SRI LANKA AND MALDIVES POST-TSUNAMI RECONSTRUCTION

UNCLAS SECTION 01 OF 05 COLOMBO 001681

SIPDIS

DEPT FOR EB/IFD/ODF/TRT FOR D.EBERLY, V.FARRIS;
DEPT ALSO FOR SA/INS FOR M.GOWER, C.SIM;
TREASURY FOR S.CHUN

E.O. 12958: N/A
TAGS: EAID ECON PGOV CE MALDIVES'>MV
SUBJECT: SRI LANKA AND MALDIVES POST-TSUNAMI RECONSTRUCTION
UPDATE (September 22, 2005)


1. This cable is for the first Tsunami Oversight Quarterly
Mechanism Meeting


2. Summary: Tsunami reconstruction activity in Sri Lanka
continues apace, with improvements in overall coordination,
but bottlenecks due primarily to the 100/200 meter ?buffer
zone.? There have been recent suggestions by the GSL that
a change in the ?buffer zone? policy is imminent, but there
has been no action to date. The Government reports that it
has achieved its target for temporary shelter construction,
but is now engaged in a process of upgrading temporary
units that were not built to appropriate standards. There
are persistent concerns that some temporary shelter,
particularly in the east, could be affected by flooding or
high winds in the upcoming monsoon season. Permanent
shelter construction has been slow, primarily due to
confusion over land allocation and registration of
beneficiaries. The overall economy appears to have been
spared significant damage, despite high inflation, as a
result of a rebound in tourist arrivals, good performance
in the construction sector and the historically modest
contribution of the fishing industry (decimated by the
tsunami) to GDP.

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3. Summary (cont.) USG assistance to Sri Lanka has been
important in moving the relief and reconstruction efforts
forward. On the relief side, USAID/OFDA projects will be
largely finished by 30 September, with only five of 25
grantees still operating programs. On the reconstruction
front, the contract for USAID?s infrastructure projects was
signed on September 6 and construction should start by
January. US Peace Corps? Crisis Corps has 25 volunteers on
the ground providing capacity building assistance to both
international and local NGOs. USTDA will assist with
projects in disaster management, communications,
transportation and water. US-Sri Lanka debt deferral
agreement terms have been agreed and a signing ceremony is
being coordinated. PD will soon begin a program on trauma
counseling and urban development in affected areas.


4. Summary (cont.): In MALDIVES, the GORM faces a
financing gap of approximately USD 100 million for tsunami
reconstruction. The effects of the tsunami on the economy
were devastating to this small nation, with damage
estimated at approximately 60 percent of GDP. The US
contribution to the MALDIVES Tsunami Reconstruction and
Relief Fund (TRRF) is still under discussion. End Summary.

Sri Lanka Rebuilding Efforts
--------------


5. Sri Lanka and its partners have completed the
construction of 42,000 temporary shelters and are now
working to upgrade shelters that have been deemed
inadequate (Note: some early shelters were smaller than
mandated in the Government?s ultimate guidelines and did
not have sufficient water and sanitation facilities. End
Note). The Task Force for Relief (TAFOR),the GSL entity
in charge of temporary shelter, has scaled back efforts
considerably, with a skeleton staff coordinating with NGOs
on the upgrade efforts.


6. We are concerned about the location of certain
temporary shelters, largely the result of the GSL?s initial
desire to have a 100m/200m coastal exclusion (or ?buffer?)
zone. Efforts to enforce the zone, and restrict
construction, have potentially displaced thousands of
families who previously lived very close to the coastline.
In some cases the temporary shelters have been constructed
away from the coast, but on land that is not suitable for
long-term habitation, and that could be flooded in the
coming monsoon season (which begins in late October).

--Buffer Zone Change Coming?



7. In August, USAID sponsored a visit to Sri Lanka by
coastal management experts from FEMA, OFDA and USGS. These
officials toured coastal areas and held discussions with
GSL officials responsible for urban planning, coastal
conservation, reconstruction and disaster management. As a
result of these meetings, Econchief and USAID Director were
told by Mano Tittawella, Chairman of the GSL?s Task Force
for Rebuilding the Nation (TAFREN),that the GSL would
consider an exemption for individual homeowners who wished
to return to their homesteads inside the exclusion zone, as
long as they followed stringent rebuilding guidelines.
Thus far, this decision has not been implemented. However,
on September 15 Finance Secretary P.B. Jayasundera told the
Ambassador and other representatives of the donor community
that the Government would make an announcement on the
buffer zone ?within the week.? It is not yet clear if this
announcement will be consistent with Tittawella?s
recommendation or not.

