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Cablegate: Ag and Rural Development Goals Top Gsl List For

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 COLOMBO 000962

SIPDIS

DEPARTMENT FOR SA/INS
DEPARTMENT PASS TO USTR - JROSENBAUM AND AWILLS
COMMERCE FOR ARI BENAISSA
MCC FOR RMORFORD, RSANKARAN AND SGROFF

SENSITIVE

E.O. 12958: N/A
TAGS: ECON ETRD EAID CE USTR ECONOMICS LTTE
SUBJECT: AG AND RURAL DEVELOPMENT GOALS TOP GSL LIST FOR
MILLENNIUM CHALLENGE ACCOUNT

Sensitive but unclassified, please handle accordingly.

1. (SBU) Summary: During its June 1-4 visit to Sri Lanka,
the Millennium Challenge Corporation team met with a broad
cross-section of government and society. Poor agricultural
policies and slow rural development topped the list of
perceived obstacles to economic growth, with poor
infrastructure, particularly power and roads, a close
second. While the GSL relishes the chance to become an MCC
partner country, there are concerns within the donor and
NGO communities about the GSL's ability to consult
stakeholders. Nonetheless, the visit prompted discussion
about the economic growth models Sri Lanka has pursued and
how to improved stakeholder consultations. While the MCC
funding is attractive, its model, particularly broad
societal consultations, could be the real benefit to Sri
Lanka participating in the program. End Summary

2. (SBU) During the June 1-4 Millennium Challenge
Corporation (MCC) visit to Sri Lanka, team members met with
representatives from the GSL (including the Foreign
Minister, the Central Bank Governor, the senior economic
advisor to the President, and the Finance Secretary),
members of the opposition, local NGOs and civil society,
international NGOs, bilateral donors, the IFIs, the
business community and the media.

General Observations
--------------------

3. (SBU) The team found enthusiastic interest in the
Millennium Challenge Account (MCA) on the part of the GSL
and the business community. Local NGOs and civil society
indicated a strong desire to participate in compact
implementation, though their optimism was tempered by
concerns about the GSL's willingness and ability to
coordinate the process with a broad cross-section of the
country. The donor community expressed concerns about aid
coordination and the relationship of MCA aid to the Tokyo
process. IFI reps were generally supportive, with some
interest expressed in the possibility of cooperation on
potential projects.

4. (SBU) During the course of the meetings, a number of
fallacious ideas were put to rest (regarding funding levels
and US pre-conceptions about assistance for example) and
MCC personnel explained in detail the philosophy behind
MCA, the methodologies used in determining eligibility and
expectation about next steps. Discussions were largely
positive and productive, with observations about issues
such as the kinds of economic growth Sri Lanka has pursued,
the causes of poverty in particular areas of the country,
the need for broad-based consultation and input into the
potential compact proposal, the need for strong
implementing mechanisms that can cut-through typical
implementation problems and the unique problems of
delivering aid in Sri Lanka, where the terrorist Liberation
Tigers of Tamil Eelam (LTTE) exercise de facto control over
as much as 1/3 of the territory.

5. (SBU) Several obstacles to economic growth were
repeated by all interlocutors, including poor agricultural-
related policies, lack of basic infrastructure -
particularly power and roads, a dearth of the basic worker
skills demanded by employers and a heavily politicized
society, which leads to fragmentation and blocks
implementation of needed projects.

Meeting with the GSL: Do They Get It?
-------------------------------------

6. (SBU) MCC met with the Secretaries of the Ministries of
Finance, Foreign Affairs, Agriculture, Housing and
Construction, Provincial Councils and Local Government,
Science and Technology, Skills Development, Small and Rural
Industries, and Small and Medium Enterprise Development
during an inter-ministerial meeting; the Foreign Minister;
the Governor of the Central Bank; and a senior economic
advisor to the President. During the course of those
meetings, it became clear that the GSL had absorbed some of
the information provided by the Embassy to this point, but
had focused its initial efforts on project ideas, rather
than an analysis of the key obstacles to economic growth,
the measures required to overcome those obstacles and how
to assess progress in implementing those measures. By the
end of most meetings, GSL representatives seemed cognizant
of MCC aims and the need for a broad, consultative process
focused on identifying obstacles to growth and seeking ways
to overcome those obstacles. At one point during the
meeting with Treasury Secretary P.B. Jayasundera, the
Secretary acknowledged that the GSL has not always

SIPDIS
consulted widely enough in regard to developing its
policies. He also indicated that his sense was that for
MCA assistance to be most effective, it should focus on one
or two "flagship projects" that are "high-impact."

