PRESIDENT'S RE-ELECTION ADDS SOME DEGREE OF STABILITY - MARK MOBIUS

By Anusha Ondaatjie and Jay Shankar - Rajapaksa Has ‘Lot to Do’ to Lure Mobius After Sri Lanka Vote
 Jan. 28 (Bloomberg) -- Sri Lankan President Mahinda Rajapaksa will need to use the platform of the biggest election victory in 16 years to heal the wounds left by a civil war and lure the investment he needs to rebuild the economy.

Rajapaksa won 58 percent of the vote in the Jan. 26 election, defeating his former army chief Sarath Fonseka. As troops ringed Fonseka’s downtown Colombo hotel and the opposition alleged voting irregularities, the president sought to woo the 40 percent of voters who backed his estranged rival. “I am everybody’s president and will be broadminded in carrying out my tasks,” Rajapaksa, 64, said.

As he plots a second term, the challenge remains to craft a political settlement for minority Tamils and rebuild a country blighted by 26 years of fighting that killed more than 100,000 people. Meeting pledges to build roads, railways and power plants may help speed the process, bringing jobs and economic growth to the island.

“It’s positive to hear that the incumbent will be re- elected because it adds some degree of stability,” said Mark Mobius, who oversees $34 billion in emerging markets funds as chairman of Templeton Asset Management Ltd. “We’re not rushing in” to the stock market on the back of the result, Mobius said. “There’s a lot to be done.”

Rajapaksa must find a way to triumph in a long battle against inflation that topped 20 percent in the first 10 months of 2008, while sustaining growth. His purse strings will be tight after the island negotiated a $2.6 billion bailout package from the International Monetary Fund in July. In return, Sri Lanka agreed to reduce its budget deficit to 5 percent of GDP by 2011, from an estimated 7 percent in 2009.

Rapid Development

Rajapaksa, who says he will submit proposals for a political solution to ethnic divisions after talks with all parties, has vowed to spend $4 billion, or almost 10 percent of Sri Lanka’s gross domestic product, rebuilding roads and power plants in the north.

“Hopefully it’s going to be rapid implementation,” said Mobius. “Infrastructure is in really bad shape.”

San Mateo, California-based Templeton doesn’t hold any Sri Lanka stocks, which need to drop at least 15 percent to be attractive, he said.

Sri Lanka’s benchmark is Asia’s second-best performing this year after more than doubling in 2009. Markets were closed yesterday.

Rajapaksa’s re-election campaign was propelled by a government propaganda blitz that championed his defeat of Tamil Tiger rebels. State-owned media showered voters with images of the war triumph. The president’s face appears on a 1,000 rupee note, with pictures of victorious soldiers on the reverse side.

Devolution Hopes

Tamils want to see real proposals for devolution of powers to the northern and eastern regions where the Tigers fought for an independent homeland.

The president can move to heal the rift between the two communities if he wishes, said Paikiasothy Saravanamuttu, director of the Centre for Policy Alternatives. “There has been a constitutional provision for devolution of powers to the north and eastern provinces for two decades,” he said.

Rajapaksa won almost 58 percent of the 10.4 million votes cast in the Jan. 26 poll, the election commission said, compared with 40 percent for Fonseka. The opposition disputed the results. “The government is being blatantly anti-democratic,” said Anura Kumara Dissanayake, Fonseka’s spokesman.

‘Clear Mandate’

Fonseka’s alliance of ideologically opposed parties had worried investors who saw it leading to unstable government.

“It’s a clear mandate,” said Rajendra Theagarajah, chief executive officer of Hatton National Bank Plc, Sri Lanka’s second-biggest non-state lender by assets, said in a telephone interview from Colombo. “The people have given the incumbent the direction to lead,” he said. “Uncertainty has now been taken out of the equation. The message will give upward momentum to investment.”

The president and Fonseka, 59, worked to bring about the May victory over the Liberation Tigers of Tamil Eelam. They fell out after the president moved the general to a ceremonial post and accused him of plotting a coup.

Fonseka fared better in the Tamil-dominated Jaffna district, where voter turnout was far lower. Tamils comprise 12 percent of the population, with Sinhalese accounting for 74 percent.

“An emphatic win will make Rajapaksa very strong at the parliamentary election,” to be held by April, said Murtaza Jafferjee, managing director at JB Securities Pvt. in Colombo. Still, during campaigning, both candidates “made so many promises that it will be extremely challenging to contain the budget deficit,” said Jafferjee. The rising cost of the public sector will “bring in a greater threat of inflation, put pressure on interest rates and weaken the currency.”

source - www.bloomberg.com