MCA POTENTIAL THREATENS ESF AND DA FUNDING/US

UNCLAS COLOMBO 001958 SIPDIS SENSITIVE FOR DEPUTY SECRETARY ARMITAGE FROM AMBASSADOR LUNSTEAD E.O. 12958: N/A TAGS: PREL EAID ECON AMGT KMCA CE LTTE SUBJECT: MCA POTENTIAL THREATENS ESF AND DA FUNDING/US LEVERAGE ON PEACE PROCESS ¶1. (SBU) RICH, I FEEL COMPELLED TO CALL YOUR ATTENTION TO A POTENTIALLY MAJOR PROBLEM WITH US ASSISTANCE TO SRI LANKA, AND, I ASSUME, SOME OTHER MCA ELIGIBLE COUNTRIES. FOLLOWING THE OMB PASSBACK EXERCISE, WE HAVE HEARD THAT ESF AND DA FUNDS FOR SRI LANKA WERE SLASHED BY 50 PERCENT, USING THE RATIONALE THAT MCA MONEY WOULD MAKE UP THE DIFFERENCE. IF TRUE, THIS IS UNACCEPTABLE AND RISKS UNDERMINING MCA BEFORE IT GETS UNDERWAY. IT WOULD DESTROY TWO YEARS OF HARD FOUGHT IMPROVEMENTS IN OUR USAID PROGRAMS IN SRI LANKA. OUR USAID PROGRAMS ARE FOCUSED ON SUPPORTING PEACE AND THEY GIVE US IMMENSE LEVERAGE, RELATIVE TO THE AMOUNT OF MONEY SPENT, IN THE PEACE PROCESS. ¶2. (SBU) WE UNDERSTAND OMB HAS PROPOSED ESF AND DA CUTS OF 50 PERCENT OF OUR USD 12 MILLION AND USD 6.6 MILLION REQUESTS RESPECTIVELY. THESE PROPOSALS WERE ESSENTIALLY FLATLINE REQUESTS, NEEDED TO SUSTAIN OUR ONGOING PROGRAMS. WHILE TRUE THAT SRI LANKA IS AN MCA ELIGIBLE COUNTRY, ITS MCA COMPACT PROPOSAL IS STILL IN ITS INFANCY. FURTHER, MCA IS UNDER NO OBLIGATION TO FUND A COMPACT PROPOSAL. FINALLY, THE COMPACT PROPOSAL IS COMPLETELY A GSL EXERCISE, WITH NO RELATIONSHIP TO USAID FUNDING OR THE KINDS OF TECHNICAL ASSISTANCE AND CAPACITY BUILDING USAID PROGRAMS ARE PROVIDING. ¶3. (SBU) WITHOUT SUFFICIENT ESF AND DA FUNDING, THE USG WILL BE UNABLE TO CONTINUE PROGRAMS SUCH AS THE INFORMAL COOPERATION AIMED AT BOLSTERING THE PEACE PROCESS AND SETTING THE STAGE FOR EVENTUAL RECONCILIATION, PROMOTION OF EMPLOYMENT AND TRAINING PROGRAMS FOR UNEMPLOYED YOUTH, ENHANCED SRI LANKAN COMPETITIVENESS IN WORLD MARKETS THROUGH TECHNICAL ASSISTANCE AND EFFORTS TO BOOST AGRICULTURAL PRODUCTIVITY TO ENHANCE LIVELIHOODS. IN ADDITION, OUR CURRENT OFFICE OF TRANSITION INITIATIVES (OTI) PROGRAM PROVIDES IMPORTANT SUPPORT FOR THE PEACE PROCESS THROUGH ITS SMALL-SCALE, BUT HIGH IMPACT, LOCAL PROGRAMS. OTI IS SCHEDULED TO PHASE OUT IN EARLY 2006. IF ESF AND DA ARE CUT, WE WILL BE UNABLE TO MOVE INTO AN OTI FOLLOW-ON PROGRAM. THE MCA CONCEPT PAPER CURRENTLY SEEKS ASSISTANCE IN IRRIGATION, THE APPAREL SECTOR, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT, RURAL ROAD DEVELOPMENT, THE POWER SECTOR AND TRAINING FOR GOVERNMENT OFFICIALS. ¶4. (SBU) ONE FINAL CONCERN. IN ALL OF OUR AND MCC'S INTERACTIONS WITH THE GSL, WE HAVE ASSURED THE GSL THAT MCC FUNDING IS NOT A REPLACEMENT FOR USAID FUNDS. THE PRESIDENT'S INITIATIVE CLEARLY STATED THIS WOULD BE ADDITIONAL DEVELOPMENT ASSISTANCE, TO SUPPLEMENT THE ASSISTANCE RECEIVED BY COUNTRIES THAT ARE MAKING THE TOUGH CHOICES TO INVEST IN THEIR PEOPLE, PROVIDE GOOD GOVERNANCE AND ENHANCE ECONOMIC FREEDOM. ¶5. (SBU) I APPRECIATE YOUR ATTENTION TO THIS MATTER AND YOUR ASSISTANCE IN HELPING TO SET THINGS RIGHT. GIVEN THE UNCERTAINTIES SURROUNDING THE MCA SITUATION, AND THE POTENTIAL DEVASTATING EFFECTS ON OUR USAID FUNDING, THE PROPOSED CUTS IN ESF AND DA FUNDING COULD SEVERELY UNDERMINE OUR CREDIBILITY, OUR STANDING IN THE DONOR COMMUNITY AND OUR LEVERAGE WITH THE GSL. LUNSTEAD