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Cablegate: Gsl Aims for Mid-Summer Mca Compact Proposal

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

091052Z Jun 05

UNCLAS SECTION 01 OF 03 COLOMBO 001031

SIPDIS

DEPT FOR SA/INS; MCC FOR D.NASSIRY; TREASURY FOR C. CARNES

SENSITIVE

E.O. 12958: N/A
TAGS: EAID ECON EFIN CE
SUBJECT: GSL AIMS FOR MID-SUMMER MCA COMPACT PROPOSAL
FOLLOWING REVIVED CONSULTATIONS


1. (SBU) Summary: The Government of Sri Lanka (GSL) has
begun to use provincial-level meetings to form local
steering committees to review the GSL's Millennium
Challenge Account (MCA) Concept Paper and provide feedback
to the Finance Ministry. The process has largely been an
effort to get validation of the Government's main
priorities, though it does offer the local representatives
an opportunity to raise other ideas for projects to spur
economic growth. Comments during the initial organizational
meetings have ranged from interest in pet projects, with
only tangential relevance to the key question of economic
growth, to skepticism about one of the concept paper's main
projects - the rehabilitation of rural irrigation reservoirs.
We expect this latest stage of the consultative process to
last through mid-June, and expect the GSL to formulate its
compact proposal by sometime in August. Overall, Post has
been disappointed in the GSL effort at consultations, but
hopes this latest effort serves to better inform their compact
proposal. We are highly dubious of the irrigation rehab
project, though there may be scope to use it to spur other
needed agriculture sector reforms. We do believe the effort
on the part of the business community to press for small and
medium enterprise (SME) development programs, however,
merits further scrutiny. End Summary

Provincial-level Consultative Process
-------------------------------------
2. (SBU) Following a lackluster initial effort to develop
a concept paper for its MCA proposal, and the intervening
tsunami, which sidetracked most normal Government

SIPDIS
operations for the better part of four months, the GSL has
commenced island-wide meetings to discuss the concept paper
presented to the Millennium Challenge Corporation (MCC) and
further develop its compact proposal.

3. (U) The plan involves provincial-level meetings
conducted by the Department of Development Finance (DDF) of
the Ministry of Finance. A wide cross section of
provincial level representatives is invited to these
meetings including government officials, provincial council
members, politicians, NGO representatives, academics from
regional universities, and regional chambers. These
meetings are used to form provincial steering committees,
which are responsible for conducting additional meetings to
review the concept paper, discuss economic problems in the
area and draft submissions for consideration by the
national steering committee in Colombo. The provincial
chief secretary, who is a GSL civil servant, chairs the
steering committee in each province.

4. (SBU) Already, the DDF has held six initial meetings in
the following provinces: Central, North Central, Wayamba,
Sabargamuwa, Uva and Western Provinces. Emboffs have
attended two of the meetings. There were approximately 100
participants at each meeting. The meetings have provided
information on the MCA (its intentions, requirements, and
country selection) and the initial concept paper presented
by the GSL, and appointed steering committees to continue
discussions at the provincial level. The meetings appear
to be used primarily to ask for advice to fine tune
existing project proposals, rather than discuss problems
and approaches to solving underlying challenges to economic
growth. For example, the GSL's approach tends to be one of
asking leading questions such as "which irrigation
reservoirs are most in need of repair" or "which roads
should we repair to give the greatest local benefit?"

5. (U) While these initial provincial-level meetings are
not consultations, but planning meetings to start
provincial level discussions, the audiences have mostly
sought clarifications about the MCA program and funding
opportunities. In the two meetings Post attended,
participants mostly inquired about funds for projects
related to their personal interests. For example, one
person asked if funds would be available for housing;
another, a medical practitioner, proposed assistance to
improve the availability of health-related personnel, while
a youth activist asked if funds could be used to build
recreational facilities. All suggested that their
programs could have indirect benefits to economic growth.

6. (SBU) Unfortunately, the meetings do not appear to have
been used to discuss fundamental issues like economic
constraints in each province, reasons for persistent
poverty or how best to overcome such problems. We expect
the appointed steering committees to look into these
questions.

