ANALYSIS - Solving inequality Sri Lanka's next challenge

By Ranga Sirilal

COLOMBO (Reuters) - Sri Lankan President Mahinda Rajapaksa won a 25-year war with the Tamil Tigers long viewed as unwinnable, but now faces the challenge of reducing social and economic inequality that fueled that war and other insurgencies.

The effective end in May of the Tamil Tigers' rebellion is no guarantee of long-term peace unless the government can also deal with the root causes that linked the Tiger fight with two bloody Marxist uprisings, analysts say.

A boom in the Colombo Stock Exchange linked to government success in the war, falling interest rates and anticipated foreign direct investment are cold comfort to many of Sri Lanka's 21 million people.

Most depend on agriculture and want postwar progress faster than trickle-down effects from economic liberalisation are likely to deliver.

"Given the military's success in what many considered an unwinnable war, the government has certainly earned itself real credibility over recent months," said John Drake, an analyst with London-based risk advisers AKE Group.

Rajapaksa has already shown commitment to organising elections in conflict-affected areas, and has ambitious plans that "will require the government to follow its political and economic goals as much as its military ones", Drake said.

Census and Statistics Department data show the poorest 40 percent of Sri Lanka's people have only 13 percent of total income, while the richest fifth enjoy 54 percent.

Considering how the Liberation Tigers of Tamil Eelam's (LTTE) separatist struggle shaped external perceptions of the Indian Ocean island after it erupted in civil war in 1983, it is easy to forget two other bloody uprisings since 1971, where Marxist leaders drew popular support from economic inequality.