Scenesetter for your upcoming visit to

C O N F I D E N T I A L SECTION 01 OF 03 COLOMBO 001434

SIPDIS

FOR THE DEPUTY SECRETARY FROM AMBASSADOR WILLS

E.O. 12958: DECL: 08/06/12
TAGS: PREL PGOV PTER ECON CE LTTE
SUBJECT: Scenesetter for your upcoming visit to
Sri Lanka

(U) Classified by Ambassador E. Ashley Wills: Reasons:
1.5 (b,d).


1. (U) I want to extend a very warm welcome to you on
your August 22-23 visit to Sri Lanka. The Country Team
and the entire Mission community eagerly look forward to
your visit.

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Summary
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2. (C) Your visit to Sri Lanka comes at an exciting
time. The ongoing ceasefire is the longest break that
Sri Lankans have had from the ethnic conflict since it
began in 1983. There are hopeful signs that the
government and the Tamil Tigers may sit down for
negotiations at some point later this year. The
situation remains fluid, however, with Tiger intentions
unclear. The peace process could also be undermined by
foes in the south, possibly working in tandem with
President Kumaratunga, who has increasingly tense
cohabitation relations with the government. The
government is also working hard on economic reforms.
Overall, this is a period of tremendous opportunity and
volatility in Sri Lanka. It is also a time of
significant U.S. influence. Prime Minister
Wickremesinghe wants to work closely with the U.S., as
he made clear during his recent visit to Washington.
Your visit will help cement the gains made in U.S.-Sri
Lankan relations, while underscoring our strong support
for the peace process. As events in coming days could
be consequential regarding cohabitation ties, I may
update you with another message before your arrival.
End Summary.

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Status of the Peace Process
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3. (C) The election of a new government in
December 2001 heralded in an exciting period in
Sri Lanka. The United National Front (UNF) government
headed by Prime Minister Ranil Wickremasinghe has taken
an activist posture, particularly regarding the peace
process. In short order, the government and the
Liberation Tigers of Tamil Eelam (LTTE) re-initiated the
stalled Norwegian government facilitation effort and put
unilateral ceasefires into effect in December 2001. The
government also took rapid steps to ease tensions by
lifting roadblocks and checkpoints, and ending bans on
medicine and other items entering LTTE-controlled
territories. Continuing the trend of the past several
years, the government's performance on human rights
issues has also been a strong one, with many fewer
Tamils complaining of mistreatment at the hands of the
security forces. (Note: There is still an appearance
of impunity in some cases that the GSL needs to deal
with, however.)


4. (C) In a benchmark event, the GSL and the LTTE
concluded a formal ceasefire accord in February. The
accord led to the reopening of a key road link
connecting Jaffna to the south in April. The LTTE,
however, has complained that the GSL has not done enough
to implement the accord in other areas, such as by
vacating temples and public buildings in the north and
east. The government says (accurately) that it is
trying hard to comply with the terms of the accord. The
accord is being monitored by the Norwegian-run Sri Lanka
Monitoring Mission (SLMM),which has performed capably,
but is thin on the ground (roughly 50 personnel total).


5. (C) All of these steps have had a dramatic effect in
decreasing tensions in the country, bringing relief to a
war weary populace. Already, the ongoing ceasefire is
the longest break that Sri Lankans have had from the
ethnic conflict since it began in 1983. This new spirit
was symbolized by PM Wickremesinghe's visit to Jaffna in
March, the first such visit by a GSL leader in years.
Assistant Secretary Rocca joined Wickeremesinghe for
part of this visit, underscoring U.S. support for the
peace process. A/S Rocca's visit also led to the
arrival of a demining team sponsored by the U.S., which
has been clearing mines in Jaffna since April.


6. (C) At this time, the focus of the peace process is
"talks on talks," i.e., trying to reach agreement on
modalities for face-to-face negotiations on a permanent
settlement of the conflict. The GSL has indicated its
readiness for talks for some months now, but the LTTE
has been holding back its agreement to a date certain
for starting them. In a positive sign, senior Minister
Milinda Moragoda held talks with LTTE spokesman Anton
Balasingham in London on July 27. The talks were
constructive, and Moragoda believes that high-level
negotiations could begin at some point in September or
October. (Note: The two sides have already agreed that
the venue of the talks will be Thailand.) Balasingham
is due to visit LTTE-controlled areas in the north in
late August, around the same time that Norwegian Deputy
Foreign Minister Helgesen is scheduled to visit Colombo.


