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Q+A: Is this the endgame in Sri Lanka's war?

(Reuters) - Sri Lankan troops thrust into the last Tamil Tiger-held area as an exodus of at least 49,000 people from it gathered speed, and the Red Cross warned of catastrophe in the apparent endgame of Asia’s longest-running war.

Here are questions and answers about what happens next on the Indian Ocean island:


On Tuesday, the military was advancing and expanding its control of the 17 square km (6.5 sq mile) no-fire zone, after troops on Monday breached an earth bund blocking the main route out of the area. It is all but certain this will be the final conventional battle of the 25-year-old war. It is a safe bet the military will replicate the tactics they have used around the edges of the no-fire zone. They will use snipers to pick off Liberation Tigers of Tamil Eelam (LTTE) rebels trying to block people from fleeing. In any case, the military has vowed no more truces. So a conventional defeat looks on the cards very soon for what has long been regarded by many as one of the most resilient and ruthless guerrilla groups.


The government’s focus will immediately shift to the post-conflict situation. That means containing potential hit-and-run attacks by remaining LTTE fighters hiding around the island and quelling any moves by a group that has vowed no surrender. There is also the enormous task of clearing northern Sri Lanka of thousands of landmines and hidden weapons caches. The government will also be under pressure to rapidly resettle the roughly 100,000 civilians who have escaped Tiger areas this year, getting them out of refugee camps that have been criticized by the United Nations. President Mahinda Rajapaksa is counting on at least $1 billion in development aid to help restart the economy in northern Sri Lanka.


It will no doubt be a boost, but Sri Lanka’s $40 billion economy -- long one of the strongest in South Asia -- is reeling. That’s due to the global economic crisis, low foreign exchange reserves and falling prices for its main exports of garments and tea. Tourism, which has managed well enough since the war started in 1983, is also taking a beating this year. Economic growth is expected to hit an eight-year low of around 2.5 percent after 6.0 percent in 2008. The government is negotiating a $1.9 billion International Monetary Fund loan to help boost reserves hovering at less than six weeks of import cover and cover a balance of payments shortfall. Add to that the rupee’s progressive fall to new lows -- it hit a record low of 120.00/30 on Tuesday -- and months-long doldrums on the Colombo Stock Exchange and there are plenty of challenges ahead.


Besides the IMF loan, which analysts say has prompted the central bank to stop supporting the rupee, it is banking on economic revival in the north and linking markets there with those in the capital Colombo, in the south. Tourism operators are already seeking external investors to build new properties and upgrade existing ones to bring the island back to its former glory as a top tropical destination. Rajapksa has been an advocate of local production and in particular boosting Sri Lanka’s agricultural output to help people make a living and cut the high costs of imports. The central bank has also eased its tight monetary policy which has brought interest rates down. Investors hope that will spur more access to credit, more economic activity and better fundamentals for shares on the Colombo Stock Exchange.


It is a very safe bet that Rajapaksa will be able to win another term. His commitment to ending a war previous leaders could not has won him big fans among the Sinhalese majority, and he has splintered the opposition. Rajapaksa’s United People’s Freedom Alliance coalition is the favorite to win polls due on Saturday in the Western Province, which includes Colombo and has traditionally been the stronghold of the main opposition United National Party. Local media is rife with speculation Rajapaksa will call a presidential election before it is due in late 2011 to capitalize. Rajapaksa’s allies say an early poll is likely, but that no one but the president knows when that will be. He also plans polls as soon as possible in the northern province, where the Tigers have long held sway.

Editing by Jerry Norton