US embassy cable - 05COLOMBO1681

UNCLAS SECTION 01 OF 05 COLOMBO 001681 
 
SIPDIS 
 
DEPT FOR EB/IFD/ODF/TRT FOR D.EBERLY, V.FARRIS; 
DEPT ALSO FOR SA/INS FOR M.GOWER, C.SIM; 
TREASURY FOR S.CHUN 
 
E.O. 12958: N/A 
TAGS: EAID, ECON, PGOV, CE, MV, Maldives, Tsunami 
SUBJECT: SRI LANKA AND MALDIVES POST-TSUNAMI RECONSTRUCTION 
UPDATE (September 22, 2005) 
 
1.  This cable is for the first Tsunami Oversight Quarterly 
Mechanism Meeting 
 
2.  Summary: Tsunami reconstruction activity in Sri Lanka 
continues apace, with improvements in overall coordination, 
but bottlenecks due primarily to the 100/200 meter ?buffer 
zone.?  There have been recent suggestions by the GSL that 
a change in the ?buffer zone? policy is imminent, but there 
has been no action to date.  The Government reports that it 
has achieved its target for temporary shelter construction, 
but is now engaged in a process of upgrading temporary 
units that were not built to appropriate standards.  There 
are persistent concerns that some temporary shelter, 
particularly in the east, could be affected by flooding or 
high winds in the upcoming monsoon season.   Permanent 
shelter construction has been slow, primarily due to 
confusion over land allocation and registration of 
beneficiaries.  The overall economy appears to have been 
spared significant damage, despite high inflation, as a 
result of a rebound in tourist arrivals, good performance 
in the construction sector and the historically modest 
contribution of the fishing industry (decimated by the 
tsunami) to GDP. 
 
SIPDIS 
 
3.  Summary (cont.) USG assistance to Sri Lanka has been 
important in moving the relief and reconstruction efforts 
forward.  On the relief side, USAID/OFDA projects will be 
largely finished by 30 September, with only five of 25 
grantees still operating programs.  On the reconstruction 
front, the contract for USAID?s infrastructure projects was 
signed on September 6 and construction should start by 
January.  US Peace Corps? Crisis Corps has 25 volunteers on 
the ground providing capacity building assistance to both 
international and local NGOs.  USTDA will assist with 
projects in disaster management, communications, 
transportation and water.  US-Sri Lanka debt deferral 
agreement terms have been agreed and a signing ceremony is 
being coordinated.  PD will soon begin a program on trauma 
counseling and urban development in affected areas. 
 
4.  Summary (cont.): In Maldives, the GORM faces a 
financing gap of approximately USD 100 million for tsunami 
reconstruction.  The effects of the tsunami on the economy 
were devastating to this small nation, with damage 
estimated at approximately 60 percent of GDP.  The US 
contribution to the Maldives Tsunami Reconstruction and 
Relief Fund (TRRF) is still under discussion.  End Summary. 
 
Sri Lanka Rebuilding Efforts 
---------------------------- 
 
5.  Sri Lanka and its partners have completed the 
construction of 42,000 temporary shelters and are now 
working to upgrade shelters that have been deemed 
inadequate (Note: some early shelters were smaller than 
mandated in the Government?s ultimate guidelines and did 
not have sufficient water and sanitation facilities. End 
Note).  The Task Force for Relief (TAFOR), the GSL entity 
in charge of temporary shelter, has scaled back efforts 
considerably, with a skeleton staff coordinating with NGOs 
on the upgrade efforts. 
 
6.  We are concerned about the location of certain 
temporary shelters, largely the result of the GSL?s initial 
desire to have a 100m/200m coastal exclusion (or ?buffer?) 
zone.  Efforts to enforce the zone, and restrict 
construction, have potentially displaced thousands of 
families who previously lived very close to the coastline. 
In some cases the temporary shelters have been constructed 
away from the coast, but on land that is not suitable for 
long-term habitation, and that could be flooded in the 
coming monsoon season (which begins in late October). 
 
--Buffer Zone Change Coming? 
 
 
7.  In August, USAID sponsored a visit to Sri Lanka by 
coastal management experts from FEMA, OFDA and USGS.  These 
officials toured coastal areas and held discussions with 
GSL officials responsible for urban planning, coastal 
conservation, reconstruction and disaster management.  As a 
result of these meetings, Econchief and USAID Director were 
told by Mano Tittawella, Chairman of the GSL?s Task Force 
for Rebuilding the Nation (TAFREN), that the GSL would 
consider an exemption for individual homeowners who wished 
to return to their homesteads inside the exclusion zone, as 
long as they followed stringent rebuilding guidelines. 
Thus far, this decision has not been implemented.  However, 
on September 15 Finance Secretary P.B. Jayasundera told the 
Ambassador and other representatives of the donor community 
that the Government would make an announcement on the 
buffer zone ?within the week.?  It is not yet clear if this 
announcement will be consistent with Tittawella?s 
recommendation or not. 
 
