SRI LANKA: PDAS MANN'S MEETING WITH FINANCE SECRETARY

UNCLAS SECTION 01 OF 02 COLOMBO 000411 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/INS DOL/ILAB FOR TINA MCCARTER MCC FOR S GROFF, D NASSIRY AND E BURKE TREASURY FOR LESLIE HULL GENEVA PASS USTR E.O 12958: N/A TAGS: EAID ECON EINV ETRD PREL CE SUBJECT: SRI LANKA: PDAS MANN'S MEETING WITH FINANCE SECRETARY JAYASUNDERA ¶1. (SBU) Summary: SCA PDAS Steven Mann raised the Millennium Challenge Account, the payment dispute between Sri Lanka and U.S. power producer AES, and prospects for offshore oil exploration with Finance Secretary P.B. Jayasundera March 8. Jayasundera remains optimistic about the health of the Sri Lankan economy, but had little to say in response to Mann's points. End summary. ¶2. (U) Bureau of South and Central Asian Affairs Principal Deputy Assistant Secretary Steven Mann called on Finance Secretary P.B. Jayasundera March 8 to discuss the Sri Lankan economy and to raise three of post's priority bilateral economic issues. FINANCE SECRETARY REMAINS OPTIMISTIC -------------- ¶3. (SBU) Jayasundera began by recounting the Sri Lankan economy's solid performance in 2006: GDP growth was 7.5 percent, as exports of garments had held up, tea had done well, and the domestic telecom and information technology sectors had thrived. The Finance Secretary added that Sri Lanka's recovery from the 2004 Indian Ocean SIPDIS tsunami would be "fairly complete" in 2007, with major SIPDIS infrastructure repaired and most people sheltered. Oil prices were the major vulnerability for Sri Lanka, Jayasundera thought - the rise in oil prices had propelled Sri Lanka's oil import bill from $800 million in 2005 to over $2 billion in 2006. ¶4. (SBU) PDAS Mann responded that it was heartening that Sri Lanka had weathered the oil price shock relatively well, especially as prices had risen far higher than predicted in even the worst case scenarios. Mann then asked about Sri Lanka's priorities in attracting foreign direct investment. Jayasundera listed information technology, telecom, apparel, tourism, and gems and jewelry as longstanding priorities. New areas in which Sri Lanka hoped to attract investment were footwear and leather goods, which had the potential to grow the way garments had, and organic agriculture, in which Sri Lanka had a comparative advantage. Jayasundera and Mann agreed that there was a good opportunity for Sri Lanka to market "branded" organic tea, which could take off the way coffee had. MILLENNIUM CHALLENGE, AES, AND OIL EXPLORATION -------------- - ¶5. (SBU) Describing the prospect of a grant from the Millennium Challenge Account as a "milestone," PDAS Mann cautioned Jayasundera on downturns in some of the indicators MCC uses to determine eligibility. Civil liberties like press freedom had moved backwards, and political rights were not as robust as they had been a few years ago, Mann noted. While overall Sri Lanka remained eligible, it was important to reverse this negative trend, Mann cautioned. Jayasundera acknowledged Mann's points, but did not respond. ¶6. (SBU) Mann also urged Sri Lanka to settle the payment dispute involving U.S. power producer AES, which had caused business people in the U.S. to question the investment environment in Sri Lanka. Solving this was necessary, and the government should do it quickly, Mann urged. Again, Jayasundera offered no response. ¶7. (SBU) Finally, Mann raised Sri Lanka's potential future development of offshore hydrocarbon resources. Noting that Sri Lanka had promised oil exploration blocks to India and China, the PDAS urged that Sri Lanka consider the advantages of American and Western oil firms. They have greater expertise and provide more training to local employees, because doing so was effective and profitable. They also have the best environmental practices, because their corporate image depended on avoiding spills or other environmental damage. Indian and Chinese firms, by contrast, COLOMBO 00000411 002 OF 002 considered environmental damage just a normal part of the oil business. Once again, Jayasundera made no specific response. COMMENT -------------- ¶8. (SBU) Jayasundera's unresponsiveness reflects both his confidence in his ability to manage the Sri Lankan economy and his reluctance to consider actions that he thinks are not in the government's immediate interest. ¶9. (U) This cable has been cleared by PDAS Mann.