SCENARIOS: Is Sri Lanka's quarter-century war near its end?

Fri Jan 2, 2009 10:21am EST

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(Reuters) - Sri Lanka's military on Friday said it had seized Kilinochchi, which the separatist Liberation Tigers of Tamil Eelam (LTTE) had claimed as capital of the nation they want to create for Sri Lankan Tamils.

With that, the military has struck a strategic and symbolic blow that shows it has made the most battlefield progress at any time since the war began in 1983. That has analysts asking if the ground war could soon be over.

Here are some scenarios of what could happen next:

THE BATTLE HEADS EAST

With Kilinochchi in government hands, the Tigers now control a wedge-shaped piece of land in the northeast corner of the island and a heavily defended strip on the neck of the Jaffna Peninsula that soldiers can hit from both sides now. The only major town the Tigers still control is the Mullaittivu port in the east. Troops are heading toward there on all fronts to the west and south, trying to push the LTTE toward the ocean. Another unit of near division strength -- Task Force Five -- is soon to deploy, the military has said.

DOES MILITARY SUCCESS MEAN EARLY ELECTIONS?

With the LTTE losing ground and the military riding high, President Mahinda Rajapaksa has plenty of political support. That has prompted allies to call for an early parliamentary election to consolidate power and sidestep criticism of his government's handling of the $32 billion economy leveled by the main opposition United National Party. Dates are already set for polls for two provincial councils in February, which many political observers say will be a chance for Rajapaksa to test the waters and shore up support before a national election. Some were expecting Kilinochchi's fall to be the trigger for an early national poll, but advisers have said that is but one of many factors that figure in Rajapaksa's political calculations.

WHAT ABOUT THE ECONOMY?

As predicted, both the Colombo Stock Exchange and the sliding rupee currency got a boost from Kilinochchi's capture. It remains to be seen how long that will last since both tend to move on their own fundamentals and have recorded some impressive performances in the course of the 25-year war. In December, Standard & Poor's Ratings Services cut Sri Lanka's sovereign rating by one level to B, five notches below investment grade, on declining foreign exchange reserves and a high fiscal deficit. Most analysts say a sovereign default is unlikely. That said, the IMF has warned that Sri Lanka's impressive economic growth could slow if it doesn't cut spending, stop taking expensive foreign loans and spend its foreign exchange to support the rupee. It has eased up its support for the rupee to conserve cash.

IS THAT A RISK TO RAJAPAKSA?

Not really, especially with popularity for his war effort so strong. Rajapaksa's mainly rural power base has been largely shielded from economic woes through his populist budgets and development projects. Rajapaksa is also counting on a flood of post-war reconstruction money to come in after fighting ends.

ARE THE TIGERS DOWN FOR THE COUNT?

Tiger leader Vellupillai Prabhakaran in his annual speech in November said the government was living in a "dreamland" if it thought it would win. But most analysts say the Tigers are on the defensive and losing strength. The diplomatic currency on which the Tigers had long traded -- that they are defending a minority -- suffered in December when Human Rights Watch accused them of mistreating and forcibly recruiting the Tamils they say they represent. Many analysts say Prabhakaran may order bombings or air raids in Colombo, but will not be able to reverse military gains as spectacularly as he did in the 1980s and 1990s. The military and analysts expect the Tigers to increasingly go underground as they lose turf, changing back into the guerrilla group they started as and away from the conventional force they have become. In a possible sign of things to come, a suspected rebel suicide bomber killed three airmen in Colombo hours after Kilinochchi fell.

INDIA: THE ELEPHANT IN THE ROOM

Sri Lanka's giant neighbor has always loomed large in the war. Despite a lot of noise from ethnic Tamil politicians in southern India with decades of links to the LTTE, Rajapaksa and Indian Prime Minister Manmohan Singh have agreed Tamil political grievances must be addressed while the Tigers should be dealt with militarily. And since Islamist gunmen assaulted Mumbai last month, analysts say Singh is unlikely to give any quarter to a group his own government lists as a terrorist outfit despite renewed pressure for a ceasefire from Indian Tamil politicians.

(Writing by Bryson Hull; Editing by Alex Richardson)

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