US embassy cable - 04COLOMBO1764

C O N F I D E N T I A L SECTION 01 OF 06 COLOMBO 001764 
 
SIPDIS 
 
FROM THE AMBASSADOR TO THE DEPUTY SECRETARY 
 
E.O. 12958: DECL: 10/23/2014 
TAGS: PREL, PGOV, PTER, PHUM, EAID, ECON, CE, Political Parties, LTTE - Peace Process, ECONOMICS 
SUBJECT: YOUR VISIT TO SRI LANKA NOVEMBER 7-8 
 
Classified By: AMB. JEFFREY J. LUNSTEAD.  REASON:  1.4 (B,D). 
 
------- 
SUMMARY 
-------- 
 
1.  (C) After 18 months with no movement toward resumed talks 
between the Government of Sri Lanka and the Liberation Tigers 
of Tamil Eelam (LTTE), the peace process is beginning to look 
less like a process and more like a protracted stalemate. 
This perception, which is gaining ground among the Sinhalese 
majority in the rural south, erodes popular support for the 
peace process, provides a potential platform for more 
radical, anti-peace elements on both sides and could spell 
political disaster for President Chandrika Kumaratunga's 
precarious coalition government.  While much of the blame for 
the prolonged impasse lies with the LTTE, domestic 
politics--and Kumaratunga's preoccupation with her own 
political future--play a significant role as well.  Your 
visit will offer an opportunity to highlight U.S. support for 
the peace process, including Norway's contribution as 
facilitator; to reinforce our message to the LTTE to respect 
the ceasefire and demonstrate flexibility on resuming 
negotiations; to press for continued economic reforms; and to 
urge greater cooperation among mainstream political forces, 
including the opposition United National Party.  End summary. 
 
------------------------- 
FROM PROCESS TO DEADLOCK 
------------------------- 
 
2.  (C)  With no demonstrable progress toward resuming 
negotiations between the Government of Sri Lanka (GSL) and 
the Liberation Tigers of Tamil Eelam (LTTE) since the Tigers 
walked out of talks in April 2003, peace negotiations seem to 
have reached an impasse with no jump-start mechanism in 
sight.  Although the Ceasefire Agreement is largely holding 
with no major military engagements reported since December 
2001, the lack of movement toward dialogue is creating a 
public perception (stoked by extremist anti-peace elements on 
both sides) that the peace process is foundering.  While much 
of the blame for the impasse lies with the Tigers, mainstream 
political forces, including President Chandrika Kumaratunga 
herself, share some of the responsibility as well. 
 
-------------------- 
TIGER INTRACTABILTY, 
CONTINUED TERRORISM 
-------------------- 
 
3.  (C) The Tigers, who broke off negotiations a year and a 
half ago, continue to show little eagerness to resume talks 
anytime soon.  The greatest obstacle remains the Tigers' 
public demand that their controversial proposal for an 
interim administration for the North and East (the Interim 
Self-Governing Authority or "ISGA") constitute the sole basis 
for resumed negotiations.  Staunch nationalistic opposition 
to the ISGA, playing to Sinhalese chauvinism and fears of a 
GSL "sell-out" to the LTTE, make accepting the LTTE's 
ultimatum politically untenable for Kumaratunga, who depends 
on one of the ISGA's most virulent opponents, the Janatha 
Vimukti Peramuna (JVP), to maintain her coalition.  Even 
though the LTTE has indicated that it will consider GSL 
counter-proposals as well during the course of negotiations, 
the Tigers' refusal to modify their public stance leaves the 
President little space to maneuver. 
 
