US embassy cable - 05COLOMBO574

UNCLAS SECTION 01 OF 03 COLOMBO 000574 
 
SIPDIS 
 
SENSITIVE 
 
DEPT PLEASE PASS TO MCC CEO APPLEGARTH FROM AMBASSADOR 
LUNSTEAD; DEPT FOR SA/INS J.BRENNIG/N.DEAN; TREASURY FOR 
C.CARNES 
 
E.O. 12958: N/A 
TAGS: KMCA, ECON, EAID, EFIN, CE 
SUBJECT: SCENESETTER FOR VISIT OF MCC CEO PAUL APPLEGARTH 
 
1. (SBU) Summary: MCC CEO Applegarth's visit comes as Sri 
Lanka begins the post-Tsunami transition from relief to 
reconstruction.  With ample public and private funds 
available for tsunami reconstruction, the Government of 
Sri Lanka (GSL) and the Embassy see MCA funding as an 
opportunity to address the longstanding needs of areas 
not affected by the tsunami.  However, the GSL's ability 
to usher in a collaborative process, effectively 
coordinate among diverse interests and implement in a 
timely and transparent manner are issues to address 
during your visit.  The Government has begun to increase 
private sector participation in the consultative process, 
but needs to widen the scope of involvement by NGOs and 
civil society.  The Government has requested assistance 
from The Asian Foundation to bolster this effort.  Your 
visit provides an opportunity to encourage the GSL to 
revitalize the consultative process so that a focused, 
comprehensive compact proposal will be produced soon. 
End Summary. 
 
2. (U) Post welcomes the late March visit by Millennium 
Challenge Corporation (MCC) CEO Paul Applegarth.  Your 
visit comes as the country wraps up the immediate post- 
tsunami relief phase and begins to focus on rebuilding 
 
SIPDIS 
affected areas, and resuming work in non-affected areas. 
 
Effect of the Asian Tsunami 
--------------------------- 
 
3. (U) The tsunami, which has garnered almost all the 
attention paid to Sri Lanka in recent months, was a 
unique disaster.  The affected area spanned almost 700 
miles of coastline, but, except for a few isolated areas, 
reached no more than 500 meters inland.  Therefore, the 
main areas of population and economic growth, the Western 
and Central provinces, were largely untouched. 
 
Inequitable Distribution of Assistance 
-------------------------------------- 
 
4. (U) There are increasingly vocal concerns about 
inequity in the post-tsunami assistance, relief and 
rebuilding processes, especially for those areas of the 
country beset by decades of civil war.  Thousands of 
families displaced by war are still living in 
shelter/camp arrangements.  As literally billions of 
dollars have been promised for tsunami rebuilding, many 
of the people affected by the no less devastating civil 
war are feeling marginalized. This is not the fault of 
the GSL, but the effect of restricted public and private 
donations narrowly earmarked for tsunami relief. 
 
5. (U) The Government has indicated that it intends to 
focus its MCA proposals on pre-tsunami priorities.  Post 
agrees that this would be preferable to adding more money 
to the post-tsunami effort, which the World Bank Resident 
Representative has warned is at risk of being "over- 
financed." 
 
6.  (U) Regarding the effects of the tsunami, the numbers 
show that it remains a primarily human tragedy.  While 
over 40,000 were killed, the IMF has predicted that Sri 
Lanka will likely see a .5 to 1 percentage point drop in 
GDP, and the Sri Lankan Central Bank is predicting at 
most a half percentage point drop (Maldives, by 
comparison, saw its damage total almost 60 percent of GDP 
and GDP growth is forecast to drop from a projected 8.5 
percent to just 1 percent in 2005). 
 
7. (SBU) Of larger concern than the actual macro-economic 
impacts of the disaster are the challenges to the 
assistance and reconstruction process caused by poor 
coordination among GSL agencies, a lack of consultations 
in post-tsunami decision-making and a Government tendency 
to retreat behind the bulwarks of its bureaucracy.  While 
these challenges are being addressed, progress is 
proceeding at a measured pace. 
 
