US embassy cable - 05COLOMBO678

C O N F I D E N T I A L SECTION 01 OF 03 COLOMBO 000678 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PLEASE PASS TO MCC D.NASSIRY; DEPARTMENT FOR 
SA/INS; COMMERCE FOR A. BENAISSA; TREASURY FOR C.CARNES 
 
E.O. 12958: DECL: 04/06/2015 
TAGS: KMCA, EAID, ECON, PREL, CE 
SUBJECT: VISIT OF MCC CEO APPLEGARTH TO SRI LANKA INCREASES 
GSL UNDERSTANDING OF COMPACT PROCESS 
 
Classified By: Classified by DCM James F. Entwistle, reasons 1.4 b and 
d 
 
1.  (SBU) Summary: During a March 29-31 visit to Sri Lanka, 
Millennium 
Challenge Corporation (MCC) CEO Paul Applegarth discussed Sri 
Lanka's 
potential compact proposal with President Kumaratunga, Prime 
Minister 
Rajapakse, Finance Minister Amunagama, Central Bank Governor 
Mendis, 
Opposition Leader Wickremesinghe, Foreign Secretray 
Palihakara,  Finance 
Secretary Jayasundera, Presidental Advisor and Strategic 
 
SIPDIS 
Enterprise Management 
Agency Chairman Tittawella, as well as representatives from 
the Government of 
Sri Lanka's (GSL) Millennium Challenge Account (MCA) steering 
committee and 
members of the business community, NGOs and civil society. 
MCC left the GSL 
with "lessons learned" from the Madagascar compact 
negotiation process and 
helped clarify the requirement that compact proposals 
directly address poverty 
reduction through economic growth.   Applegarth's visit was 
productive and well 
received by the GSL, which now needs to act on the momentum 
created by the 
visit.  End Summary. 
 
2.  (U) MCC CEO Paul Applegarth visited Sri Lanka March 29-31 
to discuss Sri 
Lanka's concept paper for MCA funding.  During a series of 
meetings with high- 
ranking GSL officials and the leader of the opposition, as 
well as members of the 
business community, NGOs and civil society, Applegarth 
highlighted a number of 
themes designed to help Sri Lanka better organize its 
consultative process and 
enhance its eventual compact proposal. 
 
3.  (U) In each of his meetings, which included President 
Kumaratunga, Prime 
Minister Rajapakse, Finance Minister Amunagama and the MCA 
working group, 
Applegarth highlighted the need for Sri Lanka to think 
broadly about the potential 
for MCA funding, spell out clearly what the proposal was 
trying to accomplish, 
focus on proposals that would lead directly to poverty 
reduction through economic 
growth and embrace the fact that MCC has no preconceived 
notions about what 
projects or proposals would best suit Sri Lanka.  Applegarth 
made clear that the 
compact proposal is entirely in the hands of the GSL and its 
partners in the 
consultative process. 
 
4.  (C) President Kumaratunga expressed satisfaction with the 
way the MCA 
process has been running in Sri Lanka and urged Applegarth to 
visit rural areas to 
see first hand the challenges to development.  The President, 
who clearly had been 
briefed on MCC, but not the GSL's initial proposals, 
discussed several areas where 
she saw potential needs, including the education and health 
sectors.  With some 
gentle prodding by the Finance Secretary, she then turned to 
several issues that are 
included in Sri Lanka's concept paper, including the 
development of small and 
medium enterprises and the redevelopment of irrigation 
reservoirs in rural areas. 
 
5.  (SBU) Prime Minister Rajapakse was particularly 
thoughtful on the MCA 
process, and was especially articulate in describing his own 
experience consulting 
with people in his constituency.  He cited one example in 
which he visited with 
local leaders, presuming that electrical power was their 
primary need, only to learn 
that it was actually far down the list.  A new road to the 
local fisheries harbor was 
what the community perceived as its most pressing need. 
Ambassador and 
Applegarth urged Rajapakse to share his views and experience 
widely in order to 
help push the Government's consultative process along. 
 
6.  (C) Finance Minister Amunagama discussed the need for 
small and medium 
enterprise (SME) development and described the GSL concept 
paper's consistency 
with the Government's overall economic development plan and 
budget priorities 
for 2005.  Amunagama praised the GSL's MCA steering 
committee's efforts, and 
said the Ministry had explicitly chosen for their MCC project 
staff, "young, 
dynamic people" who were not afraid to challenge conventional 
wisdom and think 
outside the box (Note: while members of the MCA-related staff 
are young and 
well-educated, we hope the other characteristics will be made 
evident soon. End 
note). 
 
