US embassy cable - 04COLOMBO1573

C O N F I D E N T I A L SECTION 01 OF 02 COLOMBO 001573 
 
SIPDIS 
 
DEPT FOR SA/INS BRENNIG; PLEASE PASS TO USTR: A.WILLS, 
J.ROSENBAUM, COMMERCE FOR A.BENAISSA 
 
E.O. 12958: DECL: 09/21/2014 
TAGS: ECON, ETRD, EFIN, EPET, CE, ECONOMICS, External Relations 
SUBJECT: BRIEFING SRI LANKA'S "GOOD FRIEND" HIGH ON FINMIN 
AMUNUGAMA'S AGENDA FOR USTR MEETING 
 
REF: THOMPSON-AUSTR WILLS EMAIL 09/10/04 
 
Classified By: AMBASSADOR JEFFREY J. LUNSTEAD. REASONS 1.4 D AND E 
 
1.  (C) SUMMARY: Finance Minister Sarath Amunugama reviewed 
for the Ambassador his recent discussions with OPEC and 
outlined his thoughts on the WB/IMF meetings in Washington in 
early October.  He looks forward to meeting USTR Zoellick and 
seeks to assure USTR of the GSL's commitment to support the 
US in the WTO and to explain GSL desire to move forward on an 
FTA.  Regarding the upcoming budget process, Amunugama wants 
to find ways to increase remuneration for government 
employees.  The meeting closed with Amunugama expounding on 
one of his favorite topics, Sri Lanka's failure to embrace 
good policies, thus perpetuating the poverty cycle and 
leading to bloated, self-serving public institutions, the 
most troubled of which he has labeled publicly as "the five 
monsters."  USTR should take the opportunity during meetings 
with Amunugama to outline our desires for next steps at the 
WTO and seek clarification on possible TIFA issues. 
Amunugama is aware that consideration of an FTA will have to 
wait until after November at the earliest, but reiteration of 
this point would be helpful.  End Summary. 
 
2.  (U) During a September 21 call by the Ambassador, Finance 
Minister Sarath Amunugama reported on his recent trip to 
Geneva for discussions with OPEC, outlined tentative plans 
for his visit to Washington in October for the WB/IMF 
meetings (and, we understand, meetings with USTR Zoellick), 
and discussed some of the issues facing the GSL as it faces 
the prospect of passsing a budget in early November. 
 
OPEC: Prices Not Our Fault, Project Assistance Possible 
--------------------------------------------- ---------- 
 
3.  (C) Amunugama said his meeting with OPEC in Geneva went 
as well as could be expected.  It was a follow-on to meetings 
and discussions with Iran, Saudi Arabia, and Nigeria among 
other countries, about finding relief from elevated oil 
prices.  OPEC representatives were cordial, but adamant that 
elevated oil prices should not be blamed on OPEC alone.  OPEC 
has increased production and is trying to mitigate prices. 
While OPEC can provide assistance, it will not provide 
budgetary support for balance of payments problems. 
Nonetheless, it would consider project assistance from the 
OPEC fund, and Sri Lanka was exploring what kinds of 
assistance to request. 
 
WB/IMF Meetings 
--------------- 
 
4.  (C) Regarding the WB and IMF meetings, Amunugama said he 
would try to raise their level of confidence in the GSL. 
There have been some discussions and Amunugama felt feedback 
had generally been positive.  The IFIs remain concerned about 
the consistency and continuity of the GSL's economic policy, 
however.  The GSL is hoping for some form of budgetary 
support, but recognizes that it may not be forthcoming in the 
near term.  When the Ambassador broached the subject of the 
impending departure of IMF Rep Jeremy Carter (Note: 
reportedly at the GSL's request. End note.) Amunugama 
acknowledged that the GSL had requested someone with a "new 
point of view."  While Amunugama recognized Carter had been 
disappointed, Carter nevertheless understood the value in 
someone new interacting with the new government. 
 
The Budget 
---------- 
 
5.  (SBU) Ambassador asked what the GSL's budget priorities 
would be.  This gave Amunugama the opportunity to wax 
eloquent on several of his favorite ideas.  He discussed the 
need to improve remuneration for the public service, but 
without busting the budget.  He said the GSL is looking at 
programs to offer land and loans for up to 100,000 new houses 
for mid-career government officials.  This would not only be 
an excellent benefit for the employees, but the related 
construction boom would benefit the economy overall.  The GSL 
will also look to rationalize and take advantage of many 
scholarship and training opportunities for public servants 
that are currently going unused.  Amunugama said he wanted to 
build long-term commitment by the employees to the public 
sector, without resorting to a flat salary increase. 
 
6.  (SBU) On the country's macroeconomic fundamentals, the 
economy was doing well.  The tea, rubber and tourism 
industries were all strong performers. Remittances continue 
to be high and exports were up.  The increasing price of oil, 
and its related effects on foreign exchange markets and the 
balance of payments, were the main culprit in causing 
increased cost of living and poor business confidence. 
 
7.  (C) Regarding economic policy, Amunugama complained about 
Sri Lanka's history of poor economic decision making.  Sri 
Lanka, he said, is not a "poor country."  Rather, it is poor 
by choice, because of the policies it has adopted.  Because 
of a failure to embrace modern education and international 
norms, it was fast becoming a nation of private security 
guards and garment workers.  Amunugama pledged to continue to 
speak frankly about the problems the country is facing and 
reminded the Ambassador about his discussions of the "five 
monsters" (the five most bloated and inefficient state-run 
enterprises: the Board of Investment, the Petroleum 
Corporation, the Transport Board, the Electricity Board and 
the Railway). 
 
Meeting with USTR Zoellick 
-------------------------- 
 
8.  (C)  Regarding his meeting with USTR, Amunugama said he 
hoped to discuss the potential US-SL FTA and why it should 
"continue."  Ambassador Zoellick had been a good friend to 
Sri Lanka and Amunugama wanted to assure him of continuity in 
GSL support for US positions in the WTO.  The GSL takes its 
own positions based on its national interest and those 
interests coincide more with the US than with other 
developing countries. 
 
Comment and Recommended Points for USTR Meetings 
--------------------------------------------- --- 
 
9.  (C) The economy is hampered by the GSL's lack of decision 
making on important issues (power, roads and other 
infrastructure projects), a lack of clarity in the GSL's 
Economic Policy Framework, which is rather general and passes 
much of the heavy lifting in the economy off to the newly 
formed National Council for Economic Development (NCED) and 
Strategic Enterprise Management Agency (SEMA), and a general 
erosion of confidence as violence increases and the GSL and 
LTTE fail to make any progress towards returning to the peace 
table. 
 
10.  (C) Nonetheless, Amunugama is right that many underlying 
fundamentals remain solid and the opportunity for the economy 
to pick up with strong leadership and progress on the peace 
front remains.  We will report more thoroughly on the current 
state of the economy, second quarter trends and economic 
leadership in Sri Lanka septel. 
 
11.  (C) For USTR Zoellick's meeting with Amunugama, we 
recommend that USTR make a strong pitch for progress and 
support for US positions in the next phases of WTO 
discussions and give Amunugama a reality check on the current 
possibilities for FTA progress, given upcoming US elections 
and continued uncertainty surrounding Sri Lanka's economy and 
political situation.  It will also be a good opportunity to 
gauge senior GSL leadership's grasp of the TIFA process and 
potential agenda items (ref email). 
LUNSTEAD