US INTERESTS AFTER THE SRI LANKAN PRESIDENTIAL

C O N F I D E N T I A L SECTION 01 OF 02 COLOMBO 001974

SIPDIS

E.O. 12958: DECL: 11/18/2015
TAGS: PREL PGOV ECON EAID PTER US CE LTTE
SUBJECT: US INTERESTS AFTER THE SRI LANKAN PRESIDENTIAL
ELECTION

Classified by Ambassador Jeffrey J. Lunstead for reasons 1.4
(b) and (d).


1. (C) How is the apparent victory of Mahinda Rajapakse
likely to affect US interests in Sri Lanka? We define our
overriding interests here quite simply: Peace and Prosperity.
Peace because a successful peace process will mean the end
of terrorism by the Liberation Tigers of Tamil Eelam (LTTE).
Prosperity because it would both reinforce and be a product
of peace, and allow Sri Lanka to reach its considerable--and
up till now largely wasted--economic potential. Sri Lanka
has also been a moderately helpful partner in the
international arena, not always voting with us, but often
willing to cast a strategic abstention.


2. (C) The questions to ask on these issues are where does
Mahinda stand, where do his partners--especially the Marxist
JVP--stand, and how will they interact? Mahinda has stated
some general but vague views:

--Peace. Critical of the current peace process, wants to
revise the Cease Fire Agreement, will build a southern
consensus, hold direct talks with LTTE leader Prabhakaran.
Says he wants a "unitary" state, but seems willing to
consider devolution amounting to federalism in practice.
Unclear about future role of the Co-Chairs, skeptical in
public about the Norwegian facilitator role, more positive in
private.

--Economy. Comes from a vaguely leftist background, says he
supports private sector but wants a "national economy."
Unclear what this means, but seems to indicate a mild amount
of protectionism, enhanced government role in directing the
economy. Increased subsidies, likely a ballooning budget
deficit.

--International Arena. Again Rajapakse has a vaguely
leftist, NAM-oriented worldview, a founder of the Palestine
Friendship Society. In person has always been friendly to us
and appreciative of US relationship, especially after the
tsunami.

SIPDIS


3. (C) The JVP's views are decidedly clearer.

--Peace. The LTTE must give up its arms and abjure terrorism
at the start of the peace process. No federalism in name or
form.

--Economy. A mixed economy with a role for the private
sector, but a very active state role. Probably very
protectionist. Say they want to emulate China, Malaysia and
India--but without a clear idea of what this means.

--International Arena. Strong leftist tendency, voice
admiration for Castro and, more lately, Hugo Chavez.


4. (C) Mahinda Rajapakse has told us many times that he is
a moderate, that he is for peace and against war,
and--crucially--that he will control his JVP allies and not
let them control him. After this victory the JVP will
certainly be out for blood, however, and we expect a major
tussle over policy direction. Key indicators in the coming
days will be how Rajapakse reshapes the Cabinet, whom he
chooses as Prime Minister, and whether he replaces a number
of the Ministry Secretaries, such as Foreign Secretary
Palihakkara and Treasury Secretary PB Jayasundera, who have
been steady and responsible hands.


5. (C) On balance we think that Rajapakse, if he is able to
control policy, will follow a slightly more leftist but not
radical set of policies. This would be a type of "muddling
through" path for Sri Lanka. It would not be as close to our
interests as the policies of either Ranil Wickremesinghe or
Chandrika Bandaranaike Kumaratunga were. It would,
unfortunately, have a large opportunity cost, as Sri Lanka
once again would miss a chance to leap forward economically.
If the JVP is able to exert considerably more influence over
policy, we will have much greater divergence with US
interests.


6. (C) One area of potential conflict in either scenario is
Millenium Challenge Account funding. MCA-eligible Sri Lanka
is engaged in discussions on a compact agreement with MCC.
If the new government turns toward unsound economic policies,
we believe we would have to re-consider MCA funding. This is
a hypothetical at the moment, but a real possibility. And an
announcement that we were dropping Sri Lanka from MCA would
be a serious blow to the Government.


7. (C) The sleeper here is peace, however. Unlike the
economy, this is not completely in Rajapakse's hands. The
LTTE's actions during the election in preventing Tamils from
voting and stating that the election was meaningless because
neither Sinhalese leader could deliver justice to the Tamils
are extremely worrisome. Taken to their logical conclusion,
they mean that the LTTE believe there is no hope for the
peace process. If that is so, adherence to the ceasefire is
a tactical move, and it could be broken at any time.
Everyone now anxiously awaits Prabhakaran's Heroes Day speech
on November 27. Many fear that he will announce that recent
history and the elections have shown Tamils can never receive
their rights in a united Sri Lanka and declare an independent
state. Whatever Prabhakaran says on November 27, recent
Tiger actions cast a grim shadow over the peace process.

8. (C) What should the US do in this situation? Ambassador
will seek an early appointment with Rajapakse, perhaps even
before he is sworn in. He intends to make the points that:

--the US accepts the verdict of the Sri Lankan people,
--the US wants to work with the new government,
--our ability to do so will depend on what policies that
government follows.


9. (C) We are entering a period of great uncertainty in Sri
Lanka. As we have indicated above, we believe Mahinda
Rajapakse's policies will diverge a bit more from US
policies. This will not be an insuperable obstacle to a
useful relationship if we can early on set some boundaries
and a tone of frank discussion. We will try to do that, but
much will depend on the external--and largely out of our
control--factors of the LTTE and the JVP.
LUNSTEAD