4.  (C)  Besides inflexibility on the negotiating front, the 
LTTE continues to demonstrate ruthless disregard for the 
terms of the Ceasefire Agreement (CFA). Repeated acts of LTTE 
violence, including in Colombo, contribute to a popular 
perception that the CFA is unraveling--and that Norwegian 
facilitators and Nordic CFA monitors are doing little to 
constrain the Tigers.  Although most of the  more than 2,400 
Tiger ceasefire violations are comparatively minor, 
non-violent infractions, the Tigers have killed 123 civilians 
since the ceasefire began--with more than half of those 
murders (64) occurring over the past four months.  Tiger 
efforts to reassert control in the East following the 
defection of Eastern military commander Karuna in March 
account for much of the recent uptick in violence.  (Another 
likely factor:  improved LTTE intelligence, gained through 
the greater freedom of movement allowed under the CFA, has 
helped the Tigers eliminate a number of Army informants as 
well.)  LTTE suspicion (which seems to us well founded) of 
Government colllusion in Karuna's defection, moreover, has 
deepened the Tigers' distrust of GSL motives and furnished 
them yet another pretext for stalling negotiations.  Although 
the Tigers have stopped raising the Karuna incident as an 
obstacle to resuming talks, it seems unlikely that they will 
return to the table until they believe they have eliminated 
all resistance and re-established control in the East. 
 
---------------- 
WHAT CAN WE DO? 
---------------- 
 
 
5.  (C)  How to influence Tiger behavior remains our greatest 
challenge.  Your visit, which follows closely upon a 
top-level Tiger delegation's visit to Europe and precedes 
Prabhakaran's much-anticipated annual "Heroes' Day" policy 
statement on November 26, will provide a prime opportunity to 
do so.  The international community is now speaking with 
greater clarity and in greater unison to condemn Tiger 
terror.  We understand that the Tiger delegation to Europe 
heard unprecedentedly tough talk from their hosts about the 
LTTE's continued violence and inflexible negotiating stance. 
Your public statements should highlight those themes, 
underscoring that the U.S. position toward the LTTE will not 
change as long as LTTE behavior remains unchanged--but also 
that a genuine change in Tiger behavior can bring a change in 
our attitude toward them.  In addition, you should underscore 
U.S. support for the Norwegian role as facilitators, which 
has come under recent attack in the media and from 
pro-nationalist political sources. 
 
6.  (C)  Our lack of contact with the LTTE in many ways 
constrains our ability to try to influence Tiger behavior, 
although those who do have contact with the Tigers have not 
been able to influence them either.  (Moreover, some of our 
European colleagues have told us that our refusal to deal 
with the LTTE--a position which clearly perturbs the LTTE 
leadership--gives us special leverage over the Tigers.) 
Other potential avenues include increased 
military-to-military cooperation--which the LTTE clearly 
regards as a threat--and a clampdown on the Tigers' foreign 
funding sources, including the Tamil diaspora in Europe, 
Canada and the U.S.  In your discussions with GSL 
interlocutors, you may wish to seek their suggestions on how 
best we might help press the LTTE to modify both its public 
positions and its behavior. 
 
 
--------------------------------- 
MAINSTREAM POLITICS: 
HIJACKED BY RADICAL NATIONALISTS 
--------------------------------- 
 
7.  (C)  While the Tigers bear most of the blame for stalling 
negotiations, mainstream political parties are partially 
responsible as well.  President Kumaratunga's ability to 
maneuver her way out of the no ISGA/no negotiations box 
imposed by the Tigers is severely limited by the opposition 
United National Party (UNP) on one hand and her largest 
coalition partner, the radical ex-revolutionary JVP, on the 
other.  Although the UNP and Kumaratunga's Sri Lanka Freedom 
Party (SLFP), as the two largest parties in the country, are 
closer ideologically and command far broader popular appeal 
than radical chauvinist movements like the JVP or the 
pro-Buddhist Jathika Hela Urumaya (JHU), the deep-seated 
personal enmity between Kumaratunga and UNP leader Ranil 
Wickremesinghe impedes bipartisan cooperation, including on 
such critical matters of national interest as the peace 
process.  As a result, comparatively small parties like the 
JVP and JHU are hijacking the national agenda, dominating the 
debate over the peace process with hard-line stances against 
the ISGA and undermining support for resumed negotiations. 
JVP and JHU appeals to Sinhalese majority fears of a GSL 
"sell-out" make it increasingly difficult for the President 
to find a politically feasible position from which to 
recommence talks.  Unfortunately, however, the longer the 
hiatus becomes the more it looks like the GSL has lost 
command of the situation--and the greater the opportunity for 
the JVP and JHU to fill up the vacuum by mobilizing 
opposition to the peace process.  Moreover, the President's 
inability or unwillingness to rein in the JVP, upon which she 
depends to maintain her razor-thin majority and increasingly 
shaky coalition government, feeds UNP accusations that she is 
more preoccupied with her personal political fortunes than 
with preserving the peace process begun by the previous UNP 
government. 
 
