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Fears of Renewed Conflict Affect Economies of Sri Lanka, Nepal

In the tiny island nation of Sri Lanka and the mountain kingdom of Nepal, worries about renewed civil conflict have begun drag down the economies.

The Sri Lankan economy remained buoyant through much of 2005, despite the tsunami disaster that struck the country only days before the year began. Stock markets boomed, the country's idyllic beach resorts were crammed with tourists, and economic growth was more than five percent.

But last month, the stock markets dropped dramatically amid fears that a two-decade old civil conflict might be ready to break out again. Ethnic Tamil rebels have warned that they will return to war this year if the four-year-old peace process does not deliver results. Violent attacks, most presumed to be carried out by the rebels, are reported almost daily in the north and east of the country.

Alastair Corera, head of the Colombo office of the credit-rating agency Fitch Ratings, says businessmen across Sri Lanka are nervous, and investor confidence is low.

"I am sure in terms of new investment, there would be certain rethinking going on. There is a lot of concerns about the possibility that there could be total breakdown [of peace], and that could damage investment, or it would put investment on hold," he said.

In Nepal, the Tourist Board says tourist arrivals dropped by four percent in 2005. Tourism is the mainstay of the Nepalese economy, providing jobs to tens of thousands of people.

Many potential visitors were scared away when King Gyanendra staged a coup and imposed emergency rule last February. The fear was exacerbated by rising violence related to a decade-long communist insurgency.

But a unilateral cease-fire declared by Maoist rebels in September brought tens of thousands of tourists flocking back into the picturesque country in the latter part of the year.

Now, after four months, the rebels have called off their truce, raising worries that the tourism industry will suffer another blow.

Narendra Bajracharya, the head of the Hotel Association of Nepal, says many Western countries are advising their citizens to stay away from the kingdom.

He says the mood is again uncertain, and Nepal is now focusing on attracting more customers from Asian rather than Western countries.

"The day the Maoists broke their truce, immediately American Embassy has come up with a communique, and they are so fast coming up with negative travel advisories that it is going to affect us," said Mr. Bajracharya. "The neighboring countries are actually more reliable for us."

The tourism industry anticipates slow times over the next two months, due to fears that violence will increase in advance of local elections scheduled for February.