Identifier
Created
Classification
Origin
04COLOMBO154
2004-01-27 10:48:00
CONFIDENTIAL
Embassy Colombo
Cable title:  

February Co-Chairs Meeting: Where We Go From

Tags:  PREL PGOV EAID CE JA NO EU LTTE ECONOMICS 
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C O N F I D E N T I A L SECTION 01 OF 05 COLOMBO 000154 

SIPDIS

DEPARTMENT FOR D, SA, SA/INS; NSC FOR E. MILLARD

PLEASE ALSO PASS TOPEC

E.O. 12958: DECL: 01-27-14
TAGS: PREL PGOV EAID CE JA NO EU LTTE ECONOMICS
SUBJECT: February Co-Chairs Meeting: Where We Go From
Here

Refs: Colombo 150, and previous

(U) Classified by Ambassador Jeffrey J. Lunstead.
Reasons 1.5 (b,d).

C O N F I D E N T I A L SECTION 01 OF 05 COLOMBO 000154

SIPDIS

DEPARTMENT FOR D, SA, SA/INS; NSC FOR E. MILLARD

PLEASE ALSO PASS TOPEC

E.O. 12958: DECL: 01-27-14
TAGS: PREL PGOV EAID CE JA NO EU LTTE ECONOMICS
SUBJECT: February Co-Chairs Meeting: Where We Go From
Here

Refs: Colombo 150, and previous

(U) Classified by Ambassador Jeffrey J. Lunstead.
Reasons 1.5 (b,d).


1. (C) SUMMARY: The USG-hosted February 17 Tokyo co-
chairs meeting in Washington comes at an appropriate
time. Cohabitation between the President and the Prime
Minister remains highly stressful which unfortunately
means that a possible return to the peace table has been
pushed down the road. The delay in talks means that
assistance, explicitly linked to progress in the peace
process in the Tokyo Declaration last year, has not
proceeded apace. Lost in the shuffle is the fact that
the peace process (as opposed to the peace talks) is
progressing. The incremental but significant progress
in the process must be encouraged and nourished and not
allowed to wither because of the cobwebs on the peace
table. The co-chairs meeting in Washington can play a
key role in supporting the ongoing peace process by
underscoring the need for donors to increase the pace of
donor assistance on an island-wide basis. At the same
time there should be a clear message that the assistance
spigot will not be turned all the way on until there is
substantial progress at the peace table.


2. (C) For Department principals involved in the
February 17 meeting, this message provides an in-depth
analysis of the political and economic situation in Sri
Lanka, as well as options in the assistance area.
Mission has also included a draft statement to be issued
by the co-chairs after the February 17 meeting, which is
contained in Para 20 and is for Department's review.
END SUMMARY.

--------------
Co-chairs Meeting Crucial Opportunity
--------------


3. (C) The USG-hosted February 17 Tokyo co-chairs
meeting in Washington comes at an appropriate time.
Cohabitation between the President and the Prime
Minister remains tense which unfortunately means that a

return to the peace table appears distant at this point.
Moreover, the SLFP-JVP electoral alliance inked on
January 20 in our view increases the chances of
nationwide elections (historically bloody, vehement
affairs in this country). The outcome of those
elections could well make it even more difficult for
peace talks to resume.


4. (C) The delay in the peace talks (nothing has taken
place since the Tigers walked away in April 2003,
although they produced their "counterproposal" for an
interim governing authority in October) means that
assistance, especially in the North and the East,
explicitly linked to progress in the peace process in
the Tokyo Declaration last year, has not proceeded
apace. While significant donor activity is taking place
throughout the country, the LTTE continues to beat the
drum that assistance is inadequate and that it is unfair
to punish the North and the East for the South's
inability to get its political act together (this
argument conveniently glosses over the fact that the
Tigers left the table first, not the GSL, and stayed
away for six months).


5. (C) Lost in the shuffle is the fact that the peace
process (as opposed to the peace talks) is progressing.
Each month that the ceasefire continues to hold means
that peace, not war, becomes the norm and makes it more
difficult for either side to go back to the battlefield.
Each month, displaced Tamils return to their homes.
Houses are being built and communities re-established.
Local peace committees try to defuse conflicts and
promote reconciliation. Humanitarian demining is moving
forward. This incremental but significant progress must
be encouraged and nourished and not allowed to wither
because of the cobwebs on the peace table.


6. (C) It is imperative, therefore, that the co-chairs
meeting in Washington hammer out a way to support the
ongoing peace process. This includes increasing the
pace of donor assistance to the North and the East while
ensuring that sufficient aid will continue to flow to
the "South" to reinforce the Prime Minister's message
that the peace process will bring prosperity to the
entire island, not just to the Tamil areas. At the same
time there should be a clear message that the assistance
spigot will not be turned all the way on until there is
substantial progress at the peace table.

