ARUGAM BAY, Sri Lanka, July 21 (Reuters) - Sitting on a bed in a surf shack overlooking the Indian Ocean, 33-year-old rickshaw driver A.L. Salaheen watches the handful of surfers catch the morning waves.
This year was supposed to be the best ever for Sri Lanka's surf capital of Arugam Bay.
Four years after a ceasefire halted the island's civil war and more than a year since the 2004 tsunami, the town hoped it had bounced back.
"Last year there were not enough cabanas because of the tsunami and lots of customers," Salaheen told Reuters. "Now there are lots of cabanas and no customers."
Dozens, including foreign surfers who have been visiting the resort since the 1970s, died when the tsunami slammed ashore in Arugam Bay. Even 100 metres back from the coast, whole buildings were swept away by waters perhaps 15 to 20 feet high.
But less than six months later, surfers descended on the town on Sri Lanka's southeast coast for the World Championships. Hoteliers, most of them without insurance, pulled together money to rebuild and take advantage of the goodwill and publicity.
"This year we were hoping for real big money," says Naleen, co-owner of the Tsunami Hotel, named for the big surfing waves and then completely destroyed by its namesake.
"This should be the peak season. But this is the worst in years. People have been scared away."
Renewed violence between Sri Lanka's government and Tamil Tiger rebels has killed more than 700 people so far this year, most of them since early April, raising fears of a return to war and scaring away all but the hardiest tourists.
HIPPY SURFER HAUNT
There has been no violence in Arugam Bay so far. But it is only a few miles from areas in the east where the Tigers, government and a breakaway group of ex-rebels frequently clash.
"People see there is trouble in the Eastern Province and they do not realise there has been nothing in Arugam Bay," said Naleen.
While overall tourist figures for Sri Lanka have so far held, visitors have been staying away from Arugam Bay, leaving newly rebuilt hotels empty.
When Reuters visited recently, hoteliers estimated there were only about 25 visitors in town, compared to the 600 they had been hoping for. Many of the visitors were aid workers taking a break from reconstruction work further north.
But hard-core surfers, some of whom first came through the chain of army checkpoints around Arugam Bay at the height of the war, seem largely unconcerned. Indeed, some are glad there is a dearth of tourists.
When the first hippy surfers came to the area in the late 1970s, they slept in villagers' huts or out on the beach under the stars. Swiss physiotherapist Nadim Ismail first came before the ceasefire and says since the town has changed for the worse.
"The atmosphere has changed," he says, sipping a beer after a day on the water. "People are much more money-centred. But the atmosphere is much more relaxed again this year."
SPECIAL TASK FORCE SOCCER
That said, he's wary of the Police Special Task Force commandos as they patrol through the town carrying M-16 and AK-47 assault rifles.
During the war, Ismail says the relationship between the surfers and the security forces was awkward, and might become so again.
Once, he says the surfers protested to the local base commander after an ethnic Tamil boy was imprisoned and beaten up by police. That worsened the relationship, but they managed to build bridges with a friendly football game with the commandos.
"We were one nil up at one stage," he says. "But they won 7-1. It was a really friendly game."
For some of the hotel owners, the new, quieter Arugam Bay is good and bad.
"Commercially, it's not very pleasant," says Briton Steve John, who has just rebuilt a hotel after the tsunami. "But in other ways, it is very... pleasant."