--Housing



8. On the permanent housing front, the GSL has a dual
track underway. For individual homeowners outside the
exclusion zone area, a grant program to support owner-
driven reconstruction is underway. Owner-driven permanent
housing reconstruction is increasing, both within and
outside the buffer zone. Water and sanitation for this
housing is a key concern. As of September 9, the
Government has released approximately USD 23 million
towards the rebuilding of 44,500 fully or partially damaged
homes by their owners.


9. For homeowners who previously lived inside the
exclusion zone, the GSL is working with NGOs to implement
donor-constructed housing projects in new locations. This
program has taken longer to get underway ? largely the
result of GSL delays in granting land outside the buffer
zone, a lack of appropriate infrastructure in newly
identified areas and problems in the identification of
beneficiaries. As a result of these challenges, most of
the NGOs were reluctant to begin construction until it was
clear that legitimate owners would occupy appropriate
dwellings in suitable areas. As of September 9, the GSL
had pledges from donors to rebuild 39,000 homes. 2,000
homes have been completed and 20,000 are under construction
(Note: ?under construction? is a loose term that in some
cases means ground has been broken but no structure yet.
End note).

--New Disaster Management Council


10. The Government initiated a new National Disaster
Management Council (NDMC),under the leadership of
Brigadier General Gamini Hettiararchchi. Hettiararchchi
told Econchief that he had been instructed by the President
to have the council and communication and evacuation
procedures in place by October. NDMC is experiencing some
typical new agency glitches, including a slower than
expected effort to recruit and hire staff. We have found
Hettiararchchi very impressive so far.


11. Ultimately the NDMC is expected to be the coordinating
body for all hazard response in Sri Lanka. It will recruit
and train first responders and will work through district-
level representatives in order to maximize community
involvement.

--Economy OK


12. The Sri Lankan economy (at the macro level) appears to
have weathered the tsunami with minimal disruption, though
high oil prices and certain non-tsunami related policy
decisions have led to an increased budget deficit and high
inflation. On the micro-level, in tsunami affected areas,
livelihoods have been severely affected.


13. The Central Bank estimates that Sri Lanka?s economy
will grow approximately 5.4 percent this year, only 0.1
percentage points lower than initial estimates. The
minimal impact is largely the result of increased
remittances stabilizing the Sri Lankan rupee, which had
been in free fall prior to the tsunami, and the fact that
the main industries affected were tourism and fisheries,
neither of which has a major impact on GDP (Note: tourism
is the fourth largest foreign exchange earner in the
country, but it represents only about 2.5 percent of GDP.
End Note). The construction sector, which was a larger
share of GDP than both tourism and fisheries combined, is
expected to continue to show strong growth, particularly
with Sri Lanka?s reconstruction needs.


14. While the tourism sector does not currently comprise a
significant share of GDP, it is seen as a sector with
tremendous potential. There had been concerns that the
tsunami would keep tourist arrivals low well into the near

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future. However, tourist arrivals have been up 13 percent
in 2005, despite a slow start in the immediate aftermath of
the tsunami. There has reportedly been a significant
increase in regional visitors from India, Malaysia and
Singapore.

US Assistance to Sri Lanka
--------------

--USAID


15. USG programs in Sri Lanka are well underway and making
solid contributions to the relief and reconstruction
effort. USAID/OFDA was one of the first donors to respond
to the tsunami and has provided over USD 36.5 million in
grants to partner organizations for relief and
reconstruction activities. As of October 1, of the 25 OFDA
programs initiated after the disaster, only five will
remain for closeout. OFDA has been a major player in
relief operations, microfinance and the transitional
housing sector.


16. On the reconstruction side, USAID will provide USD 33
million in large-scale infrastructure assistance. USAID
completed its tender process in late August and signed a
contract with CH2M Hill International on September 6 for
project implementation. USAID will:

--build a new 700 meter bridge over Arugam Bay (in eastern
Sri Lanka),improve water and sanitation facilities in the
surrounding area, and consult with communities on tourism
development;

--rebuild up to 14 vocational educational facilities,
including two ?model schools?, and provide equipment and
technical assistance with curriculum design; and,

--work closely with communities to rebuild and upgrade
fisheries in Dondra, Hikkaduwa and Mirissa (in Western and
Southern Sri Lanka).