7. (SBU) A key component of the MCC visit was to identify
the primary point-of-contact within the GSL. None was
explicitly named, though it appears the President's office
intends to take on a prominent role, with the Secretary of
Finance (who is personally close to the President) serving
as the main working-level POC. The Minister of Foreign
Affairs also clearly relishes a role (he grabbed the pen,
so to speak, putting out the first cabinet paper on MCA),
though his Ministry is deferring to Finance on many of the
operational issues involved. While Post will push the GSL
to identify the main POC for MCA, these three agencies can
all be useful in helping to ensure that the MCA criteria
are fully met during preparation of the compact proposal
and implementation of a final agreement. (Note: in the
end, it appeared that certain officials (Finance Secretary,
Foreign Minister) "got it" but others remain mired in old-
style thinking that could limit their effectiveness in
contributing to the compact process. How the GSL proceeds
at this point will indicate which camp has carried the day.
End note.)

Donors, NGOs, Civil Society and the Business Community
--------------------------------------------- ---------

8. (SBU) Meetings with each of the various interest
segments opened with an explanation about MCC, followed by
a period of question and answer and then discussion. In
each session questions focused on the amount of assistance
and the requirements for formulating a compact proposal.
There was almost universal recognition also that:
-- the GSL does not have a strong history of consultation;
-- the polarization of society along political lines will
make implementation difficult;
-- the existence of the LTTE as an entity, coupled with the
needs of the North East areas of the country, makes
providing broad-based assistance challenging; and,
-- agriculture and rural development, infrastructure and
skills development are the three main areas in need of
attention.

9. (SBU) Local NGOs were interested in how to pursue MCA
funding for their priority areas and showed a strong
willingness to participate as implementing agencies. The
Business Community seemed interested in using the MCA
program to continue pressure for market reforms and to
bolster skills development programs and agricultural sector
reforms. International NGOs and donors were concerned
about how broadly the GSL would consult, particularly with
large swaths of the North East under de facto rebel control
and whether the introduction of MCA assistance would
alleviate some of the pressure currently being brought to
bear on both the GSL and LTTE to return to negotiations.
All groups were pleased to hear they would be asked about
their participation in the consultative process before any
compact agreement was reached.

Opposition Politicians
----------------------

10. (SBU) In addition to meeting with the GSL and civil
society, the MCC team met with members of the opposition,
to solicit their support for MCA in Sri Lanka and urge
their participation in the GSL's efforts to consult widely
for the compact proposal. Southern Province MP Sajith
Premadasa, son of former President Premadasa, agreed that
broad-based consultation was key to development assistance
success and suggested public hearings at the grass-roots
level to determine what impediments to economic growth the
people of Sri Lanka perceive. Sagala Ratnayake, former
Deputy Minister of Power and Energy and close confidant of
former Prime Minister Wickremesinghe suggested the creation
of private boards to vet proposals and ideas, to ensure
that the process did not become politicized.
Interestingly, the opposition was very critical of its own
efforts during the previous administration to launch its
poverty reduction program, Regaining Sri Lanka (RSL). They
did not believe that the RSL program had been sufficiently
vetted or that a broad range of society had been consulted
in the initial phase.

Comment
-------

11. (SBU) MCA represents an opportunity for Sri Lanka that
goes beyond specific financial assistance. There is a
large sum of money pledged to Sri Lanka (US$ 4.5 Billion)
from the Tokyo Donors Conference in 2003. Continued
stalling of the peace talks, however, has left much of that
aid sidelined, pending a resumption of progress in the
talks. The MCC focus on consultations and broad-societal
inputs into compact formulation provides an excellent
opportunity to create better links between the GSL, civil
society, NGOs and the business community. MCC can promote
a model that promotes cooperation and coordination among
interested parties that can apply in other sectors of Sri
Lankan economic and political life as well. The ball is
now in the GSL's court, but we remain ready to help them
along the MCA path in any appropriate way. End comment.

LUNSTEAD

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