--------------
Political Outlook
--------------


7. (C) In the political arena, the situation in the
South remains very troubling. Since Sri Lanka's
cohabitation experiment began in December 2001, the
relationship between President Kumaratunga and Prime
Minister Wickremesinghe has been dysfunctional -- and
relations have only plunged to new depths after the
President's takeover of three key ministries (Defense,
Interior, Mass Communications) on November 4. In
response, the PM demanded that all three portfolios be
returned to government control immediately. From mid-
November until mid-December, a joint committee composed
of representatives of both leaders met to try to resolve
the situation, but it had little success in ending the
impasse. Further complicating matters, the PM made an
unexpected announcement in early January that the
government could no longer take responsibility for the
February 2002 ceasefire agreement with the Tamil Tigers
in light of the President's continuing control of the
Defense Ministry.


8. (C) The downward spiral of action and reaction has
continued in recent days. For example, a dispute has
arisen as to the exact length of President Kumaratunga's
term in office. While it was widely assumed that her
second term would end in late 2005, the President has
publicly stated that she believes that she is entitled
to serve until late 2006. The PM and his supporters
have indicated that they will contest this. In
addition, as touched on above, the recent signing of an
alliance between the President's SLFP party with the
anti-peace process JVP has led to fears that Sri Lanka's
political class is girding itself for general elections.
Given current temperatures, such elections could be
violent beyond all precedent. Even if parliamentary
elections are not called, Provincial Council elections
are slated to take place in April sparking similar fears
about violence and thuggery. An overarching issue to
all the infighting is President Kumaratunga's strongly
held view that she will not be treated by the PM for the
next two (or three years) of her term in the same poor
way she feels she has been treated in the past two
years, i.e., cut out of the decision-making loop. In
the meantime, while the peace process on the ground
continues and even moves forward in some areas, there
are gathering signs that the Tamil Tigers are growing
concerned by the uncertain situation in the South.


9. (C) Amid all the bad vibrations, one piece of good
news is that the two sides still appear willing to
discuss their differences. After a month's hiatus, the
joint "Mano-Malik" committee is meeting again. It is
the case that the President and PM have agreed on
roughly 80 percent of the issues necessary for a
compromise, but the two remain hung up on the last 20
percent. The basic question is which Defense Ministry
powers should be given back to the PM, and which kept in
the President's hands. As the two sides meet, a factor
favoring compromise is that both sides appear receptive
to some extent to the views of the international
community, especially India and the U.S. As bad as
things are, they could well be worse if not for
Secretary Powell's recent letters to the two principals,

SIPDIS
or Indian government discussions with Kumaratunga on the
margins of the recent Islamabad SAARC Summit. In light
of this, we believe that the President and PM will
carefully listen to the message emerging from the
upcoming Washington co-chairs meeting and factor it into
their subsequent actions on the political stage.

--------------
Economic Forecast
--------------


10. (C) Meanwhile, the cohabitation crisis and
impending drought make the economic forecast tepid at
best. There are three economic realities donors need to
face. The current (post-November 4) economic situation
is not going to lift Sri Lanka's overall standard of
living in any meaningful way. Delivering aid to the
north-east and deep south could keep the economic base
from deteriorating further and give non-combatants in
the area a taste of a peace dividend, encouraging
further support of the peace process. Finally, real,
sustained economic growth is not possible until
political stability is realized, a return to peace
negotiations takes place, and major infrastructure
projects get underway.


11. (C) The ongoing political impasse has led some
foreign investment to stay on the sidelines, awaiting a
resolution. Further, progress on investment projects
already in the country has been slowed as GSL decision-
makers are distracted by current events. On the macro-
front, it appears that an ongoing drought will have a
negative effect on the agriculture and power sectors and
reduced foreign investment is pushing the rupee down
against the dollar. The IMF process is off-track, with
a likely return to Article IV consultations that
eliminate an expected USD 80 million loan tranche this
year. World Bank (and perhaps also Japanese) budgetary
assistance will almost certainly be delayed. There are
some silver linings though -- tourism continues to boom,
remittances remain strong and the service sector
continues to be the engine of growth. The main garment
manufacturers are developing a strategic plan for post-
2005 and intend to double output over the next decade.


12. (C) Moving forward on assistance to the north-east
will have a positive effect in answering some LTTE
concerns about the political squabble and help residents
in the north-east recognize additional economic benefits
from the peace process. Further, it will have the
important psychological effect of showing that donors
are not letting the political infighting in Colombo
deter them from the long-term goal of securing a
peaceful settlement that allows Sri Lanka to prosper
economically.


