VZCZCXRO2285
PP RUEHBI RUEHLH RUEHLMC
DE RUEHLM #0564/01 1020814
ZNR UUUUU ZZH
P 120814Z APR 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 5861
INFO RUEHNE/AMEMBASSY NEW DELHI 0857
RUEHIL/AMEMBASSY ISLAMABAD 7017
RUEHKA/AMEMBASSY DHAKA 0039
RUEHKT/AMEMBASSY KATHMANDU 5101
RUEHKP/AMCONSUL KARACHI 2179
RUEHLH/AMCONSUL LAHORE 0067
RUEHCG/AMCONSUL CHENNAI 7593
RUEHBI/AMCONSUL MUMBAI 5294
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS SECTION 01 OF 02 COLOMBO 000564 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/INS 
MCC FOR D NASSIRY AND E BURKE 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD PREL PGOV PTER CE
SUBJECT: SRI LANKA: BUSINESS LEADERS WANT PEACE, BUT 
HESITATE TO PUSH FOR IT 
 
REF: A) COLOMBO 491 B) COLOMBO 023 C) COLOMBO 536 
 
¶1. (SBU) Summary and comment: Sri Lankan business leaders are 
concerned that increased fighting could provoke an LTTE 
attack that would seriously hurt the economy.  While normally 
hesitant to question the government's handling of the 
conflict, a small group of American Chamber of Commerce 
members appears ready to tell President Rajapaksa that the 
economic costs of prolonged fighting could be higher than 
what his advisors are predicting.  Embassy thinks the 
President might listen to a rationally presented case that 
average Sri Lankans' economic well-being could suffer if the 
government drives the LTTE to attack economic targets.  End 
summary and comment. 
 
NEGATIVE ECONOMIC IMPACT FROM INCREASED HOSTILITIES 
--------------------------------------------- ------ 
 
¶2. (SBU) On 5 April 2007, the Ambassador invited eleven 
business leaders from the American Chamber of Commerce to 
discuss how the private sector can advocate for a peaceful 
solution to the conflict between the Government of Sri Lanka 
(GSL) and the ethnic separatist Liberation of Tigers of Tamil 
Eelam (LTTE).  The executives were unanimous that the 
resumption of fighting in the past year was bad for the 
economy and for their businesses.  They believed that 
continued fighting would further harm Sri Lanka's business 
climate and deter both international and local investment. 
The March 26 LTTE air attack (ref A) had spooked some foreign 
business partners and had given a foretaste of how badly 
business could be affected if a desperate LTTE attacked 
economic targets like ports or hotels. 
 
¶3. (SBU) The CEO of a major garment exporter said that his 
company's American strategic partners had canceled a visit to 
the island after the air attack.  This was the first time 
such crucial on-site meetings had been cancelled.  "We are 
this close to disaster," said the visibly worried CEO, 
indicating the width of his hand.  (Note: At the CEO's 
request, the Ambassador subsequently spoke to the partner 
company's ex-FBI security officer and expressed Embassy's 
view that the air attack had not made it unsafe to travel to 
Colombo and its environs.) 
 
¶4. (SBU) A telecom company managing director likewise 
described how the hostilities were hurting his business.  The 
government routinely ordered the telco to disable its CDMA 
wireless landline services in the North and East, in an 
effort to limit the LTTE's communications.  However, the 
government forbade the company from attributing the service 
interruption to government instructions.  As a result, when 
customers complained that their service was out, the company 
had no way to deflect the blame from itself.  Also, he 
reported, there were now so many highway checkpoints, manned 
by unidentified armed officials, that he had stopped sending 
employees on work trips to Trincomalee.  This prevented his 
company from making further investments in the North and East 
in the short term.  He would like to bring business back to 
the area, he said, but "I need to protect my business and 
shareholder value." 
 
 
CALLING FOR PEACE BRANDED AS UNPATRIOTIC 
---------------------------------------- 
 
¶5. (SBU) The business leaders, most of whom are 
well-connected to senior government officials, reported that 
the government seems confident that it could gain the upper 
hand in the conflict by fighting, rather than negotiating. 
They acknowledged that the private sector had not actively or 
vocally advocated a peaceful solution to the conflict.  They 
told Ambassador that doing so risked harming their relations 
with the government and with their customers.  The government 
would likely view calls for peace as criticism of its 
policies.  Since the government had a hand in every aspect of 
the economy, it was in a position to punish companies that it 
 
COLOMBO 00000564  002 OF 002 
 
 
viewed as disloyal.  Likewise, average Sinhalese -- the 
companies' consumer base -- were pleased that the government 
was finally "punching back" against the LTTE, one executive 
said, adding "you are a traitor if you question that." 
 
¶6. (SBU) The AmCham members cited lack of unity among 
businesses as another reason that they had not more actively 
pressed for peace.  Many companies had not been as badly 
affected by the renewed fighting as tourism firms had been. 
One representative noted that the government did not heed the 
tourism sector, but that the plantation and garment sectors 
could get the president to listen.  Most felt that only a 
serious attack against a prime economic target would produce 
a consensus among businesses to press for peace. 
 
PRESIDENT MIGHT LISTEN TO ECONOMIC ARGUMENTS 
-------------------------------------------- 
 
¶7. (SBU) The Ambassador observed that President Rajapaksa 
generally responded best to arguments backed up by real 
evidence.  He recommended that the business leaders stick to 
their area of expertise -- economic, not humanitarian or 
political concerns.  One importer, a member of the 
president's new National Economic Council (ref B), agreed, 
saying the firms should focus on the war's impact on the 
economy, not just on their businesses.  Discussing the 
economic case for peace, the group judged that the president 
did not mind that the war imposed an opportunity cost on GDP 
growth.  They thought the president would be satisfied if GDP 
grew by six percent in 2007, instead of the publicly targeted 
eight percent.  They knew Rajapaksa to be sensitive about 
inflation however, so this would be a point they could make 
-- that the war would make it hard to reduce Sri Lanka's 
twenty percent inflation (ref C).  The garment company CEO, 
saying it was useless to raise these issues publicly or in 
the press, offered to join thr 
ee or four other business leaders with access to the 
President to quietly make their case. 
 
COMMENT 
------- 
 
¶8. (SBU) Only the Ambassador and a handful of other 
diplomats, UN officials and local NGOs have been willing to 
discuss publicly the costs of continued fighting; few Sri 
Lankans have been willing to do so.  The Embassy has no 
illusion that business leaders' expressions of concern to the 
president will cause him to reverse his policy of pressing 
the LTTE militarily.  We do, however, think it important that 
the president hear an assessment, more frank than what his 
advisors may be giving him, of how the war is affecting the 
economy, and how much worse it could be if the LTTE were to 
attack an economic target. 
BLAKE 
BLAKE