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RHEHNSC/NSC WASHDC
RUEHBS/USEU BRUSSELS
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 03 COLOMBO 001978 
 
SIPDIS 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM PTER CE
SUBJECT: SRI LANKA: PRESIDENT RAJAPAKSA'S REPORT CARD, ONE YEAR ON 
 
¶1.  (SBU) SUMMARY:  President Mahinda Rajapaksa came to office in 
November 2005 after a campaign highlighting his strong Sinhalese 
nationalism.  He made electoral pacts with the Marxist, Sinhalese 
chauvinist Janatha Vimukthi Peramuna (JVP) and the hard-line 
Buddhist monk-based Jathika Hela Urumaya (JHU).  Rajapaksa's 
pre-election rhetoric, compiled in his manifesto "Mahinda Chintana" 
(Mahinda's thoughts), focused on a "unitary" Sri Lankan state and 
made a number of economic and infrastructure commitments, most of 
which he has not fulfilled.  One year into the Rajapaksa presidency, 
the peace process has stalled, the ethnic conflict has re-ignited 
and economic development has not met the average voter's 
expectations.  Yet economic growth remains high thanks to continued 
strong remittances and healthy rains that will help the politically 
crucial agricultural sector.  The populist Rajapaksa remains popular 
among his Sinhalese base, despite widespread dissatisfaction among 
the intellectuals and elites of Colombo.  End summary. 
 
MAHINDA CHINTANA: "UNDIVIDED COUNTRY, 
NATIONAL CONSENSUS, AND HONORABLE PEACE" 
---------------------------------------- 
 
¶2.  (SBU) President Mahinda Rajapaksa hinged his 2005 campaign on 
Sri Lanka's ethnic conflict, committing in both his electoral pacts 
and his manifesto "Mahinda Chintana" (Mahinda's thoughts) to review 
the 2002 Cease-Fire Agreement with the Liberation Tigers of Tamil 
Eelam (LTTE).  His pacts with the Marxist, Sinhalese chauvinist 
Janatha Vimukthi Peramuna (JVP) and Buddhist monk-based Jathika Hela 
Urumaya (JHU) led analysts to believe Rajapaksa would take a hard 
line on the LTTE.  However, Rajapaksa surprised many by later toning 
down his rhetoric and making overtures to the LTTE, resulting in 
government talks with the LTTE in Geneva in February 2006.  Despite 
the initial positive step, the peace process did not move forward, 
and Rajapaksa's first year in office has seen a breakdown of the 
2002 Cease-Fire Agreement and an upsurge in violence.  On the 
positive side, Rajapaksa asked Norway to remain as facilitator for 
the peace process, despite vigorous objections from his erstwhile 
coalition partners, the JVP and JHU. 
 
¶3.  (SBU) Rajapaksa followed through on Mahinda Chintana's 
commitment to "Undivided Country, National Consensus, and Honorable 
Peace" by assembling an All-Party Conference (APC).  Ambitiously, he 
promised to complete APC discussions within three months and to have 
a viable negotiating position to open direct talks with the LTTE. 
However, various Tamil parties, and even his principal opposition, 
the United National Party (UNP), did not participate.  In October 
2006, Rajapaksa made another effort to build a "southern consensus" 
on the ethnic conflict by negotiating an historic Memorandum of 
Understanding with the UNP to work together on the peace process and 
other critical issues facing the country. 
 
¶4.  (SBU) Nevertheless, Rajapaksa has yet to fulfill campaign 
promises that could address some of the ethnic conflict's underlying 
causes.  To date, he has failed to institute teaching of both the 
Tamil and Sinhala languages in schools, and to build two Tamil 
schools in Colombo and a Muslim Boys' school in Kandy.  Rajapaksa 
has also reneged on promises to resettle the conflict's internally 
displaced persons (IDPs) expeditiously and with government financial 
assistance.  His proposed "Jaya Lanka" program to assist 
tsunami-affected persons has yet to materialize, except for the 
 
SIPDIS 
permanent shelter component in his home constituency Hambantota. 
 
MACRO ECONOMIC MANAGEMENT 
------------------------- 
 
¶5. (SBU) Mahinda Chinthana promised to achieve 8 percent growth over 
the next 6 years and ensure that benefits of growth filtered in to 
the general public and the poor.  According to recent government 
projections, Sri Lankan economy is well on its way to achieving 7 
percent growth in 2006, with growth projected at 7.5 percent in 
¶2007.  Mahinda Chintana has resulted in high inflation, with average 
inflation currently running over 12 percent (and 17 percent during 
the year beginning October 2005).   Defending the high cost of 
living, the President in his budget speech said that people are 
ready to and should make sacrifices for national security.  The 
budget deficit for 2006, estimated at 8.6 percent of GDP, has come 
at the expense of a substantial cut in public investment.  Due to 
increased welfare spending and salary increases, recurrent expenses 
have increased sharply by 23 percent in 2006.  Public debt is 
estimated to come down to 91.5 percent of GDP from about 105 percent 
 
COLOMBO 00001978  002 OF 003 
 
 
as nominal GDP expanded due to inflation, not because government 
borrowing has been reduced. 
 