--Housing 
 
 
8.  On the permanent housing front, the GSL has a dual 
track underway.  For individual homeowners outside the 
exclusion zone area, a grant program to support owner- 
driven reconstruction is underway.  Owner-driven permanent 
housing reconstruction is increasing, both within and 
outside the buffer zone.  Water and sanitation for this 
housing is a key concern.  As of September 9, the 
Government has released approximately USD 23 million 
towards the rebuilding of 44,500 fully or partially damaged 
homes by their owners. 
 
9.  For homeowners who previously lived inside the 
exclusion zone, the GSL is working with NGOs to implement 
donor-constructed housing projects in new locations.  This 
program has taken longer to get underway ? largely the 
result of GSL delays in granting land outside the buffer 
zone, a lack of appropriate infrastructure in newly 
identified areas and problems in the identification of 
beneficiaries.  As a result of these challenges, most of 
the NGOs were reluctant to begin construction until it was 
clear that legitimate owners would occupy appropriate 
dwellings in suitable areas.  As of September 9, the GSL 
had pledges from donors to rebuild 39,000 homes.  2,000 
homes have been completed and 20,000 are under construction 
(Note: ?under construction? is a loose term that in some 
cases means ground has been broken but no structure yet. 
End note). 
 
--New Disaster Management Council 
 
10.  The Government initiated a new National Disaster 
Management Council (NDMC), under the leadership of 
Brigadier General Gamini Hettiararchchi.  Hettiararchchi 
told Econchief that he had been instructed by the President 
to have the council and communication and evacuation 
procedures in place by October.  NDMC is experiencing some 
typical new agency glitches, including a slower than 
expected effort to recruit and hire staff.  We have found 
Hettiararchchi very impressive so far. 
 
11.  Ultimately the NDMC is expected to be the coordinating 
body for all hazard response in Sri Lanka.  It will recruit 
and train first responders and will work through district- 
level representatives in order to maximize community 
involvement. 
 
--Economy OK 
 
12.  The Sri Lankan economy (at the macro level) appears to 
have weathered the tsunami with minimal disruption, though 
high oil prices and certain non-tsunami related policy 
decisions have led to an increased budget deficit and high 
inflation.  On the micro-level, in tsunami affected areas, 
livelihoods have been severely affected. 
 
13.  The Central Bank estimates that Sri Lanka?s economy 
will grow approximately 5.4 percent this year, only 0.1 
percentage points lower than initial estimates.  The 
minimal impact is largely the result of increased 
remittances stabilizing the Sri Lankan rupee, which had 
been in free fall prior to the tsunami, and the fact that 
the main industries affected were tourism and fisheries, 
neither of which has a major impact on GDP (Note: tourism 
is the fourth largest foreign exchange earner in the 
country, but it represents only about 2.5 percent of GDP. 
End Note). The construction sector, which was a larger 
share of GDP than both tourism and fisheries combined, is 
expected to continue to show strong growth, particularly 
with Sri Lanka?s reconstruction needs. 
 
14.  While the tourism sector does not currently comprise a 
significant share of GDP, it is seen as a sector with 
tremendous potential.  There had been concerns that the 
tsunami would keep tourist arrivals low well into the near 
 
SIPDIS 
future.  However, tourist arrivals have been up 13 percent 
in 2005, despite a slow start in the immediate aftermath of 
the tsunami.  There has reportedly been a significant 
increase in regional visitors from India, Malaysia and 
Singapore. 
 
US Assistance to Sri Lanka 
-------------------------- 
 
--USAID 
 
15.  USG programs in Sri Lanka are well underway and making 
solid contributions to the relief and reconstruction 
effort.  USAID/OFDA was one of the first donors to respond 
to the tsunami and has provided over USD 36.5 million in 
grants to partner organizations for relief and 
reconstruction activities.  As of October 1, of the 25 OFDA 
programs initiated after the disaster, only five will 
remain for closeout.  OFDA has been a major player in 
relief operations, microfinance and the transitional 
housing sector. 
 
16.  On the reconstruction side, USAID will provide USD 33 
million in large-scale infrastructure assistance.  USAID 
completed its tender process in late August and signed a 
contract with CH2M Hill International on September 6 for 
project implementation.  USAID will: 
 
--build a new 700 meter bridge over Arugam Bay (in eastern 
Sri Lanka), improve water and sanitation facilities in the 
surrounding area, and consult with communities on tourism 
development; 
 
--rebuild up to 14 vocational educational facilities, 
including two ?model schools?, and provide equipment and 
technical assistance with curriculum design; and, 
 
--work closely with communities to rebuild and upgrade 
fisheries in Dondra, Hikkaduwa and Mirissa (in Western and 
Southern Sri Lanka). 
 
We expect construction to begin in January. 
 
