US embassy cable - 03COLOMBO600

UNCLAS SECTION 01 OF 03 COLOMBO 000600 
 
SIPDIS 
 
FOR SA, SA/INS,D, LONDON FOR POL/RIEDEL; NSC FOR E. 
MILLARD 
PASS TO USAID, AMBASSADOR, WENDY CHAMBERLAIN, AA/ANE; 
GORDON WEST, DAA/ANE; JAMES BEVER AND BERNADETTE BUNDY, 
ANE/SA 
 
E.O. 12958: N/A 
TAGS: EAID, CE, LTTE - Peace Process 
SUBJECT: FIFTH CORE TOKYO GROUP AND WIDER GROUP MEETING 
 
1.  SUMMARY:  The Core Group meeting provided an update on 
the status of the upcoming Seminars, workshops and 
planning sessions in Washington, Colombo and Japan in 
preparation for the June 9-10 Tokyo Donor Conference. The 
agenda for Tokyo is evolving and the latest version 
referenced below has been faxed to the State Desk 
Officer. Topics discussed at the meeting included the 
recently concluded World Bank meetings on Sri Lanka, an 
update on the Washington seminar, the bilateral donor 
draft Principles for Development and Peace paper, 
ADB/WB/UN needs assessment document and the Sri 
Lanka/Japan private sector meeting following the Tokyo 
Donor Conference. END SUMMARY 
 
2.   Minister Moragoda chaired. He reported on his 
positive meetings with the EU and some member country 
representatives and thanked the EU for agreeing to co- 
chair the Tokyo Donor Conference.  He indicated that one 
of the topics discussed with the EU was the need for an 
expanded Sri Lanka Monitoring Mission. 
 
3.   Minister Moragoda will hold bilateral meetings with 
Canada and Holland on the margins of the Washington 
seminar and will also meet with the UN Secretary General 
Anan and World Bank President Wolfensohn.  Other meetings 
may be scheduled.  The Minister said that the Indian 
Ambassador to Washington was likely to attend since the 
Indian Finance Minister will not attend the World Bank 
meetings. 
 
4.   The Japanese Ambassador reported on the changes in 
the draft Tokyo Conference agenda based on meetings held 
with the Multilaterals on April 4 in Tokyo as follows: 
 
--    In Plenary Session 2 following Norway's general 
remarks, summary reports will be given on the outcome of 
the Colombo Civil Society and Private Sector meetings. 
Three new organizations have been invited to participate 
in the Tokyo meeting: IFAD, IOM and OPEC. The Japanese 
Ambassador indicated that the World Bank remarks might be 
moved from the concluding session to one of the plenary 
sessions. 
 
--   In the First Operative Session the ADB and UNDP will 
talk on the Needs Assessment and in the Second Operative 
Session the World Bank and IMF will report on Sri Lanka's 
economic performance and reconstruction and development 
agenda. 
 
5.   The World Bank's representative, Peter Harrold, 
reported on the PRSP/Regaining Sri Lanka and CAS review. 
Support was strong among Board members for overall 
lending with approval of $850 million over four years 
with the provision for up to one billion based on 
performance. Harrold said that if the World Bank meeting 
was the curtain raiser for Tokyo, it would appear that 
now is the time for support to Sri Lanka.  He also 
indicated that a two hour meeting was held with US 
officials prior to the Board review.  Minister Moragoda 
told the group that the GSL needed to look at the 
concerns raised at the meeting and address them.  These 
concerns mainly revolved around the issue of sufficient 
consultations prior to drafting the Regaining Sri Lanka 
document.  Harold suggested that there should be a 
renewed emphasis on an ongoing consultation process and 
there was a particular need to establish a mechanism for 
consultations with civil society. 
 
6.   Ambassador Wills informed the group of efforts to 
devise a statement of principles by bilateral donors to 
be put before the negotiating sides prior to Tokyo, 
preferably at the next round of talks.  If widely 
accepted, the document will be issued at the Tokyo 
Conference.   Minister Moragoda emphasized that while he 
and the GSL supported the idea of such a paper, he didn't 
want the GSL's economic program stalled as a result. 
Ambassador Westborg, who had participated in discussions 
on the Principles paper, said the sooner the paper came 
out the better to allow time for the two sides to review 
and discuss it. Ambassador Wills commented that he did 
not want representatives from either side to think that 
the donors were ganging up on them. The Japanese 
Ambassador, who has been reluctant to discuss openly the 
"Principles" paper, has greatly softened his position 
after meeting with Ambassador Wills and the small group 
of other bilateral donor principals. The Japanese 
Ambassador agreed with Ambassador Wills that the document 
should be provided to the two sides as expeditiously as 
possible and that the message should be succinct and 
pragmatic.  The objective was not to scare off the LTTE 
and jeopardize their participation in Tokyo.  Ambassador 
Wills quipped that if the "Principles" scared them off, 
we don't want to give them money anyway!" 
 