Political Situation 
------------------- 
 
8. (SBU) The Sri Lankan Government is headed by President 
Chandrika Kumaratunga, whose Sri Lankan Freedom Party 
heads an eclectic coalition, including the 
Marxist/nationalist Janatha Vimukthi Peramuna (JVP) 
party, which has turned from a violent past and become an 
increasingly important, if not always constructive, 
political player.  Former Prime Minister Ranil 
Wickremesinghe of the United National Party heads the 
main opposition. 
 
9. (U) The UNP was soundly defeated in elections in April 
2004, following two years in power where it instigated 
market-oriented policy reforms that helped achieve long- 
elusive macroeconomic stability.  Such stability, 
however, had still not translated into improvements in 
the lives of the rural poor, and most growth was 
concentrated in the Western province, around Colombo. 
The UNP's electoral defeat was largely at the hands of 
dissatisfied rural voters. 
 
The Peace Process 
----------------- 
 
10. (U) The peace process between the Government and the 
Liberation Tigers of Tamil Eelam continues.  The cease- 
fire has now been in effect for more than three years, 
but the peace negotiations have been stalled for almost 
two years, following the LTTE walkout of talks in April 
2003.  The GSL is currently engaged in efforts, brokered 
by the Norwegians, with the LTTE to develop a joint 
mechanism for tsunami assistance in the north and east. 
 
The MCA Process 
--------------- 
 
11. (SBU) MCA's requirements for a broad-based 
consultative process are proving the highest hurdle to 
progress on the GSL's compact proposal.  The GSL position 
is that Sri Lanka is different from many of the other MCA 
eligible countries.  It believes its democratic 
traditions and institutions are stronger and more 
developed, therefore implying a consultative mechanism 
that is built directly into their system.  In other 
words, the governance model in Sri Lanka, of a central 
government whose reach extends down to every village 
through a network of provincial governments, district 
secretaries and village-level bodies, guarantees that the 
 
SIPDIS 
needs of the people are well consulted and widely known. 
 
12. (SBU) While this network exists, its efficacy is 
debatable (Note: were the village and provincial 
Governments so effective, many of the post-tsunami relief 
and reconstruction problems would not exist. End Note). 
Sri Lanka's concept paper was a collection of projects to 
address economic needs that are well known and widely 
agreed (i.e. rural roads, power and energy, small and 
medium sized business development, irrigation and 
agriculture sector infrastructure, etc.).  However, it 
did not include many of the key points necessary for 
successful conclusion of a compact, including an 
identification and prioritization of projects to overcome 
impediments to growth, an analysis of how the proposed 
projects would overcome those obstacles, and the kinds of 
policy reforms that would clear the way for efficient 
implementation of the proposed solutions. 
 
13. (SBU) As the process has moved forward, we have been 
pleasantly surprised to see a much wider inclusion of the 
business community in the process, but we continue to 
advocate for wider NGO and civil society involvement. 
The GSL has asked The Asia Foundation and the American 
Chamber of Commerce to assist in broadening the 
consultative mechanism.  The Asia Foundation is 
interested in helping, but is wary that it not be viewed 
as some sort of "rainmaker" able to "deliver" MCA money. 
 
Comment 
------- 
 
14. (SBU) Your visit is an opportunity to gauge whether 
sufficient changes are being instituted as a result of 
the most recent MCC delegation visit in February.  Some 
progress has been made (e.g. the invitations to Asia 
Foundation and Amcham to be involved in the consultative 
process), but the GSL is facing numerous challenges with 
limited capacity and we should not have unrealistic 
expectations about the amount of progress they could have 
made in the past four weeks. 
 
15.  (SBU) During your meetings, you will have the 
opportunity to stress two main themes: 
 
--Sri Lanka needs to broaden and improve the consultative 
process as it moves toward its initial compact proposal; 
 
--Sri Lanka should prioritize and focus the concept 
paper, while paying attention to how prospective projects 
overcome obstacles to growth, how they will be 
implemented and how outcomes will be measured. 
 
16.  (SBU) The GSL wants to take advantage of the MCA 
opportunity and appears to have taken USG concerns on 
board.  Nonetheless, it remains to be seen if the 
Government will open up the process and engage in a 
sufficiently widespread consultative effort to improve 
their chances at successfully concluding a compact 
negotiation.  End Comment. 
LUNSTEAD