--USTDA 
 
17.  The U.S. Trade and Development Agency (USTDA) will 
provide US$ 2,095,000, through five separate grants, for 
tsunami-related reconstruction efforts related to emergency 
 
SIPDIS 
communications, water and transportation in Sri Lanka.  The 
Ambassador signed these agreements and held a related press 
conference on September 19. 
 
--Crisis Corps 
 
18.  Peace Corps? Crisis Corps began its operations in Sri 
Lanka in early April, 2005.  We have recently approved 
continuation of the program past six months, and current 
plans are for Crisis Corps to continue its operations 
through the end of September 2006.  Crisis Corps has 25 
Volunteers in country working with local and international 
NGOs to build capacity of staff, to support institutional 
development and activities as related to post-tsunami 
projects and programs.  All volunteers work for 3-6 months 
with partner organizations.   Crisis Corps plans to have 2 
more rounds of 15 volunteers serve over the next year. 
 
--Debt Deferral 
 
19.  In accordance with the agreement struck by the GSL 
with the Paris Club, the USG has offered to defer USD 40 
million in debt owed by the GSL.  Agreement language has 
been approved and Post hopes to arrange signature of the 
documents within the next week. 
 
--Other Efforts 
 
20.  Post?s PD office will soon sign a USD 75,000 contract 
with the University of Pennsylvania to set up programs with 
Sri Lankan universities dealing with trauma counseling and 
urban development in affected areas.  There is also a USG 
team in Colombo this week to discuss the Indian Ocean Early 
Warning System assistance program that is being run out of 
USAID/Bangkok. 
 
Maldives 
-------- 
 
21.  The GORM is facing a severe financing gap 
(approximately USD 110 million) for its reconstruction 
efforts.  The overall effect of the tsunami on the tourism 
industry has led to a significant budget shortfall 
(approximately USD 100 million) (Note: resort occupancy 
fell to less than 30 percent for several months following 
the tsunami.  Maldives resorts had been running at almost 
90 percent occupancy previously and are just now getting 
above 70 percent. End Note).  Economic growth is expected 
to contract by 2.4 percent in 2005 (economic growth was 7.5 
percent in 2004 and has been steadily increasing over the 
past five years).  International reserves are down to 1.5 
months of import cover.  The tsunami damage has been 
estimated to be as much as 60 percent of GDP. 
 
22.  Various Red Cross entities (the IFRC, French Red 
Cross, Canadian Red Cross) have pledged approximately USD 
57 million, which will be used to handle restoration of 
housing.  The GORM estimates it still needs approximately 
USD 16 million for housing, USD 4 million for education 
support and USD 27 million (the largest shortfall) for 
water and sanitation.  DCM and Econchief met with World 
Bank and UN representatives in Maldives on September 14. 
Both representatives commented that progress on the 
reconstruction front has been slowly moving ahead, though 
financing gaps have caused delays. 
 
23.  The US has pledged USD 8.7 million to Maldives? 
Tsunami Relief and Reconstruction Fund (TRRF).  Post is 
 
SIPDIS 
currently in discussions with the Ministry of Finance 
regarding the agreement.  In addition to water and 
sanitation and electrification, Maldives might apply some 
U.S. funds to financial sector capacity building.  While 
this project may sound unrelated to the tsunami, Maldives 
usually deals with foreign assistance of about USD 30 
million per year and keeps their national accounts in the 
small business computer application ?Quickbooks.?  The 
tsunami has increased the amount they need to absorb to 
 
SIPDIS 
approximately USD 350 million. The Finance Ministry is 
stretched to its limit.  The World Bank and ADB are also 
looking at contributing to this effort.  End Note). 
 
24.  Econchief has met with Deputy Finance Minister Riluwan 
Shareef twice in Maldives and has urged a faster GORM 
response.  DCM met recently with the Foreign and Finance 
Ministers and has also urged quick action to get US funds 
flowing.  It is clear, however, that while the technical 
capacity of the GORM players is high, the bench is not 
deep.  Most of the senior GORM Finance officials are in 
Washington for the World Bank/IMF meetings this week, but 
have promised to continue their coordination efforts and 
get a response to us soon. 
 
Comment 
------- 
 
25.  COMMENT:  As the one-year anniversary of the tsunami 
approaches, Sri Lanka has in many ways made good progress, 
with most tsunami-affected people in acceptable, if not 
ideal, shelter.  As the Northeast monsoon approaches, 
however, many of these people may be displaced yet again. 
This will likely occur around the time of the anniversary, 
with resultant negative international media attention. 
Movement into permanent shelter continues to be hampered by 
poor coordination among different sectors (housing, land, 
electricity, water and sanitation) and by continued 
confusion over the buffer zone. Clarification on the buffer 
zone--if we get it--should help immensely.  Maldives 
continues to face enormous capacity challenges. 
 
LUNSTEAD