BANGALORE: Sri Lankan President Mahinda Rajapaksa headed for a sweeping victory over his former army chief to win a second term, propelled by a government propaganda blitz that championed his defeat of Tamil Tiger rebels.

With 40% of the projected 10 million votes counted, Rajapaksa, 64, had captured almost 60% compared with 39% for challenger Sarath Fonseka, according to official results on state-run Rupavahini television. Fonseka's campaign officials were not immediately available for comment.

Rajapaksa's lead is "very comfortable," Foreign Minister Rohitha Bogollagama said on Bloomberg Television today. "A free and fair election has been held."

The new government must heal an ethnic divide and build on an economic recovery in the South Asian nation led by increased construction and farm production in the war-ravaged north. Sri Lanka's stocks are Asia's second-best performing this year, gaining six%, after the benchmark index more than doubled in 2009. Markets are closed today.

Troops patrolled the streets of Colombo a day after an election that witnessed only sporadic acts of violence in the Tamil-dominated north. About 70 soldiers ringed the Cinnamon Lakeside hotel where Fonseka and his supporters are based, checking people as they entered the building. Brigadier Udaya Nanayakkara, a military spokesman said by telephone that the army is looking for possible deserters.

"Harboring deserters is a punishable offense," he said adding that Fonseka is "free to come and go."

1,000 Rupee Note

Rajapaksa's campaign was boosted by his use of state-owned media to shower voters with images of the war triumph. The president's face appears on a 1,000 rupee note, with pictures of victorious soldiers on the reverse side.

Fonseka supporters drove through the heavily protected Fort area of the capital waving flags and chanting his name. He was expected to hold a press conference at 10.30 a.m. local time

The president "won because government propaganda said he united the country and defeated the Tamil rebels," said D.M. Ariyawansa Disanayaka, professor of economics at the University of Kelaniya, near Colombo, said in an interview, referring to last May's end to a 26-year civil war with the Liberation Tigers of Tamil Eelam.

Rajapaksa and Fonseka spearheaded victory in a conflict that had killed 100,000 people. They fell out after the president moved Fonseka, 59, to a ceremonial post and accused him of plotting a coup.

Declaring Victory

"Based on results so far, we are forecasting a 1.8 million-vote majority," Chandrapala Liyanage, head of the president's media unit, said in a telephone interview today. More than 14 million people were eligible to vote, with turnout projected at about 70%, according to the Election Commission.

The next president must find a way to triumph in a long battle against inflation that has often topped 20% in recent years, while sustaining growth. He must also practice fiscal restraint after the island negotiated a $2.6 billion bailout package from the International Monetary Fund in July. In return, Sri Lanka agreed to reduce its budget deficit to 5% of GDP by 2011, from an estimated 7% in 2009.

"An emphatic win will make Rajapaksa very strong at the parliamentary election," to be held by April, said Murtaza Jafferjee, managing director at JB Securities Pvt. in Colombo. "The people have shown their gratitude for the end of the war."

Economic Challenges

During campaigning both candidates "made so many promises that it will be extremely challenging to contain the budget deficit," said Jafferjee. The rising cost of the public sector will "bring in a greater threat of inflation, put pressure on interest rates and weaken the currency."

Rajapaksa, who says he will submit proposals for a political solution to the ethnic divide after talks with all parties, has vowed to spend $4 billion, or almost 10% of Sri Lanka's gross domestic product, building roads, railways and power plants in the north.

"Fonseka has put up a good fight. After the election the uncertainty will clear," Ranjan Hulugalle, director of equities at First Guardian Equities, told Bloomberg Television today. "We expect 25%-plus earnings growth across the board and the market is likely to be able to track that growth."

Legal Challenge

Bogollagama said the government may challenge the legitimacy of the retired general's candidacy in the courts.

Fonseka was not registered for the election because he was in "the battlefield" when voter lists were drawn up, his spokesman, Anura Kumara Dissanayake told reporters yesterday. The election commission said in an e-mailed statement that it was not necessary for a presidential candidate to be a registered voter.

Fonseka fared better in the Tamil-dominated Jaffna district, where voter turnout was far lower. Tamils comprise 12% of the population, with Sinhalese accounting for 74%.

Tamils living in camps or with relatives since the end of the conflict were prevented from voting because of "insufficient identity documents and the authorities failing to organize transport," the Centre for Monitoring Election Violence said in an e-mailed statement yesterday. Rajapaksa won the 2005 election with 50.3% of the vote in a ballot that was boycotted by many Tamils.