8.  (C)  Some of the UNP criticism is accurate.  Since the 
elections in April, Kumaratunga has done little until 
recently to bolster popular support for the peace process. 
Her establishment of a multipartisan National Advisory 
Council, which met for the first time on October 4, was a 
promising initial step.  UNP leader Wickremesinghe's decision 
to boycott this inaugural session--a decision that aligned it 
with fringe elements like the pro-LTTE Tamil National 
Alliance and the chauvinist JHU--was regarded by many in the 
party as a political miscalculation.  Future sessions of the 
Council, which we understand will take place at the 
politically more palatable working level, could give the UNP 
a face-saving opportunity to participate at a more junior 
level, although the UNP leadership still tells us it has no 
intention of attending.  We want to encourage the President 
to continue such efforts to consolidate support for the peace 
process while urging the UNP not to squander the good work 
toward peace begun under its administration by refusing to 
cooperate now that its rival is in power. 
 
9.  (C)  In your conversations with the President and UNP 
leader Wickremesinghe, you should re-emphasize the need to 
demonstrate greater bipartisan support for the peace process. 
 You should urge the Government to mobilize greater public 
support for the peace process or risk ceding the initiative 
to radical elements like the JVP and JHU.  With 
Wickremesinghe you should stress the importance of ensuring 
that his historical role in initiating the peace process not 
be diminished by failing to support his successor's continued 
efforts--and that his obstinacy is costing him political 
support. 
 
10.  (C) On the brighter side, it is important to remember 
that the peace process continues, even though negotiations 
remain stalled.  Ongoing demining programs, small-scale 
reconstruction efforts and conflict mitigation activities at 
the local level are all key parts of this process.  As the 
hiatus between rounds of dialogue lengthens, these activities 
become more important than ever as a way of giving Sri 
Lankans of all communities a stake in the outcome of the 
peace process. 
 
---------------- 
ECONOMIC REFORM 
---------------- 
 
11.  (SBU) In your meetings with the Prime Minister and 
President, you will want to stress the importance of clear 
policies showing this government's commitment to economic 
reform in generating economic growth, creating jobs, 
restoring investor and donor confidence, and promoting 
stability and peace.  Uncertainty depressed the investment 
climate and slowed economic growth slightly after the 
elections in April, and indicators now show around 5.5 
percent GDP growth for 2004.  The service sector continues to 
drive growth, while the industrial sector holds steady and 
agriculture struggles.  Interest rates have risen, as 
inflation continues to increase.  The rupee has depreciated 
almost 6 percent since the beginning of the year.  Though the 
depreciation has been good for exports, the corresponding 
increase in import prices, accompanied by the rise in oil 
prices has increased the overall trade deficit. 
 
12.  (SBU)  In general,  Kumaratunga's dependence upon the 
left-wing JVP for her own political survival has slowed 
progress on economic reform.  Her government views the rural, 
agriculture-dependent poor as a strong base of support and is 
looking at ways to appease this influential constituency. 
Thus, although the government pledged to move ahead on 
economic reform, it has refused to consider privatization 
opportunities, has increased hiring in the public sector and 
has maintained subsidies (though oil prices have forced 
partial price increases at the gas pumps).  That said, the 
GSL has created three new bodies to oversee economic 
reform--none of which have been operating long enough to 
determine their effectiveness.  The Strategic Enterprise 
Management Agency (SEMA) is charged with returning 12 key 
state-owned enterprises, including the electricity board, the 
petroleum corporation and state banking institutions, to 
profitability.  The National Council on Economic Development 
includes public and private sector representatives working to 
identify key needs in their industries and recommendations 
for making them more competitive and sustainable.  We are 
told that the first round of policy recommendations will be 
highlighted in the government's budget presentation in 
November.  Finally, a new Government Procurement Agency is 
charged with overseeing and streamlining large scale 
Government procurement processes. 
 
