VZCZCXRO4488
PP RUEHBI RUEHLMC
DE RUEHLM #0411/01 0730314
ZNR UUUUU ZZH
P 140314Z MAR 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 5640
INFO RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 0737
RUEHKA/AMEMBASSY DHAKA 9955
RUEHIL/AMEMBASSY ISLAMABAD 6924
RUEHKT/AMEMBASSY KATHMANDU 5001
RUEHKP/AMCONSUL KARACHI 2161
RUEHCG/AMCONSUL CHENNAI 7497
RUEHBI/AMCONSUL MUMBAI 5201
RUEHGV/USMISSION GENEVA 1880
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION

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.