7.  (C) Former Prime Minister Ranil Wickremesinghe, leader of 
the opposition, 
welcomed Applegarth's visit and noted that it had been his 
Government's 
initiatives that made Sri Lanka MCA eligible.  He belittled 
the current 
Government's ideas for MCA programs, noting especially that 
the proposed rural 
irrigation projects were aimed at increasing rice harvests, 
without changing 
policies on land use and crop diversification.  According to 
Wickremesinghe, 
increased rice yields will simply dampen rice prices and make 
farmers worse off in 
the long run.  When asked specifically if he thought the GSL 
would be able to 
conclude a suitable compact negotiation with MCC, 
Wickremesinghe chose to 
abandon any pretext of a willingness to cooperate with the 
Government and simply 
answered "no."  (Note: thus far the opposition has been left 
out of the MCA 
consultative process in Sri Lanka.  While Asia Foundation and 
Amcham will likely 
push for wider inclusion, it is not clear if they will be 
successful in garnering 
support for opposition participation.  End note). 
Wickremesinghe gave a detailed 
assessment of why the political composition of the current 
coalition government 
makes progress on the economic front unlikely (owing to 
Marxist-Nationalist 
coalition partner Janatha Vimukthi Peramuna (JVP) sniping 
about economic 
reform efforts).  Note: Wickremesinghe seemed in a mood to 
show his toughness. 
In addition to his scathing criticisms of the MCA proposal, 
he discussed several 
local political issues, including moves by the GSL to 
restructure the Ceylon 
Electricity Board and the Ceylon Petroleum Corporation, in 
the face of opposition 
by unions.  Wickremesinghe's solution to these challenges is 
to allow the entities 
to collapse, then pick up the pieces when people have no 
choice but to follow. 
End note. 
 
8.  (SBU) During a dinner with senior Presidential economic 
advisor Tittawella, 
Central Bank Governor Mendis and Foreign Secretary 
Palihakara, Tittawella 
commented that, so far, he thought the GSL had, 
understandably, gotten distracted 
from the MCA process and had not fully embraced the unique 
nature of the 
opportunity.  Now that the immediate needs of tsunami relief 
were behind it, the 
GSL should focus on MCA and its opportunities.  He promised 
to brief the 
President and to work with the Finance Ministry to help push 
the consultative and 
compact proposal process forward.  Governor Mendis led a 
fairly wide ranging 
discussion of needs for diversification and better policies 
in the agricultural sector, 
pulling from his experience as head of one of Sri Lanka's 
largest conglomerate 
companies (where he served until retirement last year), which 
has a significant 
agricultural component. 
 
9.  (U) During a visit to Hambantota, an extremely poor 
province in southern Sri 
Lanka, Applegarth saw first hand the effects of the December 
26 tsunami, and 
relief and reconstruction efforts that are underway.  He 
visited a medium sized 
garment factory and heard about challenges to small and 
medium enterprises 
during a meeting with representatives from the Hambantota 
Chamber of 
Commerce.  During a visit to a rehabilitated irrigation 
reservoir (Note: which did 
not look very "rehabilitated." End note), Applegarth had the 
opportunity to discuss 
challenges in the paddy sector with farmers and 
representatives from various GSL 
and local government agricultural departments.  In one 
exchange, which provided 
useful fodder for discussions in Colombo, farmers indicated 
they would be willing 
to consider crop diversification, should they get information 
and training on how 
to grow and market new products.  This statement was in 
direct contrast to 
previous assurances by local and central government 
representatives that paddy 
cultivation was a "cultural" issue and that farmers would not 
consider growing 
other crops.  Following the visit to Hambantota, Applegarth 
visited Bodyline, a 
state-of-the-art garment manufacturer and an example of Sri 
Lanka's top-of-the- 
line manufacturing capabilities. 
 
10.  (SBU) Comment: CEO Applegarth's visit was positive and 
seemed to have 
provided some needed clarity for the GSL on issues ranging 
from the consultative 
process to the kinds of analysis MCC will seek when 
evaluating proposals.  Asia 
Foundation and Amcham have already scheduled follow-up 
meetings and begun 
working with the GSL to advise them in their efforts to draft 
and implement a new 
consultative plan for the process of preparing a compact 
proposal. End Comment. 
LUNSTEAD