13. (C) Real, sustained economic growth, however, will
be elusive until major infrastructure and reintegration
programs and projects are brought online. Clearly such
an undertaking needs all parties to be back at the
negotiating table at least. Therefore, continued
political bickering in the south that keeps the parties
away from negotiations continues to doom Sri Lanka to
the realm of mediocre economic growth potential.

--------------
Assistance Issues
--------------


14. (C) The best method for ensuring that key
development funding is not completely hamstrung by the
lack of progress at the peace table (while not opening
the floodgates) would be to work in those areas where a
clear humanitarian need is evident. The returns for
these efforts should be high impact, visible, and
directly attributable to assistance that flows as a
result of the peace process. All donors agree that
despite the continued impasse between the President and
Prime Minister and the stalled peace talks, the people
of Sri Lanka need to continue to see the benefits of
peace -- particularly outside Colombo.


15. (C) Mechanisms exist for the continuation of "peace
dividend" projects which focus on communities affected
by the conflict island-wide. These include World Bank
and Asian Development Bank programs that fund community
infrastructure and humanitarian assistance activities
which provide these benefits. Some bilateral donors are
contributing to these projects. Bilateral donors are
also providing funding to NGOs and contractors to
address some of the needs of targeted communities and
vulnerable groups, including food, humanitarian
assistance and human security. These funds, pledged as
part of the Tokyo aid package, need to keep flowing and
be accelerated. Possibilities also exist for funding
through the North East Reconstruction Fund (NERF) to
which several donors have already pledged support.
Negotiations with the LTTE on how the GSL and LTTE can
jointly review and submit projects for NERF funding
should continue. If the NERF itself cannot be
resuscitated, given its historical baggage, then a
"NERF-like" mechanism may need to be created to do the
job. The project can be used to meet the immediate
needs of the people in the North and East.


16. (C) There appears to be donor agreement that
humanitarian assistance, demining and small scale
community based projects (schools, clinics, roads needed
for access to services, water, sanitation, housing for
returnees, resettlement activities) and other activities
that promote the participation of people in decision
making on areas that affect their daily lives should
continue and be accelerated. Work should be done using
local structures to the extent possible.


17. (C) Projects which may be held back from the $4.5
billion dollar pledge for leverage should be those which
are desired by both parties (information and
communication technology, for example) or other
development big ticket items which are not critical to
meet basic social and humanitarian needs of the people.
The "stick" should be seen as having leverage equally on
both parties, not just one. The "carrot" should be for
the on-the-ground priorities that affect the well-being
of people and communities.


18. (C) In the gray area are meta-infrastructure
projects which should be viewed through the lens of how
they are facilitative of meeting basic human needs
including creating greater opportunities to enhance
livelihoods. Meta projects should be those vital to
restore connections such as access to markets, schools,
health facilities, etc., at the local level. Donors
should continue to talk to one another and review big-
ticket items especially ones involving large new
construction.


19. (C) This tack allows for a positive trend in
economic growth to continue while holding the carrot of
larger-scale, major growth-inducing projects for all to
see on the horizon.

--------------
Suggested Post-Meeting Statement
--------------


20. (C) The public optics of the co-chairs meeting will
be key. We suggest that the four co-chairs release a
press statement at the end of the February 17 event
along the following lines:

Begin text:

(opening pleasantries, etc.) . . . and are pleased to
note that the ceasefire in Sri Lanka has held for two
years. With each passing month of peace, more displaced
Sri Lankans continue to return to their homes, more
humanitarian demining occurs, and daily life in
previously contested areas becomes progressively more
settled and bearable. The co-chairs applaud these
indicators of peace, while at the same time calling for
the earliest possible resumption of the peace talks
which have been suspended since April 2003. Progress at
the peace table is essential if the encouraging progress
in the peace process is to be sustained.

In the same vein, the co-chairs note that the political
"cohabitation crisis" in the South between the President
and the Prime Minister poses the greatest impediment to
an early return to the peace table. The tense situation
in the south is also harming prospects for economic
investment and growth. The co-chairs call on all
political figures in Sri Lanka to find a method to
establish clarity of responsibilities, so that the peace
negotiations -- and the entire process of governance --
can resume.

The co-chairs note that in the absence of peace
negotiations support for the peace process throughout
the country becomes even more important. They call on
all donors to find appropriate mechanisms through which
adequate amounts of humanitarian relief and assistance
to improve the quality of life at the community level
can continue to be delivered to all needy areas of the
country. At the same time, the co-chairs wish to draw
attention to the specific language in the Tokyo accords
which makes clear that full release of aid funds pledged
at the Tokyo conference cannot go forward in the absence
of substantive progress at the peace table.

End text.


21. (U) Minimize considered.


LUNSTEAD