We expect construction to begin in January.

--USTDA


17. The U.S. Trade and Development Agency (USTDA) will
provide US$ 2,095,000, through five separate grants, for
tsunami-related reconstruction efforts related to emergency

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communications, water and transportation in Sri Lanka. The
Ambassador signed these agreements and held a related press
conference on September 19.

--Crisis Corps


18. Peace Corps? Crisis Corps began its operations in Sri
Lanka in early April, 2005. We have recently approved
continuation of the program past six months, and current
plans are for Crisis Corps to continue its operations
through the end of September 2006. Crisis Corps has 25
Volunteers in country working with local and international
NGOs to build capacity of staff, to support institutional
development and activities as related to post-tsunami
projects and programs. All volunteers work for 3-6 months
with partner organizations. Crisis Corps plans to have 2
more rounds of 15 volunteers serve over the next year.

--Debt Deferral


19. In accordance with the agreement struck by the GSL
with the Paris Club, the USG has offered to defer USD 40
million in debt owed by the GSL. Agreement language has
been approved and Post hopes to arrange signature of the
documents within the next week.

--Other Efforts


20. Post?s PD office will soon sign a USD 75,000 contract
with the University of Pennsylvania to set up programs with
Sri Lankan universities dealing with trauma counseling and
urban development in affected areas. There is also a USG
team in Colombo this week to discuss the Indian Ocean Early
Warning System assistance program that is being run out of
USAID/Bangkok.

MALDIVES
--------------


21. The GORM is facing a severe financing gap
(approximately USD 110 million) for its reconstruction
efforts. The overall effect of the tsunami on the tourism
industry has led to a significant budget shortfall
(approximately USD 100 million) (Note: resort occupancy
fell to less than 30 percent for several months following
the tsunami. MALDIVES resorts had been running at almost
90 percent occupancy previously and are just now getting
above 70 percent. End Note). Economic growth is expected
to contract by 2.4 percent in 2005 (economic growth was 7.5
percent in 2004 and has been steadily increasing over the
past five years). International reserves are down to 1.5
months of import cover. The tsunami damage has been
estimated to be as much as 60 percent of GDP.


22. Various Red Cross entities (the IFRC, French Red
Cross, Canadian Red Cross) have pledged approximately USD
57 million, which will be used to handle restoration of
housing. The GORM estimates it still needs approximately
USD 16 million for housing, USD 4 million for education
support and USD 27 million (the largest shortfall) for
water and sanitation. DCM and Econchief met with World
Bank and UN representatives in MALDIVES on September 14.
Both representatives commented that progress on the
reconstruction front has been slowly moving ahead, though
financing gaps have caused delays.


23. The US has pledged USD 8.7 million to MALDIVES?
Tsunami Relief and Reconstruction Fund (TRRF). Post is

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currently in discussions with the Ministry of Finance
regarding the agreement. In addition to water and
sanitation and electrification, MALDIVES might apply some
U.S. funds to financial sector capacity building. While
this project may sound unrelated to the tsunami, MALDIVES
usually deals with foreign assistance of about USD 30
million per year and keeps their national accounts in the
small business computer application ?Quickbooks.? The
tsunami has increased the amount they need to absorb to

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approximately USD 350 million. The Finance Ministry is
stretched to its limit. The World Bank and ADB are also
looking at contributing to this effort. End Note).


24. Econchief has met with Deputy Finance Minister Riluwan
Shareef twice in MALDIVES and has urged a faster GORM
response. DCM met recently with the Foreign and Finance
Ministers and has also urged quick action to get US funds
flowing. It is clear, however, that while the technical
capacity of the GORM players is high, the bench is not
deep. Most of the senior GORM Finance officials are in
Washington for the World Bank/IMF meetings this week, but
have promised to continue their coordination efforts and
get a response to us soon.

Comment
--------------


25. COMMENT: As the one-year anniversary of the tsunami
approaches, Sri Lanka has in many ways made good progress,
with most tsunami-affected people in acceptable, if not
ideal, shelter. As the Northeast monsoon approaches,
however, many of these people may be displaced yet again.
This will likely occur around the time of the anniversary,
with resultant negative international media attention.
Movement into permanent shelter continues to be hampered by
poor coordination among different sectors (housing, land,
electricity, water and sanitation) and by continued
confusion over the buffer zone. Clarification on the buffer
zone--if we get it--should help immensely. MALDIVES
continues to face enormous capacity challenges.

LUNSTEAD