US embassy cable - 04COLOMBO1958

UNCLAS COLOMBO 001958 
 
SIPDIS 
 
SENSITIVE 
 
FOR DEPUTY SECRETARY ARMITAGE FROM AMBASSADOR LUNSTEAD 
 
E.O. 12958: N/A 
TAGS: PREL, EAID, ECON, AMGT, KMCA, CE, LTTE - Peace Process 
SUBJECT: MCA POTENTIAL THREATENS ESF AND DA FUNDING/US 
LEVERAGE ON PEACE PROCESS 
 
1. (SBU) RICH, I FEEL COMPELLED TO CALL YOUR ATTENTION TO A 
POTENTIALLY MAJOR PROBLEM WITH US ASSISTANCE TO SRI LANKA, 
AND, I ASSUME, SOME OTHER MCA ELIGIBLE COUNTRIES.  FOLLOWING 
THE OMB PASSBACK EXERCISE, WE HAVE HEARD THAT ESF AND DA 
FUNDS FOR SRI LANKA WERE SLASHED BY 50 PERCENT, USING THE 
RATIONALE THAT MCA MONEY WOULD MAKE UP THE DIFFERENCE.  IF 
TRUE, THIS IS UNACCEPTABLE AND RISKS UNDERMINING MCA BEFORE 
IT GETS UNDERWAY.  IT WOULD DESTROY TWO YEARS OF HARD FOUGHT 
IMPROVEMENTS IN OUR USAID PROGRAMS IN SRI LANKA.  OUR USAID 
PROGRAMS ARE FOCUSED ON SUPPORTING PEACE AND THEY GIVE US 
IMMENSE LEVERAGE, RELATIVE TO THE AMOUNT OF MONEY SPENT, IN 
THE PEACE PROCESS. 
 
2. (SBU) WE UNDERSTAND OMB HAS PROPOSED ESF AND DA CUTS  OF 
50 PERCENT OF OUR USD 12 MILLION AND USD 6.6 MILLION REQUESTS 
RESPECTIVELY.  THESE PROPOSALS WERE ESSENTIALLY FLATLINE 
REQUESTS, NEEDED TO SUSTAIN OUR ONGOING PROGRAMS.  WHILE TRUE 
THAT SRI LANKA IS AN MCA ELIGIBLE COUNTRY, ITS MCA COMPACT 
PROPOSAL IS STILL IN ITS INFANCY.  FURTHER, MCA IS UNDER NO 
OBLIGATION TO FUND A COMPACT PROPOSAL.  FINALLY, THE COMPACT 
PROPOSAL IS COMPLETELY A GSL EXERCISE, WITH NO RELATIONSHIP 
TO USAID FUNDING OR THE KINDS OF TECHNICAL ASSISTANCE AND 
CAPACITY BUILDING USAID PROGRAMS ARE PROVIDING. 
 
3. (SBU) WITHOUT SUFFICIENT ESF AND DA FUNDING, THE USG WILL 
BE UNABLE TO CONTINUE PROGRAMS SUCH AS THE INFORMAL 
COOPERATION AIMED AT BOLSTERING THE PEACE PROCESS AND SETTING 
THE STAGE FOR EVENTUAL RECONCILIATION, PROMOTION OF 
EMPLOYMENT AND TRAINING PROGRAMS FOR UNEMPLOYED YOUTH, 
ENHANCED SRI LANKAN COMPETITIVENESS IN WORLD MARKETS THROUGH 
TECHNICAL ASSISTANCE AND EFFORTS TO BOOST AGRICULTURAL 
PRODUCTIVITY TO ENHANCE LIVELIHOODS.  IN ADDITION, OUR 
CURRENT OFFICE OF TRANSITION INITIATIVES (OTI) PROGRAM 
PROVIDES IMPORTANT SUPPORT FOR THE PEACE PROCESS THROUGH ITS 
SMALL-SCALE, BUT HIGH IMPACT, LOCAL PROGRAMS.  OTI IS 
SCHEDULED TO PHASE OUT IN EARLY 2006.  IF ESF AND DA ARE CUT, 
WE WILL BE UNABLE TO MOVE INTO AN OTI FOLLOW-ON PROGRAM.  THE 
MCA CONCEPT PAPER CURRENTLY SEEKS ASSISTANCE IN IRRIGATION, 
THE APPAREL SECTOR, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT, 
RURAL ROAD DEVELOPMENT, THE POWER SECTOR AND TRAINING FOR 
GOVERNMENT OFFICIALS. 
 
4.  (SBU) ONE FINAL CONCERN.  IN ALL OF OUR AND MCC'S 
INTERACTIONS WITH THE GSL, WE HAVE ASSURED THE GSL THAT MCC 
FUNDING IS NOT A REPLACEMENT FOR USAID FUNDS.  THE 
PRESIDENT'S INITIATIVE CLEARLY STATED THIS WOULD BE 
ADDITIONAL DEVELOPMENT ASSISTANCE, TO SUPPLEMENT THE 
ASSISTANCE RECEIVED BY COUNTRIES THAT ARE MAKING THE TOUGH 
CHOICES TO INVEST IN THEIR PEOPLE, PROVIDE GOOD GOVERNANCE 
AND ENHANCE ECONOMIC FREEDOM. 
 
5.  (SBU) I APPRECIATE YOUR ATTENTION TO THIS MATTER AND YOUR 
ASSISTANCE IN HELPING TO SET THINGS RIGHT.  GIVEN THE 
UNCERTAINTIES SURROUNDING THE MCA SITUATION, AND THE 
POTENTIAL DEVASTATING EFFECTS ON OUR USAID FUNDING, THE 
PROPOSED CUTS IN ESF AND DA FUNDING COULD SEVERELY UNDERMINE 
OUR CREDIBILITY, OUR STANDING IN THE DONOR COMMUNITY AND OUR 
LEVERAGE WITH THE GSL. 
LUNSTEAD