Sri Lanka reels after attack

2007-03-27 10:06

Mel Gunasekera

Colombo - Sri Lankan authorities are struggling to restore investor confidence a day after Tamil Tiger rebels launched an audacious air attack that stunned the defence establishment, officials said.

Tamil Tiger rebels carried out their first air raid early on Monday, bombing Sri Lanka's main military air base in a daring night-time mission that halted international air traffic into the island for three hours.

The attack spooked punters at Colombo's tiny stock market, with the main index shedding 37.89 points or 1.32% to close at 2 824.85 on paltry sales of 228 million rupees ($2m).

However, central bank chief Nivard Cabraal was hopeful that the country could bounce back, citing Monday's incident as a "minor setback".

Cabraal said he expected financial markets to stabilise by Tuesday and recover.

"There is no crisis of confidence after Monday's attack," Cabraal said. "People who invest in Sri Lanka have already factored that in, and put their money for the long term. We expect our growth momentum to continue."

Fears of war-risk surcharges

However, private analysts are sceptical and expect tourism and foreign capital inflows to at least slow down in the short term.

The attack, which killed at least three air force men and wounded another 16, was a sequel to a suicide bombing of the same air base and the adjoining Bandaranaike international airport in July 2001.

After the 2001 attack insurance firms slapped war-risk surcharges on airlines and ships calling at Colombo. Traffic declined and the economy went into its first recession since independence from Britain in 1948.

"I don't see a need for insurance firms to come rushing in and raise war risk premiums, as the attack was limited to a military base, not an economic target like the airport," economist Muttukrishna Sarvananthan said.

In further bloodshed, at least two soldiers were killed on Tuesday when Tigers detonated a tractor and trailer packed with explosives at an army camp in eastern Sri Lanka, a military official told AFP.

Holidaymakers

The Sri Lanka Tourist Board was quick to calm holidaymakers and rushed journalists to the international airport to show that things were "normal".

"It is bad, (but) it could have been worse if the airport was attacked," top tourism official Renton de Alwis said. "We hope our partners (tour operators) will be with us."

The tourism industry, which saw an 18% drop in arrivals last month due to harsh travel advisories from Britain and Germany, is worried that visitors will continue to stay away.

Sri Lankans are already feeling the pinch of stepped-up military action, with inflation exceeding 20% in January. The government also raised defence spending by a whopping 45%, to $1.3bn this year.

- AFP