7. (C) Despite so much progress in so short a time, GSL
interlocutors will be the first to tell you that the
situation is fluid. One key reason for this is lack of
confidence in the LTTE. While it is clear that the LTTE
is worried about further international isolation in the
aftermath of September 11, it is not clear whether the
organization is simply looking for a hiatus to wait out
the storm. Some of the LTTE's activities raise
questions about its commitment to peace, including
forced recruitment for its military (some of it of
children),and the widespread extortion of money from
Tamils and Muslims. The LTTE also remains authoritarian
in structure and has not renounced terrorism.
Nonetheless, the GSL -- fully realizing it is taking a
big risk -- has made the decision that it wants to test
the LTTE to determine whether it is for real.

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Cohabitation Friction
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8. (C) Another factor that could unravel the peace
process is domestic opposition in the south. The
radical, Sinhalese chauvinist Janantha Vimukthi Peramuna
(JVP) has engaged in rallies and demonstrations against
the ceasefire accord. A potentially more ominous threat
to the peace process is President Kumaratunga and her
party, who have sent mixed signals, at times
constructive, at times critical. Kumaratunga's attitude
seems largely bound up in the cohabitation tensions that
flare between her and Prime Minister Wickremasinghe's
government. Of late, these tensions have only climbed
higher, and the GSL is threatening to call snap
elections if the president does not back down. At the
same time, there is talk that the president may try to
force the government out, suspend Parliament, and call
for elections. None of these rumblings is good for the
peace process, especially during this sensitive period
when the modalities of negotiations are being debated
with the LTTE.

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Economic Issues
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9. (SBU) Turning to economic issues, Sri Lanka has the
most open economy in South Asia and a relatively high
per capita income (USD 837). Still, economic growth in
Sri Lanka has been uneven and is mostly confined to the
greater Colombo region, while the conflict areas in the
north and the east suffer severe economic degradation.
A litany of problems in 2001 conspired to produce the
country's first year of GDP contraction since
independence (minus 1.4 percent). The new UNF
government appears committed to putting the right
policies in place to re-ignite economic growth. The
main test of this commitment came in its 2002 budget,
presented in March. This budget contained many
substantive reform measures and was key to restarting
the suspended payments of the IMF's Standby Arrangement.
The government is now implementing many of these
reforms, while trying to minimize the burden of
increased prices on the population. We expect 2002 to
be a rebuilding year, with growth of 1-2 percent.


10. (SBU) On the commercial side, Sri Lanka has
historically had a large trade imbalance with the
U.S. (10:1 in recent years). The recently signed Trade
and Investment Framework Agreement will formalize
discussions on opportunities and problems in bilateral
trade. The Prime Minister is planning a trip to New
York in September that will focus, in part, on
attracting investors and stimulating U.S. interest in
doing business in Sri Lanka. You may hear from GSL
contacts about Sri Lanka's interest in negotiating a
Free Trade Agreement with the U.S. We are encouraged by
the signals from Washington that Sri Lanka may be on the
list for a FTA in the future, but are aware, as is the
GSL, that this will not happen in the near-term. Sri
Lanka is also very interested in the Millennium
Challenge Account.

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Conclusion
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11. (C) This exciting period in Sri Lanka provides many
opportunities for the U.S. Per the recent policy
review, USG teams are due to visit Sri Lanka soon to
review enhanced defense cooperation, economic and
commercial issues, and the possible return of the Peace
Corps. As he made clear during his recent visit to
Washington, Prime Minister Wickremesinghe wants to work
closely with the U.S. Your visit will help cement U.S.-
Sri Lankan relations and underscore our strong support
for the peace process.


12. (SBU) We suggest that you make the following key
points in your meetings with GSL and other
interlocutors:

-- Express U.S. support for the peace process and
Norwegian facilitation. GSL needs to be bold; keep up
momentum. Sri Lanka is a vital symbol of movement
toward peace and stability in a troubled region.

-- Stress that U.S. wants to assist GSL on both peace
and economic fronts in concrete ways. U.S. demining
assistance continues in Jaffna, for example, and Peace
Corps is assessing possible return.

-- All parties should work in national interest on peace
process and on economic reform. It is important that
peace process not falter because of political
infighting.

-- Human rights issues important; GSL has shown
significant improvement; need to work to end appearance
of impunity.

-- Would like to see increased opportunities for U.S.
exports and investment; GSL needs to follow through on
economic reform agenda in order to foster a competitive
environment and create growth.


13. (SBU) As events in coming days could be
consequential regarding cohabitation ties, I may update
you with another message before your arrival.

WILLS