7.  Peter Harrold reported that the Needs Assessment 
document had been completed and had just been sent to the 
GSL and the LTTE simultaneously.  The GSL and the LTTE 
have just been given a copy of the Multilateral Needs 
Assessment.  The GSL will forward it to donors, civil 
society and the private sector in the next two days but 
the timeframe with comments due by April 22 in 
preparation for the next round of peace talks on April 
29. 
 
8.   According to Harrold, the cost estimates arising from 
the needs assesment have gone down from 1.6 to 1.3 billion 
since the donor briefing last week and greater attention 
has been paid to phasing to take into account capacity to 
absorb the funds.  Minister Moragoda expressed concern 
about the possible macro economic implication of the 
package and about the raised expectations on the part of 
the LTTE as to how quickly funding would be implemented. 
It was agreed that the IMF would run a macroeconomic 
filter through. Ambassador Wills sought clarification of a 
comment made at the last meeting that the LTTE would only 
agree to 
projects that provided state-of-art reconstruction and 
equipment.  Harrold indicated that the LTTE had become 
more pragmatic in saying that what it wanted was for 
the North and the East to get to the level of the rest of 
the country and then march forward together. The World 
Bank representative told the group that in terms of 
volume, time and phasing, the Assessment was considered 
practical. 
 
9.    The Japanese Ambassador reviewed Tokyo's comments 
on the planning process for the Colombo seminar and the 
Tokyo civil society and private sector meetings.  Tokyo 
is currently planning a meeting for civil society, 
Japanese NGOs, the GSL and LTTE on June 8 and a private 
sector meeting covering trade, investment and tourism on 
June 9. 
 
10.  The Japanese are looking to the GSL to provide a 
comprehensive incentive package to attract Japanese 
investors, a package with data on investment 
opportunities and a package of measures on deregulation, 
tax schemes, access to resources and infrastructure. On 
May 6 Japanese officials and representatives of the two 
largest Sri Lankan Chambers of Commerce have been invited 
to a meeting to provide the private sector view about 
what is needed to attract foreign investment.  The 
Japanese Chamber of Commerce will organize the private 
sector meeting.  Ambassador Wills suggested that the US 
would be interested in hearing about the package of 
incentives the GSL was putting together in preparation 
for the private sector meeting in Japan. 
 
11.  The Wider Tokyo Group meeting followed immediately 
after that of the Core Group.  Minister Moragoda thanked 
the EU for agreeing to co-host the Tokyo meeting and for 
the positive meetings he had in Brussels. He also took 
the opportunity to thank the donors who supported the GSL 
at the recent World Bank Board meeting. Since the IMF 
conditions have all been met, the Minister was hopeful 
that the review would also go smoothly.  The Minister 
then provided a summary of the status of preparations for 
the Colombo meetings and asked for short briefings from 
the Japanese Ambassador, the World Bank, UN 
representatives and Ambassador Wills. Peter Harrold 
provided a status report on the Needs Assessment and the 
timing for comments as discussed in number 7 & 8. 
 
12.  COMMENT:  The Japanese Ambassador and GOJ appear to 
be more favorably disposed to the idea of a Principles 
paper but are concerned about the reaction of the LTTE. 
Although there continues to be wordsmithing on the 
Principles paper, feedback from the other donors has been 
Positive.  (The draft statement of principles will be 
cabled to Washington by septel.)  After initial feedback 
on the findings of the Needs Assessment, we are told that 
the document has been revised to reflect greater 
prioritization, sequencing and attention to absorptive 
capacity. The GSL is particularly concerned that the 
assessment fit in the economic framework but others are 
concerned about raising unrealistic expectations on the 
speed with which this level of assistance can be 
implemented. END COMMENT 
 
WILLS