Bahrain hopes for normalcy with martial law lifted
* Lifting martial law could revive business, tourism
* Opposition say abuse continues, change is only cosmetic
* Gulf Arab troops set to stay, no democracy talks in sight
MANAMA, May 25 (Reuters) - Bahrain will lift a state of emergency next week that was imposed when the government suppressed a democracy protest movement in March with the help of Saudi and other Gulf Arab forces.
After two months of negative publicity around the world over its crackdown and a collapse of business and leisure tourism, Bahrain hopes for a return to normalcy on June 1, following the end of night curfew in Manama this week.
Martial law was imposed in mid-March when the authorities broke up a sit-in of thousands at a traffic roundabout in Manama. Ending the emergency situation two weeks early, the government hopes, will send the right signals to the outside world.
But democracy activists say that while the ruling Al-Khalifa family and the Sunni Muslim elite are keen for business to return, they have no intention of easing up on behind-the-scenes repression of the majority Shi'ite population.
They would be helped in that by a purge of people who took part in the protests and other Shi'ites in many companies over the past two months. Clashes between police and protesters in Shi'ite villages would be tolerable since the country has often experienced such street unrest in the past and a media crackdown makes it less likely to get reported.
Some areas saw protests this week after a military court upheld the death sentence against two people over the killing of two policemen.
A boon for the government would be reinstating Bahrain in this year's Formula One motor racing calendar, after it was forced to postpone its grand prix scheduled for March. The championship is due to take a decision on the issue on June 3.
"Removing the curfew and ending the law earlier than the defined period shows things are moving better than expected and life is returning to normal," said Jamal Fakhro, deputy speaker of parliament. "Everybody is excited."
U.S. President Barack Obama criticised Bahrain -- an ally that hosts the U.S. Fifth Fleet and seen as a bulwark against Iran -- during a speech last week but pressure has been slight. U.S. and British warnings against travel to the country remain.
"The only way forward is for the government and opposition to engage in a dialogue and you can't have a real dialogue when parts of the peaceful opposition are in jail," Obama said, outlining the U.S. approach to uprisings sweeping the region.
He criticised the crackdown, saying mass arrests and brute force were at odds with the universal rights of Bahrainis and would not make legitimate calls for reform disappear.
But in a sop to the government, he said Bahrain had a "legitimate interest" in the rule of law and that Washington remained committed to its security. He said Iran, which complained to the United Nations over the crackdown, had tried to take advantage of the turmoil.
British Prime Minister David Cameron drew criticism last week for appearing in a photocall outside Downing Street with visiting Crown Prince Salman bin Hamad al-Khalifa. While Cameron has been a vocal critic of Libyan leader Muammar Gaddafi, he also visited Bahrain with a delegation of arms dealers earlier this year, leading to accusations of hypocrisy.
BUSINESS BOUNCE SOUGHT
The turmoil worsened Bahrain's already tarnished image as a financial hub. Its investment firms have posted steep losses since a regional property bubble burst in 2008, ending their business model of arranging financing for real estate projects.
Bankers have said lenders officially avoided closing down their offices, quietly moving some staff to Dubai to prevent relationships with the Bahraini government becoming strained.
The Bahrain Economic Development Board said in April that only four financial services institutions planned to leave. But banks could be hit by higher volumes of loan defaults after the unrest hurt the cash-flows of corporate loan customers.
Saudi tourist traffic -- which fills Manama's malls and nightclubs during the weekend -- has been reduced to a trickle.
"We survived, but hotels that focus solely on business travel have suffered," said Marwan Haddad, a sales director with Marriott hotels in Manama.
Saudi tourism was a major loss for the country.
"The main business for the weekend is GCC travellers in general and Saudi travellers specifically -- for cinemas, restaurants, malls and hotels," Haddad said.
But he said business travel had picked up in May and conference bookings were now coming back for the last three months of the year.
Removing the state of emergency, he said, is "a strong message to the world that Bahrain is back in business and safe."
Politically, the government also wants to show that things are returning to normal. Around 515 people were released from detention this week.
But military trials not only continue, new cases are coming court, such as that of a 14 year-old boy reported by rights activists on Tuesday.
Two Bahraini journalists who work for Western media were detained and mistreated by police this week in the first such incident against foreign media. Officials say abuse is not systemic but the large volume of such reports suggest otherwise.
"(Lifting the emergency) is more a message to the business community and to get back Formula One," said human rights activist Nabeel Rajab.
"But inside is totally different to the image presented to the outside world. Things look no different in terms of repression and security measures. In fact, I've seen an escalation -- even those who were released from detention are being called up again for military tribunal."
NO DIALOGUE IN SIGHT
At the same time, there is no indication of any desire within the ruling establishment to take up dialogue with the opposition that was on the table until the protests were broken up on March 17.
Talks offered by the Crown Prince had gone nowhere as the opposition was split over aims.
Three Shi'ite groups said in early March they wanted to topple the monarchy and transform Bahrain into a republic. But Wefaq, the biggest opposition group which sought an elected government and end to discrimination in jobs and housing against Shi'ites, appeared to vacillate on talks.
The government last month raised legal action against Wefaq on charges of seeking to "overthrow the constitutional order" and taking instructions from Shi'ite clerics.
One opposition figure, who did not wish to be named for fear of arrest, said hardliners within the ruling family want to bypass Wefaq and encourage the formation of a new opposition.
"Bahrain's political scene has fundamentally changed. The government is now encouraging the formation of Shi'ite groups to replace Wefaq," he said. "The government wants to sell a story to the West that all is back to normal but on the ground abuses will continue to silence dissent."
Afshon Ostovar, a political analyst based in Washington who recently visited Bahrain, said there was no sign this week that security checkpoints and tank fortifications, some near the airport or financial centre, would be removed come June 1.
Officials have said Saudi and UAE forces will remain in the country indefinitely and Foreign Minister Sheikh Khalid al-Khalifa raised the prospect last week of a permanent Gulf Cooperation Council military presence in Bahrain.
While Gulf countries fear Iran has designs on Bahrain and that Shi'ites there could help them, Bahrain's Shi'ites reject the idea as the kind of discriminatory attitude that makes many oppose al-Khalifa rule in the first place.
"Judging from what's happening now, it would be a surprise to me if lifting the emergency situation was anything more than mostly cosmetic," Ostovar said. "They are still cracking down on the same groups and detaining people. But maybe they are just trying to 'clean up' before finally troops leave (the street)." (Editing by Angus MacSwan)