---------------------------------------- 
Millennium Challenge Account 
---------------------------------------- 
 
13.  (SBU)  Sri Lanka has been slow off the blocks in the 
race for MCC funds.  Despite some early indications that the 
GSL understood MCC's charge, the Government is only now ready 
to submit a concept paper, the precursor to a compact 
proposal.  There is also little indication that ideas have 
been subject to wide consultations, a fundamental requirement 
of the  MCA process.   Delays on the MCA front are due to 
several factors.  First, the GSL has rejected the former 
government's Poverty Reduction Growth Facility (PRGF) program 
and has held few discussions with the World Bank and IMF 
about developing a new plan.  Second, the new government 
feels pressure to develop its own budget (to be submitted to 
Parliament November 18) to differentiate its policies from 
those of the former government, particularly with regard to 
assistance to the agricultural sector.  Finally, the new 
Finance Secretary has dismissed virtually all members of the 
senior Ministry staff with relevant experience (either as a 
result of personal or policy differences) and is relying on 
the highly bureaucratized National Planning office instead. 
The GSL must begin soon to engage the opposition parties, 
donor community, business community and domestic and 
international NGOs to build support for its initiatives or 
risk being the last out of the MCA gate. 
 
--------------------- 
U.S.-Sri Lanka Trade 
--------------------- 
 
14.  (U) The US is Sri Lanka's dominant trading partner, 
absorbing roughly 38 percent of Sri Lanka's exports (and 60 
percent of its garments) and accounting for USD 1.8 billion 
per year in sales.  US exports to Sri Lanka have declined in 
recent years, amounting to USD154 million in 2003.   These 
numbers do not, however, reflect US exports of services, and 
goods transported through third countries, which we believe 
to be significant.  Sri Lanka has been pushing for a Free 
Trade Agreement with the US.  Current prospects are dim, 
however, given the electoral season in the US and the lack of 
progress on economic reforms in Sri Lanka.  We continue to 
look for ways to increase US exports, including the possible 
use of the Indo-Lanka Free Trade Agreement to import 
components from the US, add the requisite value in Sri Lanka 
and then re-export final products, in many cases duty free, 
to India.   Trade and Investment Framework Agreement (TIFA) 
talks were held in Washington the week of October 25. 
 
------------------------ 
MEDIA RELATIONS 
------------------------ 
 
15.  (U)  Sri Lanka has a dominant government-owned media 
sector, as well as a growing--and increasingly 
influential--independent media.  The majority of Sri Lankans 
get their news from government-owned television or radio 
broadcasts, which are relayed in English, Sinhala and Tamil, 
and can be received throughout the island save for parts of 
the north.  The government media are horrendous in their 
obeisance to the rulers, and, across the board, 
unprofessional reporting can be a problem.  The peace process 
remains the focus of the media.  You should expect questions 
to revolve around the U.S.' listing of the LTTE as a Foreign 
Terrorist Organization and around prospects for increased 
military and development assistance.  Given the timing of 
your visit, you might also receive queries on how the outcome 
of the U.S. elections may affect U.S. foreign policy, both 
worldwide and specifically relating to Sri Lanka.  You may 
also expect questions about U.S. involvement in South Asia 
and our bilateral relations with India. 
 
