend--such as those in the construction sector--should remain cautious about investing in the country until there are clear signs that the peace process is back on track. The rift between factions in the Tamil Tigers results in a return to war on the island (Moderate Risk) The Tigers had traditionally been a unified force, with their leader, Velupillai Prabhakaran, seen as being in full control. However, in March 2004 conflict broke out between forces loyal to Mr Prabhakaran and those loyal to a commander in the east, popularly called Karuna. Karuna controlled 6,000 troops out of an estimated total of 15,000 LTTE fighters. Although skirmishes between the two Tamil groups resulted in Karuna's forces either disbanding or going into hiding in 2004, the northern group has regularly accused the Sri Lankan army of helping troops loyal to Karuna to assassinate Tamils loyal to Mr Prabhakaran since then. Since early 2005 the Tigers have repeatedly suggested that paramilitary groups masquerading as operatives of the splinter group have assassinated several of their top soldiers. This has raised tensions between the LTTE and the Sri Lankan army and there have been retaliatory assassinations of government intelligence agents. Investors should follow the governments response in order to see how the rift will affect the south of the country. Travel to the north and east is not advised while this uncertainty exists. Suicide bombings arising from the ethnic conflict place civilians at risk (Moderate Risk) The LTTE has in the past targeted civilian areas, dispatching suicide bombers. Attacks have been carried out against prominent institutions such as the Central Bank of Sri Lanka in the commercial district, and during periods when large groups congregate. While foreign visitors and private companies generally are not targeted, the bombings often occurred in the capital, Colombo, where foreign visitors and business people are most likely to assemble. Given the fact that the LTTE has in the past announced the breakdown of negotiations through a bombing, and as relations between the group and the government have been particularly difficult in recent months, foreigners are advised to keep away from large crowds, particularly during demonstrations. Read the local press and press releases from both sides in order to keep abreast of events that may undermine the peace process. Avoid holding meetings when demonstrations are planned, as this is when suicide attacks are most likely to occur--political rallies may be particularly dangerous. The tsunami complicates the peace process further (High Risk) The tsunami that hit Sri Lanka's coastline on 26th December 2004 devastated areas controlled by both the government and the Tamil Tigers. Whereas initially it was believed by some commentators that tensions would fall and a ceasefire would hold while the government and the rebels focused on relief efforts, the opposite has instead proven to be the case. The Tamil Tigers quickly complained that the government was attempting to stop aid flowing into rebel occupied areas. The previous president, Chandrika Kumaratunga of the PA, under pressure from foreign donors, attempted to establish a joint mechanism to be used to distribute aid by both the government and the Tigers. However, the government was unable to implement the mechanism, partly as a result of opposition from the JVP, which left the coalition in June 2005 in a row over the issue. Indeed, the JVP agreed to back Mr Rajapakse, largely owing to his pledge not to support the mechanism if he was elected. As a consequence of the mechanism not being established, aid has been held up, further aggravating the dispute between the government and the LTTE. BACKGROUND (Background material is updated twice yearly. Last update: October 15th, 2004) Armed Conflict The ethnic conflict involving the Liberation Tigers of Tamil Eelam (LTTE, or Tamil Tigers) and the government entered its 21st year in 2004. Hopes for a resolution have strengthened since the signing of a Norwegian-brokered Memorandum of Understanding between the government and the rebels in February 2002. Although there have been occasional violations of the ceasefire, a fair degree of normality has been restored in the northern and eastern parts of the island. The economic embargo on these areas has been lifted, allowing for some resumption of economic activity. Direct talks between the government and the rebels started in September 2002. Although there is less threat of the rebels resuming their armed struggle (given the current international stance against terrorism), based on the LTTEs past record, a resumption of violence cannot be ruled out. The majority Sinhalese population also remains divided over how to resolve the crisis. The conflict has damaged the economy and reduced the countrys growth potential. Heavy defence costs have diverted resources away from infrastructure development. Consequently, power generation, road transport systems and port facilities are inadequate. As a result, operational costs are higher than would otherwise be the case. Expenses have also been raised by the war-related costs of insurance, in sectors ranging from property to transport. Terrorism Private businesses have not been targeted by the Tigers, but suicide bombings have taken place in areas where commercial businesses operate, including the centraland most developedparts of the capital, Colombo. As a result, people and property are at risk from terrorist bombings. Businesses in the city face additional security costs. The international airport was bombed in July 2001, as it was deemed a military targetthere is an air force base near the airport. However, the impact was felt more by the tourist and airline industries than by the military. The international condemnation of terrorism as a political solution, coupled with the LTTEs desire to gain legitimacy, has reduced the possibility of terrorist activity on the island, at least while the ceasefire holds. Civil Unrest Civil unrest is common in the periods preceding and following elections. In the run-up to the December 2001 parliamentary vote, more than 60 people were killed as a result of factional violence. The 2004 elections were free of violence, although over 250 complaints of intimidation and ballot stuffing were registered. Demonstrations are also a common means of registering dissatisfaction with government policy towards the ethnic conflict. The timing of these demonstrations is difficult to predict, although they are typically less violent than those that occur during the campaigning for elections. Private and foreign businesses are usually not targeted by protestors. Travel should be curtailed during these periods. Business activity and travel would in any case, be affected by curfews and road blocks, which usually follow any unrest. Violent Crime Violent crime unconnected with the civil war is an increasing concern. Deserters from the army are frequently armed, and as a result of the war, access to weapons has become much easier. Local businesses have been attacked. Raids on large commercial offices and manufacturing plants are rare, and attacks are unlikely in the more developed areas of the city. Drug Smuggling and Organised Crime The LTTE is involved in drug smuggling to fund its operations and has adopted tactics similar to those used by organised crime, such as extortion and people smuggling. These activities, however, tend to occur outside Sri Lanka, among Tamil communities in other countries. There are signs that the rebels are adopting similar tactics in areas that they hold in the north and east of the country. Again, it is the Tamils that are being targeted (although the Muslim population in areas under LTTE control also face similar problems). |