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Cablegate: Scenesetter for Visit of Mcc Ceo Paul Applegarth

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 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.

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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

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