Tiger planes hit Sri Lanka economy

[TamilNet, Wednesday, 02 May 2007, 18:12 GMT]
Whilst Sri Lanka’s government has brushed aside the threat posed by the Liberation Tigers’ air attacks, the tourist industry is bracing for further setbacks as airlines pull out and other countries warn citizens to stay away. In addition to tourist arrivals falling further, Colombo’s potential as a passenger transit hub was been stymied, Hindustan Times reported. Defence spending is expected to soar as Colombo defends against the LTTE’s aircraft. Even before the recent raids, ratings agency Fitch had given Sri Lanka a rating of BB- with a negative outlook as the domestic security situation posed risks to economic stability and growth.

Acting Civil Aviation Director General Prakrama Dissanayaka told the Daily Mirror the Airline Operators Council had expressed concerns when they spoke with him on Sunday.

Saying the LTTE sudden air raids have a relative effect on airlines schedules, the council said it was finding it difficult to operate on schedule if such occurrences continued.

In addition to Emirates and Cathay Pacific which suspended their flights from Sunday more airlines are planning to reschedule their flights to and from Colombo following the recent LTTE aerial attacks, the Daily Mirror said.

Singapore Airlines has said it would fly only during the day while Thai Airways said it would assess the situation, the paper said.

Britain and Australia have raised the threat level to nationals visiting Sri Lanka while the State Department cautioned US citizens in a travel advisory updated for the first time since October 2006.

“Although there is no specific indication that American citizens or institutions are targets, there is a general risk of American citizens being victims of violence simply by being at the wrong place at the wrong time,” the State Dept. said.

The Australian foreign office said there was a danger of kidnapping for ransom of foreign nationals, including in Colombo and as such urged all Australians, particularly those of Sri Lankan Tamil origin, to ensure that appropriate identification was carried at all times.

Britain’s Foreign office warned of a high terrorism threat in Sri Lanka and said attacks against government and civilian targets have taken place throughout the country, including in areas and on travel routes popular with tourists.

The warning could affect arrivals, already down by 36 per cent over the past year, the Hindustan Times said.

"It is unfortunate that this should happen when Colombo was becoming a major hub for transit and transhipment in this region. If the war continues, it may lose this position," Harsha de Silva of the economic think tank LIRNE Asia told Hindustan Times.

With four million passengers passing through the airport, Colombo was a major hub in South Asia, the paper said.

Last year, there were over 500,000 arrivals and the industry had raked in $ 410 million to be the third largest dollar earner, it added.

Nonetheless Tourist Board Chairman Renton De Alwis vowed the industry would bounce back like in previous such crises, the Daily Mirror said.

The new economic difficulties come amid crushing inflation – 17 per cent - and soaring government spending on the military.

"Real wages fell by 10 per cent in agriculture and 12 per cent in the services. They increased only in the inefficient and loss making public sector," Harsha de Silva says.

With the air raids exposing major chinks in the defence system, Sri Lanka is expected is going in for expensive air surveillance, detection and night operations equipment and more aircraft.

The budgeted defence expenditure for 2007 was US $1.25 bn, a 28 per cent increase over the past year.

"But this could go up to US$ 1.8 bn soon," former Air Force Commander, Harry Gunatilleke told Hindustan Times.

The extra spending on defence is going to slow down developmental expenditure, especially on infrastructure.

The economy is indeed growing at 7.5 per cent, but the growth is not in the vital sectors, points out de Silva.

"Telecom accounted for 20 per cent while a critical sector like agriculture accounted for only 1%."

The government expects the war to be over in three years. But before that, the soaring defence expenditure may have sent the economy into a tail spin, Hindustan Times said.