BRIEFING SRI LANKA'S "GOOD FRIEND" HIGH ON FINMIN

C O N F I D E N T I A L SECTION 01 OF 02 COLOMBO 001573

SIPDIS

DEPT FOR SA/INS BRENNIG; PLEASE PASS TO USTR: A.WILLS,
J.ROSENBAUM, COMMERCE FOR A.BENAISSA

E.O. 12958: DECL: 09/21/2014
TAGS: ECON ETRD EFIN EPET CE ECONOMICS
SUBJECT: BRIEFING SRI LANKA'S "GOOD FRIEND" HIGH ON FINMIN
AMUNUGAMA'S AGENDA FOR USTR MEETING

REF: THOMPSON-AUSTR WILLS EMAIL 09/10/04

Classified By: AMBASSADOR JEFFREY J. LUNSTEAD. REASONS 1.4 D AND E


1. (C) SUMMARY: Finance Minister Sarath Amunugama reviewed
for the Ambassador his recent discussions with OPEC and
outlined his thoughts on the WB/IMF meetings in Washington in
early October. He looks forward to meeting USTR Zoellick and
seeks to assure USTR of the GSL's commitment to support the
US in the WTO and to explain GSL desire to move forward on an
FTA. Regarding the upcoming budget process, Amunugama wants
to find ways to increase remuneration for government
employees. The meeting closed with Amunugama expounding on
one of his favorite topics, Sri Lanka's failure to embrace
good policies, thus perpetuating the poverty cycle and
leading to bloated, self-serving public institutions, the
most troubled of which he has labeled publicly as "the five
monsters." USTR should take the opportunity during meetings
with Amunugama to outline our desires for next steps at the
WTO and seek clarification on possible TIFA issues.
Amunugama is aware that consideration of an FTA will have to
wait until after November at the earliest, but reiteration of
this point would be helpful. End Summary.


2. (U) During a September 21 call by the Ambassador, Finance
Minister Sarath Amunugama reported on his recent trip to
Geneva for discussions with OPEC, outlined tentative plans
for his visit to Washington in October for the WB/IMF
meetings (and, we understand, meetings with USTR Zoellick),
and discussed some of the issues facing the GSL as it faces
the prospect of passsing a budget in early November.

OPEC: Prices Not Our Fault, Project Assistance Possible
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3. (C) Amunugama said his meeting with OPEC in Geneva went
as well as could be expected. It was a follow-on to meetings
and discussions with Iran, Saudi Arabia, and Nigeria among
other countries, about finding relief from elevated oil
prices. OPEC representatives were cordial, but adamant that
elevated oil prices should not be blamed on OPEC alone. OPEC
has increased production and is trying to mitigate prices.
While OPEC can provide assistance, it will not provide
budgetary support for balance of payments problems.
Nonetheless, it would consider project assistance from the
OPEC fund, and Sri Lanka was exploring what kinds of
assistance to request.

WB/IMF Meetings
--------------


4. (C) Regarding the WB and IMF meetings, Amunugama said he
would try to raise their level of confidence in the GSL.
There have been some discussions and Amunugama felt feedback
had generally been positive. The IFIs remain concerned about
the consistency and continuity of the GSL's economic policy,
however. The GSL is hoping for some form of budgetary
support, but recognizes that it may not be forthcoming in the
near term. When the Ambassador broached the subject of the
impending departure of IMF Rep Jeremy Carter (Note:
reportedly at the GSL's request. End note.) Amunugama
acknowledged that the GSL had requested someone with a "new
point of view." While Amunugama recognized Carter had been
disappointed, Carter nevertheless understood the value in
someone new interacting with the new government.

The Budget
--------------


5. (SBU) Ambassador asked what the GSL's budget priorities
would be. This gave Amunugama the opportunity to wax
eloquent on several of his favorite ideas. He discussed the
need to improve remuneration for the public service, but
without busting the budget. He said the GSL is looking at
programs to offer land and loans for up to 100,000 new houses
for mid-career government officials. This would not only be
an excellent benefit for the employees, but the related
construction boom would benefit the economy overall. The GSL
will also look to rationalize and take advantage of many
scholarship and training opportunities for public servants
that are currently going unused. Amunugama said he wanted to
build long-term commitment by the employees to the public
sector, without resorting to a flat salary increase.


6. (SBU) On the country's macroeconomic fundamentals, the
economy was doing well. The tea, rubber and tourism
industries were all strong performers. Remittances continue
to be high and exports were up. The increasing price of oil,
and its related effects on foreign exchange markets and the
balance of payments, were the main culprit in causing
increased cost of living and poor business confidence.


7. (C) Regarding economic policy, Amunugama complained about
Sri Lanka's history of poor economic decision making. Sri
Lanka, he said, is not a "poor country." Rather, it is poor
by choice, because of the policies it has adopted. Because
of a failure to embrace modern education and international
norms, it was fast becoming a nation of private security
guards and garment workers. Amunugama pledged to continue to
speak frankly about the problems the country is facing and
reminded the Ambassador about his discussions of the "five
monsters" (the five most bloated and inefficient state-run
enterprises: the Board of Investment, the Petroleum
Corporation, the Transport Board, the Electricity Board and
the Railway).

Meeting with USTR Zoellick
--------------


8. (C) Regarding his meeting with USTR, Amunugama said he
hoped to discuss the potential US-SL FTA and why it should
"continue." Ambassador Zoellick had been a good friend to
Sri Lanka and Amunugama wanted to assure him of continuity in
GSL support for US positions in the WTO. The GSL takes its
own positions based on its national interest and those
interests coincide more with the US than with other
developing countries.

Comment and Recommended Points for USTR Meetings
-------------- ---


9. (C) The economy is hampered by the GSL's lack of decision
making on important issues (power, roads and other
infrastructure projects),a lack of clarity in the GSL's
Economic Policy Framework, which is rather general and passes
much of the heavy lifting in the economy off to the newly
formed National Council for Economic Development (NCED) and
Strategic Enterprise Management Agency (SEMA),and a general
erosion of confidence as violence increases and the GSL and
LTTE fail to make any progress towards returning to the peace
table.


10. (C) Nonetheless, Amunugama is right that many underlying
fundamentals remain solid and the opportunity for the economy
to pick up with strong leadership and progress on the peace
front remains. We will report more thoroughly on the current
state of the economy, second quarter trends and economic
leadership in Sri Lanka septel.


11. (C) For USTR Zoellick's meeting with Amunugama, we
recommend that USTR make a strong pitch for progress and
support for US positions in the next phases of WTO
discussions and give Amunugama a reality check on the current
possibilities for FTA progress, given upcoming US elections
and continued uncertainty surrounding Sri Lanka's economy and
political situation. It will also be a good opportunity to
gauge senior GSL leadership's grasp of the TIFA process and
potential agenda items (ref email).
LUNSTEAD