SRI LANKA: CHARGE UNDERSCORES CONCERNS ABOUT IMF

C O N F I D E N T I A L COLOMBO 000508


STATE FOR SCA/INSB AND EEB/ODF/OMA
TREASURY FOR SUSAN CHUN

E.O. 12958: DECL: 05/07/2010
TAGS: ECON PGOV PREL CE
SUBJECT: SRI LANKA: CHARGE UNDERSCORES CONCERNS ABOUT IMF
REQUEST

REF: A. OWEN-MOORE EMAIL 5/06/09

B. MOORE-BOUCHER EMAIL 5/5/09

C. COLOMBO 488


Classified By: Charge d'Affaires James R Moore Reasons 1.4(b)(d)


1. (C) Charge and EconChief met with Foreign Minister
Bogollagama on May 7 to underscore U.S. concerns about Sri
Lanka's request for an IMF Stand-by Arrangement (SBA).
Charge informed Bogollagama that the U.S. is concerned about
Sri Lanka's ability and commitment to carry out an effective
program in the current conflict circumstances. He noted that
Sri Lanka's conduct in the final stages of the war, and the
way in which humanitarian issues are handled, will greatly
influence both the GSL's ability to reconcile and reconstruct
Sri Lanka following the end of hostilities, and the
willingness of the international community to support Sri
Lanka's reconstruction efforts.


2. (C) Bogollagama asked Charge specifically to clarify if
there were any known concerns regarding Sri Lanka's
entitlement to an IMF loan, or, rather, if humanitarian
concerns were influencing consideration of Sri Lanka's
request for an IMF SBA in capitals. Charge confirmed that
there is some unease as to how the government will handle the
end game of the conflict as well as humanitarian components
of the post-conflict situation.


3. (C) Charge went on to highlight that until the
humanitarian situation in the north is clarified, it will be
difficult to assess the actual costs of meeting the immediate
and longer terms needs of the people, reconstruction, and
further security expenditures. He urged the GSL to improve
its humanitarian practices with an eye towards gaining wide
donor support for near-term reconstruction needs.


4. (C) Bogollagama stated his appreciation for Charge's
points, which he undertook to share with President Rajapaksa.
He noted that that he understands U.S. concerns that
political decisions taken as a result of the conflict could
affect the government's ability to meet expenditure targets,
thereby raising concern about the GSL's ability and
commitment to meet IMF obligations. Unwilling to speak
specifically about expenditure restraint, he encouraged the
Charge to also raise U.S. points with Central Bank Governor
Nivard Cabraal. (Note: Charge is scheduled to meet with
Cabraal on May 11. End note.) He also suggested that the GSL
would be happy to discuss these issues via a DVC with
counterparts in Washington.


5. (C) Bogollagama went on to note that he understands that
negative judgments of GSL actions may affect the willingness
of the international donor community to support GSL
humanitarian and reconstruction efforts. He emphasized that
it is the goal -- and responsibility -- of the government to
return IDPs to their homes as quickly as possible. Charge
encouraged the government to take concrete actions, such as
having a plan for the return of IDPs that includes
benchmarks, to help the international community clearly
understand government intentions.


6. (C) Bogollagama recommended that he and the Charge meet
again next week after conveying points to the President and
following post's meeting with Central Bank Governor Cabraal.


7. (C) COMMENT: Bogollagama did not appear to have detailed
knowledge of the specifics of the government's request for an
IMF SBA, the negotiated Letter-of-Intent conditions, or
when/if the government plans to submit its LOI. However, the
government could very well be concerned enough about the
possibility of not receiving an IMF loan that it is stepping
up its efforts to seek funds elsewhere. When asked if the
government is pursuing a loan or currency-swap agreement from
China, Bogollagama did deny (or confirm) it. However, times
are getting tough. Cabraal returned to Colombo today without
the $500 million deal he was negotiating in Tripoli, stating
simply that the deal that was expected yesterday could come
"as early as next month."


MOORE