1 Despite a truce with Tamil rebels, Sri Lanka's new socialist government is unlikely to deliver on its pledge to cut defense spending in the budget it presents next week, analysts say.
2 But it will have to translate its ambitious -- though vague -- economic promises into specific policies and demonstrate fiscal discipline.
3 Elected last August, the Peoples' Alliance promised to introduce welfare for the poor and agricultural subsidies, privatize state ventures and continue a free market approach while safeguarding local industry.
4 When the budget is presented in parliament Feb. 8, economists want to see how President Chandrika Kumaratunga expects to reduce a soaring deficit and without reneging on her election promises.
5 The 1994 deficit is estimated at 10 percent of the gross domestic product, or 76 billion rupees (dlrs 1.55 billion).
6 In her inauguration speech last month, Mrs. Kumaratunga said ending the 11-year-old conflict would save two percent of the GDP. Although a truce with the rebels has held for three weeks, the peace talks that began last October have made little progress.
7 'It's obvious that the government cannot reduce defense spending yet, because peace has not been achieved,' N.U. Jayawardene, a former governor of the state central bank, told The Associated Press.
8 'At each round of negotiations, they add something else to their list of demands,' Mrs. Kumaratunga said last week. 'We don't want negotiations which threaten to go nowhere.'
9 The minority Tamils say they are subjected to discrimination by the majority Sinhalese. The war for a Tamil homeland has cost 34,000 lives.
10 Investors also are watching for higher taxes, and the country's stock market fell by more than 15 percent in the last four months as financiers awaited the government's policy statement.
11 'Uncertainty on the macro-economic front is the main deterrent to attracting foreign investment,' said Thilan Wijesinghe, director of Asia Securities, a leading stockbroker.
12 The government claims it can reduce the deficit by eliminating waste and corruption. But analysts say the government may have to increase indirect taxes.
13 The tariff on petrol imports was raised from two percent to seven percent last week, which will raise 1.75 billion (dlrs 35.7 million) annually. Taxes on cigarettes and alcohol also were raised last month.
14 The president has promised not to increase taxation on corporate and personal incomes, wealth or capital gains, and stamp duties on share transactions.

Despite a truce with Tamil rebels , Sri Lanka ' s new socialist government is unlikely to deliver on its pledge to cut defense spending in the budget it presents next week , analysts say .
unlikely to deliver on its pledge
Why is Sri Lanka's new socialist government unlikely to deliver on its pledge?