Perceptions from Meeting Participants
--------------------------------------
7. (SBU) During the meetings, Emboffs had the opportunity
to meet civil servants from the provinces, with wide
ranging experience working in rural districts. As for the
GSL's favored irrigation reservoir rehabilitation program,
the Provincial Planning Secretary for Sabaragamuwa province
told Emboffs that supplying water to farmers in her area
would not do much to lift farmers out of poverty.
Subsistence farmers who have small plots and engage in low-
tech farming methods do most of the farming in the area.
She said that unless steps are taken to resolve land
problems and improve agricultural productivity, an
irrigation rehabilitation program alone would not
substantially increase economic growth. Such a limited
program would more likely promote continued subsistence
farming.

8. (SBU) The Planning Secretary also noted that although
the Sabaragamuwa province is endowed with many natural
resources, such as scenic locations, rainforests and
waterfalls, such locations have not been developed as
tourist attractions. Developing those locations and
providing road access might be more useful for diversifying
the local economy and promoting broader based growth. We
also heard similar sentiments from a divisional secretary
of the Central province. He suggested vegetable farmers in
his area would benefit from a new highway connecting the
district to business centers.

Next Steps
----------
9. (U) The Finance Ministry expects to receive provincial
comments on the MCC proposal by mid-June and hopes to
submit a revised proposal to MCC in July or August 2005.
The plan is for the provincial steering committees to feed
ideas to the Finance Ministry, which would perform a series
of financial and economic analyses to rate the project
proposals and then submit the ideas for consideration by a
centralized steering committee, comprised of GSL officials,
representatives from business chambers and NGOs. This is
the body that provided the initial inputs for the concept
paper.

Likely Areas of Focus
---------------------
10. (U) Based on our conversations with the Finance
Ministry's action officers for MCA, we expect the
Government's initial compact proposal to focus primarily on
rehabilitating rural irrigation reservoirs - a politically
charged issue that was a primary campaign promise of the
GSL's Marxist-Nationalist coalition partner the Janatha
Vimukthi Peramuna (JVP) - and SME development through firm-
level assistance programs. These have been the most
consistently mentioned projects by GSL officials and the
SME program seems to have the support of the country's
primary business chambers.

Outside Involvement in the Consultative Process
--------------------------------------------- --
11. (SBU) This current round of consultations has been
assisted by The Asia Foundation (TAF) and the American
Chamber of Commerce (Amcham), though the GSL, after seeking
Asia Foundation and Amcham support, has largely run its own
process and has sought a much faster timeframe than either
Amcham or TAF felt prudent. Both organizations have
continued to suggest participants for the consultative
process, however.

Comment:
-------
12. (SBU) The GSL resisted initial efforts to channel MCA
funds into tsunami reconstruction, which is largely
oversubscribed, and has elected to focus on pre-tsunami
needs, which should help alleviate inequity between
tsunami-related and pre-existing development problems.

SIPDIS
That said, it continues to pursue outreach through an over-
centralized, Colombo-driven approach that focuses primarily
on GSL-initiatives, rather than potential projects
identified through broad-based consultation. The GSL
claims it has undertaken consultations through its network
of village-level government officials. If this is so, they
need to produce evidence of these consultations and
village-level input.

13. (SBU) There is certainly value in focusing on the
larger sectors the GSL is interested in - rural development
is lagging in Sri Lanka and agricultural productivity is a
key problem. Similarly, SMEs face significant structural
problems in their efforts to deal with economic challenges,
particularly the expiration of the multi-fiber agreement,
and its ensuing impact on small and medium sized garment
manufacturers and their suppliers. However the GSL has, so
far, failed to paint the "bigger picture" of how MCA fits
into a larger development plan. This is further hampered
by the fact the GSL has rejected the poverty reduction
strategy of the previous government, but has yet to present
its own alternative, except in the most general terms.

14. (SBU) We have tried many ways to help the GSL better
understand the importance to the larger bilateral
relationship of taking advantage of the MCA opportunity.
We have also tried to get them to think "outside the box"
in the development of their proposals. Both issues will
become increasingly important given the cuts to USAID
funding that have been imposed as a result of Sri Lanka
becoming MCA-eligible, despite the lack of any connection
between MCA priorities and USAID initiatives (Note: This is
in direct contravention to USG statements that MCA funding
would be wholly separate from, and would not reduce, other
development assistance, an inaccuracy we will need to deal
with sooner rather than later should the current
allocations prevail. End note). Nonetheless, MCA's new
approach and the diversion of the December 26 tsunami has
slowed the GSL response and forced them to rethink their
standard operating procedures. At this stage, we
anticipate a compact proposal sometime before the end of
August and we expect it to focus on the two areas outlined
above - SME development and the rehabilitation of
irrigation reservoirs.
LUNSTEAD

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