HIGHER TAXATION, 
CONCESSIONS FOR SOME SECTORS 
---------------------------- 
 
¶6.  (SBU) The government has been forced to find funds for newly 
created government jobs, salaries, subsidies and welfare measures 
through increased taxation.  Since coming to power, Rajapaksa has 
increased corporate and personal income taxes, import tariffs and 
other import charges.  In addition, a new stamp duty on a range of 
transactions was introduced.  The magnitude of the tax burden was 
highlighted by the World Bank in its Doing Business Report. 
According to the report, Sri Lankan businesses face one of the 
highest tax rates (75 percent of profits) in the world.  Rajapaksa 
has kept to promises to assist some local industries, such as the 
film industry, construction, gem and jewelry and footwear with 
tariff protection and tax concessions. 
 
MOST EDUCATIONAL AND ECONOMIC PROMISES UNFULFILLED 
--------------------------------------------- ------ 
 
¶7.  (SBU) On the social services side, Rajapaksa has begun to 
fulfill some of his key promises on the Samurdhi welfare program, an 
income transfer scheme aimed at the poorest of the poor.  He 
increased Samurdhi payments by 50 percent in August 2006 - but only 
to half the recipient families.  Other, less efficient programs have 
languished.  He also promised an ambitious five-year development 
plan to establish a Ministry for Children and provide greater 
assistance to children's homes, daycare centers, and pre-schools. 
Most analysts discounted these as mere electioneering, and in fact, 
the president has not delivered on any of these commitments.  He did 
establish a Ministry of Child Development and Women's Empowerment. 
 
¶8. (SBU) Rajapaksa kept his "University for All" promise from the 
Mahinda Chintana, earmarking increased scholarship money in the 2007 
budget.  However, in his 2006 budget, Rajapaksa managed to create 
only 3000 jobs of the 10,000 public sector jobs he had promised to 
unemployed graduates.  He included funding for an additional 7000 
jobs in 2007.  From the beginning, it has been clear that the 
promise of employment was to win votes rather than to improve the 
bloated government -- which has over 70 ministries crammed into 
numerous office buildings filled with bored, underworked staff. 
Some new employees have reportedly been encouraged not to show up 
for work since there is nothing for them to do, and no workspace. 
 
AGRICULTURAL, INFRASTRUCTURE POLICIES: 
WAITING FOR IMPLEMENTATION 
-------------------------------------- 
 
¶9. (SBU) Rajapaksa partly fulfilled one key campaign promise to 
provide fertilizer at a subsidized price.   However, to date only 
paddy farmers have benefited from the subsidy, while other farmers 
have not.  Rajapaksa's proposed Paddy Marketing Board to set price 
floors for rice sales is still on the drawing board.    Mahinda 
Chintana also pledged the rehabilitation of 10,000 water "tanks" 
(irrigation ponds), but the government failed to deliver.  The 
promised National Land Policy to allocate 100,000 plots of land to 
farmers did not even reach the discussion stage in 2006. 
 
¶10. (SBU) Rajapaksa also included "Electricity for All" in his 
manifesto, promising research and construction of thermal, hydro, 
wind, and solar power plants.  The government has taken no tangible 
steps with regard to these initiatives, although a coal power plant 
in Norochcholai is under development.  Meanwhile, the government 
continues straining its limited coffers to keep afloat inefficient 
state-owned companies which manage subsidized energy production. 
Mahinda Chintana also promised to tap offshore oil and natural gas 
deposits and to channel benefits public quickly.  Rajapaksa declared 
that oil and gas revenues would be a panacea for Sri Lanka's 
economic problems.  Despite political pressure for a rapid 
exploitation of reserves, it appears that politicians are willing to 
wait for a well-designed plan that will strike a reasonable balance 
between appropriate development and expediency. 
 
REGIONAL DEVELOPMENT, 
PROMISES TO HIS CONSTITUENCY 
---------------------------- 
 
COLOMBO 00001978  003 OF 003 
 
 
 
¶11. (SBU) Regional development beyond the well-off Western Province 
(which includes Colombo) was a key part of Rajapaksa's campaign 
rhetoric.  Rajapaksa is clearly attempting to keep his promise to 
people in his constituency in the Sinhalese south.  Work on the 
highway connecting Colombo to Matara continues.  Recently the GSL 
and donors decided to widen the highway to 4 lanes by 2010 and are 
conducting feasibility studies to extend the road to Hambantota. 
Government agencies are planning an airport and a port in 
Hambantota.  On the other hand, Mahinda Chintana had promised to 
construct 20 overpasses in Colombo within three years to minimize 
traffic congestion and accidents at road-rail crossings.  The Road 
Development Authority reported no discussions to date on these 
proposals. 
 
¶12. (SBU) COMMENT: Rajapaksa has a no better than average record for 
politicians when it comes to delivering on his campaign rhetoric. 
While the long-running ethnic conflict is no closer to resolution 
now than when he took office, the Tamil Tigers bear a large share of 
the blame for the resumption of hostilities.  The focus on the 
violence has taken up most of the national debate - and taken some 
heat off the President to perform on his other promises.  Still, 
Rajapaksa could do more to address Tamil concerns, for example, by 
promoting dual-language instruction in schools according to the 
commitment he made in Mahinda Chintana. 
 
BLAKE