------------------------- 
USAID PROGRAMS 
------------------------ 
 
16.  (U) For FY 2005 the administration has proposed USD 18.8 
million in funding for USAID programs supporting Democracy 
and Governance (USD 5 million); Economic Development (USD 9.7 
million); Humanitarian Assistance (USD 1.4 million); and, 
through the Office of Transition Initiatives (OTI), USD 2.7 
million for activities supporting the peace process.  OTI 
projects aim to demonstrate the tangible benefits of peace; 
increase the exchange of balanced, accurate information on 
peace issues; and to promote community-level conflict 
management and peaceful co-existence.  OTI-funded programs 
are currently operating in the North, the South and the 
ethnically diverse East.  Democracy and Governance program 
activities targeted at supporting the peace process include 
creation of a multipartisan dialogue, facilitated by foreign 
experts with direct experience in other peace processes, 
between politicians in the predominantly Sinhalese south and 
pro-LTTE Tamil parliamentarians;  political party 
strengthening at the local and provincial levels; and 
community-level alternative dispute resolution. 
 
--------------------------------------------- ------ 
MILITARY-TO-MILITARY RELATIONSHIP 
--------------------------------------------- ----- 
 
17.  (C)  Sri Lanka,s roughly 150,000-man military is 
attempting to develop enough combat power to defeat the LTTE 
if the cease-fire fails--a capability the military now lacks. 
 In March 2002, all three services of the Sri Lankan military 
approached the US Embassy with significant requests for 
military sales.  The findings of three separate Department of 
Defense Assessment teams in 2002 revealed systemic and 
operational weaknesses, especially shortcomings in doctrine, 
mid-level leadership and training, as well as severe 
equipment shortfalls in four areas ( maritime surveillance 
and interdiction; battlefield intelligence and surveillance; 
military communications and mobility; and basic soldier 
items).   The DoD teams, recommendations have helped focus 
our military engagement and assistance, and continue to serve 
as guideposts for engagement.  The military faces additional 
burdens--poor recruitment and retention, lack of training and 
operational resources, as well as a continuously decreasing 
budget.   Sri Lanka began receiving FMF in FY2004 and 
receives, in an expanding program, funding for International 
Military Education and Training (IMET).  Sri Lanka is 
eligible to receive Excess Defense Articles (EDA) and 
recently took ownership of the ex-US Coast Guard Cutter 
"Courageous," scheduled to arrive in Sri Lanka in early 2005. 
  The Sri Lanka Air Force continues to seek four C-130 
aircraft under the EDA program.  However, no aircraft are 
available for the foreseeable future. 
 
18.  (C)   Engagement with the Sri Lankan military has 
offered unlimited access to the experiences (positive and 
negative) and lessons learned by all three services during 
nearly twenty years of fighting the world,s most prolific 
users of suicide technology and IEDs.  Recent exchanges and 
exercises held in Sri Lanka have resulted in information that 
will directly improve the survivability of US forces serving 
in harm,s way.  Our military-to-military relationship, 
moreover, sends a direct message to the Tigers that they 
should not go back to war--and that if they do, they will 
face a more capable Sri Lankan military. 
 
------------------------------- 
SECURITY SITUATION 
------------------------------ 
 
19.    (SBU)  In your conversations with the Prime Minister 
and President, you may wish to express appreciation for the 
GSL's consistent responsiveness to our periodic requests for 
increased security.  In spite of the ceasefire, the LTTE 
remains a deadly terrorist organization, continuing a 
campaign of assassinations against scores of political rivals 
and informants. Most of the LTTE's violence is directed 
against Tamil or Muslim opponents, and there is no recent 
reliable information of Americans being specifically targeted 
by the LTTE.    That said, the Tigers' terror techniques, 
including their mastery of  the most sophisticated suicide 
bombing technology in the world, continue to pose a 
significant threat.  In July the LTTE sent a suicide bomber 
to assassinate a Tamil political rival just one block from 
the embassy.  Although the assassination attempt was 
unsuccessful, the bomber detonated herself in a nearby police 
station, killing herself and four police officers. In 
October, Post received uncorroborated information that the 
LTTE might attempt to identify/target suspected American 
intelligence officers in Sri Lanka for assassination.  This 
information continues to be investigated. 
 
 
 
LUNSTEAD