COLOMBO, June 15 (Reuters) - Sri Lanka's government was hours away on Wednesday from a defection by its Marxist ally that would reduce it to a hamstrung minority in parliament, but the coalition was not expected to fall altogether -- for now.
President Chandrika Kumaratunga's Marxist ally, the People's Liberation Front (JVP), has given her until midnight to abandon plans to share international tsunami aid with Tamil Tiger rebels. Aides say she has no intention of scrapping the plan.
That means that come Thursday, the Marxists -- who regard the Liberation Tigers of Tamil Eelam (LTTE) as terrorists who do not deserve aid -- will cross over to the opposition benches and the government will have to limp on, unable to pass legislation.
"It is not likely she will ditch it in the next few hours, so we are definitely leaving the government. We will not be a part of the government after midnight today," said Sunil Hadunnetti, Deputy Minister of Small and Rural Industries and a senior member of the JVP politburo.
"Our politburo will meet during the day to decide on the immediate next step after we abandon the government," he added.
Top government aides say the pact -- under which committees comprising rebels, government officials and Muslims can recommend, prioritise and monitor projects funded by $3 billion in pledged aid -- will be formally agreed within days.
The main opposition United National Party (UNP) on Tuesday allayed fears of a total government collapse or imminent snap elections, saying it would not oust the government over the aid-sharing issue.
A vote of no-confidence would need their backing as well as that of the Marxists, and analysts say the UNP are biding their time and are not ready to face a general election just yet.
But protests by the JVP and hardline Buddhist monks who want the rebels crushed are escalating.
More than 10,000 JVP supporters marched into central Colombo on Tuesday evening, waving red flags and chanting slogans against the pact and have promised more demonstrations.
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Saffron-robed monks geared up on Wednesday to stage their third rally near Kumaratunga's presidential compound in a week -- the last two of which were broken up by riot police with tear gas and water cannon.
The political feuding, which has already stalled wider efforts to convert a 2002 ceasefire into a final end to a civil war that killed over 64,000 people, is also threatening economic stability.
Once it has lost its slim working majority, the government will be unable to pass legislation or long overdue reforms in areas such as taxation and energy. And that is weighing on investors' minds.
"If there is an election, that is going to distract the business community...There will be disruptions, there will be strikes," said Vajira Premawardhana, head of research Lanka Orix Securities in Colombo.
"Political uncertainty...is going to stop the government implementing the policies that would achieve economic growth," he added. "It's a real problem. But on the other hand it gives the UNP a good opportunity to come back. The market would like that."
Analysts say a minority government could potentially survive until the next budget is due in November.
But Kumaratunga would eventually likely be left with little choice but to call an election at a time when tens of thousands of survivors of the tsunami, which killed nearly 40,000 people along the island's shores, are living in shacks and tents.
International donors are hoping the aid deal will serve as a platform to jumpstart peace talks stalled since 2003, and have called on the government to sign it "immediately".
- Reuters - Thomson Reuters Foundation
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