Solid support: President Rajapakse chairs a key aid donors meeting in Galle, southern Sri Lanka on Jan 29, 2007. Teh government claimed $4.5b in new aid. Photo TamilNet.

At the two-day donor review that ended on Jan 31, Sri Lanka’s President Mahinda Rajapakse was emphatic that the country did not want donor funding with strings attached.

But then pledges of 4.5 billion US dollars over the next two years are hard to argue and the government is keen to show that its military campaign has support.

Economist and researcher Muttukrishna Sarvananthan said the government was probably betting on the donors not withholding funds.

"I doubt the donors would hold back funds," Sarvananthan told IPS.

“The Japanese normally do not attach conditions to their aid either on economic liberalisation and reform issues or on the peace front. The Americans are also unlikely to stop aid unless the government goes back on its promise to come up with a (power) devolution package

Much of the pressure on Colombo came from the European Union which sent a low level delegation to the conference. EU chair, Germany, spoke of an aid freeze.

Europe, nevertheless, accounts for only 10 percent of Sri Lanka's annual aid flow and has limited leverage.

The government can pursue its plans as long as the conflict is confined to the Tamil-dominated north and east of the island.

"I think the government can move ahead on economic development in other parts of the country, if it could prevent attacks on economic targets outside the north and east, ‘' Sarvananthan said.

Yet, the donor review was a far cry from the last two meetings in 2003 and 2005, when the ‘peace dividend' was constantly harped upon.

Each of those meets raised more than three billion dollars. The 2003 meeting also resulted in the European Union, Japan, the U.S. and peace facilitators Norway forming the co-chairs of the ‘Tokyo Donor' conference.

At this year's meeting it was made clear that without any tangible progress in peace negotiations, development would be unsustainable and the World Bank took the lead in saying so.

‘'We want to ensure that the money provided by the donors does not fuel the war. There will be less cash if there is no progress on the peace front,'' a diplomat from a Western embassy said, asking not to be named.

But the fact remains that the government has hiked defence spending for 2007 by about 30 percent to touch 1.28 billion dollars.

A five-year-old ceasefire remains on paper as the country has slipped into all out confrontations between government forces and the LTTE.

Since December 2005, some 4,000 people have died in the violence - including more than a thousand civilians.

As government forces steadily regain land under LTTE control, the latter have retaliated with a series of strikes in the south. The country's main port in the capital of Colombo came under attack on Jan. 27 when three militant boats made an attempt to infiltrate.

A similar attack in November was mounted on the southern port of Galle, a major tourist destination and the location for the donor meeting. The day before the Galle attack, 100 sailors died in a suicide attack in the north central city of Habarana, another tourist favourite. During the first week of January twin bus bombs killed more than 20 in the south.

Nervousness was palpable ahead of Sunday's celebrations for the 50th anniversary of Sri Lanka's independence from Britain with massive troop deployments in the capital and rigorous searches of vehicles and raids.

Roads leading to the Galle sea-front, where rehearsals are being held, have been closed to traffic.

Attacks in the Sinhala-dominated south have put pressure on the economy and caused tourist arrivals to slide.

While the government's tough approach may disgruntle donors, many believe that Rajapakse may succeed if he sustains development in the south and puts forward a political solution to the ethnic conflict acceptable to donors - even if it is rejected by the LTTE.

Rajapakse has urged donors to make a disconnect between the war and economic development.

"Our aim in defeating terrorism is to liberate the peoples who have become victims of terrorism. We consider development in liberated regions and in rest of the north and east as critical in promoting sustainable peace and finding meaningful solutions to many potential conflicts within multi-ethnic and multi-religious societies,” he said.

“I have no doubt that our development partners will therefore separate terrorism from a conflict in a complex multicultural society with many income and regional disparities.”

However, donors were quick to point out that without peace any economic progress would be short lived.

"The renewed and deepening conflict in Sri Lanka over the past six months or so looms over everything else that we might say here. There is no way to politely skirt this issue. As a major development partner to Sri Lanka, the World Bank would be failing if we did not place the conflict front and centre in our deliberations," Praful Patel, World Bank Vice President for the South Asia Region, told the donor meeting.

While Rajapakse spoke of economic progress, Patel reminded the gathering that the last 14 months have been bloody and violent, especially for civilians.

"The past year has not been good at all for the families of the more than 3,500 Sri Lankans killed as a result of the increased hostilities. Nor has it been a good year for the additional over 200,000 persons displaced by the conflict. It has not been a good year for the whole population of the north and east who have gone through serious difficulties and distress."

Although the recent months have witnessed spectacular military successes for Colombo, the government has come under severe criticism by the U.N. and other watchdogs for human rights violations and letting the humanitarian situation deteriorate.

Aid agencies have complained of being forced to close projects in the north and east under government pressure.

The short-term bleak economic outlook with galloping inflation and an exchange rate under pressure did not seem to dampen a government that came out beaming at the end of the donors' meet.

"The Sri Lanka Development Forum has announced new development assistance for 2007-2009 in the region of 4.5 billion dollars," the government announced triumphantly.

Yet, it was clear that the government had recognised that if it could put forward power sharing proposals, it just might wiggle out of a tight corner.

"The government and the development partners agreed that terrorism should be separated from finding a solution to the conflict and that a lasting solution should be found through a negotiated settlement," an official statement said.