VZCZCXRO4464
RR RUEHBI RUEHLMC
DE RUEHLM #0903/01 1760520
ZNR UUUUU ZZH
R 250520Z JUN 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 6344
INFO RUCPDOC/USDOC WASHDC
RUEHNE/AMEMBASSY NEW DELHI 1134
RUEHKA/AMEMBASSY DHAKA 0236
RUEHIL/AMEMBASSY ISLAMABAD 7217
RUEHKT/AMEMBASSY KATHMANDU 5324
RUEHKP/AMCONSUL KARACHI 2209
RUEHCG/AMCONSUL CHENNAI 7807
RUEHBI/AMCONSUL MUMBAI 5463
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RUEHC/DEPT OF LABOR WASHDC
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RUEHLMC/MILLENNIUM CHALLENGE CORPORATION

UNCLAS SECTION 01 OF 02 COLOMBO 000903 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/INS, EEB/IFD/ODF, AND DRL/IL LAUREN HOLT 
DOL/ILAB FOR TINA MCCARTER 
MCC FOR S GROFF, D NASSIRY, E BURKE AND F REID 
GENEVA PASS USTR 
 
E.O 12958: N/A 
TAGS: EAID ECON PHUM CE
 
SUBJECT: SRI LANKA: FEW DONORS HAVE CUT AID DESPITE WIDESPREAD 
CONCERNS ABOUT HUMAN RIGHTS 
 
REF: A) COLOMBO 829 B) COLOMBO 322 
 
¶1.  (SBU) SUMMARY: The resumption of conflict and a deteriorating 
human rights climate have caused relatively few donors to reconsider 
parts of their planned aid to Sri Lanka.  However, out of reluctance 
to penalize the intended recipients of development assistance, both 
multilateral and bilateral donors are for the most part maintaining 
their aid programs in Sri Lanka.  Additionally, many donors are 
increasing their humanitarian assistance, especially to assist 
internally displaced persons.  Following is an overview of the 
status of donors' assistance programs in Sri Lanka.  End Summary. 
 
MULTILATERAL DONORS 
------------------- 
 
¶2.  (SBU) World Bank: As of late 2006, the World Bank had 16 
operations under implementation with a total value of $806.6 million 
and an undisbursed balance of $519.7 million.  In 2006, the World 
Bank disbursed $108 million or 15.5% of the total foreign assistance 
to Sri Lanka. Recently the Bank delayed board consideration of a 
judicial reform project worth $45 million because it had concerns 
regarding the integrity of Sri Lanka's judicial system. 
Specifically, it suspected favoritism was influencing the selection 
of personnel being sent abroad for training under an earlier related 
program.  The Bank has not suspended other projects, but its local 
staff tells us the Bank is increasingly scrutinizing its lending in 
light of the government's poor human rights performance.  Further, 
some humanitarian aid programs in the North and East are delayed due 
to the ongoing conflict.  The World Bank recently warned Sri Lanka 
that it may face controversy regarding corruption and nepotism if it 
relies too heavily on unsolicited tenders for major infrastructure 
projects.  In late May 2007, the World Bank approved a $34 million 
credit to build 10,000 houses for internally displaced people 
located in Puttalam district. 
 
¶3.  (U) Asian Development Bank (ADB): The ADB continues to finance 
more than 30 projects through concessionary loans, program loans and 
grants.  In 2006, ADB approved loans for Sri Lanka amounting to $274 
million out of total loan approvals of $8 billion for Asia and 
Pacific countries.  Of this, ADB disbursed $138 million, or almost 
20% of total foreign aid to Sri Lanka in 2006. 
 
BILATERAL DONORS 
---------------- 
 
¶4. (U) Japan:  Peace envoy Yasushi Akashi stated that Japan will 
continue to send aid to Sri Lanka despite allegations of human 
rights abuses (ref A).  Japan remains the largest bilateral aid 
donor, contributing around $200 million annually.  International 
NGOs, such as Human Rights Watch, are lobbying Japan to exert 
greater pressure on the GSL to address these abuses. 
 
¶5. (U) Germany:  Germany is the second largest bilateral donor after 
Japan, having disbursed $68.7 million in 2006. Since October 2006, 
Germany has suspended plans for $50.6 million in upcoming aid, to 
pressure the GSL and the LTTE to resume peace talks.  The German 
Development Corporation (GTZ) committed $123 million after the 
tsunami disaster, of which $76 million was used by the end of 2006. 
 
SIPDIS 
The GTZ, however, stated that an increase of ceasefire violations 
prevented the implementing aid agencies from conducting their 
programs effectively.  As a result, in 2006, tsunami aid programs 
worth $16 million were halted.  Due to these difficulties, Germany 
did not commit to new funds for 2007. 
 
¶6. (U) European Union (EU):  On June 5, the European Parliament 
conducted a public hearing on the "impact of post-tsunami relief," 
with particular attention to the human rights situation.  Despite 
grave concerns over the escalating violations of human rights abuses 
in Sri Lanka, the EU continues to commit its tsunami and development 
aid funds.  Overall, contracted funds for 2006, including tsunami 
funds for that period, were $74 million.  Several development 
projects were delayed this year solely due to feasibility and 
 
COLOMBO 00000903  002 OF 002 
 
 
security concerns in the conflict areas. 
Sri Lanka continues to benefit from the EU's GSP Plus trade 
concessions despite local media speculation that Sri Lanka may be at 
the risk of losing them due to human rights abuses. 
 
¶7. (SBU) United Kingdom: The UK's bilateral program closed in March 
2007 due to Sri Lanka's Middle-Income Country status.  Currently the 
UK is evaluating whether to continue making the remainder of its $80 
million pledge for debt relief after the 2004 tsunami.  The amount 
equals ten percent of Sri Lanka's debt to the World Bank's 
International Development Association between 2005 and 2014.  The UK 
debt relief package was designed to be "conflict sensitive" by 
requiring Sri Lanka to agree that it would adhere to international 
obligations in human rights and other areas, avoid initiation of 
conflict, avoid unjustifiable military expenditures, and maintain 
transparency and accountability.  Due to concerns that Sri Lanka is 
not meeting these commitments, the UK suspended payment of the 
second of two $3 million payments it was to make this year for the 
debt relief (ref B).  According to the British High Commission, Sri 
Lanka and the UK are currently discussing whether Sri Lanka is 
adhering to the debt relief conditions. 
 
¶8.  (U) Australia:  Australia's level of bilateral funding for Sri 
Lanka decreased this year due to increasing difficulty in 
implementing its aid programs in the conflict areas.  Meanwhile, aid 
funds are being redirected humanitarian assistance and a few medium- 
to long-term conflict transformation activities. 
 
¶9.  (U) Switzerland: The Swiss drafted a strategy in late 2006 
stating that all future projects will have a distinct conflict 
transformation agenda. 
 
¶10.  (U) Sweden: The new strategy for 2008- 2012 is likely to result 
in a gradual phase-out of Sri Lanka.  No new agreements other than 
for humanitarian assistance and conflict transformation are planned 
unless Sri Lanka deals with its human rights problems and initiates 
a peace process based on de facto case-fire and substantial 
negotiation process. 
 
¶11.  (U) Denmark: The Danish Development Cooperation Office 
officially closed end of October 2006, based on a decision not to 
renew the three-year aid grant due to the country's deteriorating 
security situation. 
 
¶12.  (U) Canada:  No changes in current projects are planned, but 
Canada might reduce programs in the South if it becomes too 
difficult to implement programs in the North and East as an 
expression of protest to the GSL about isolating and limiting access 
to the North and East. 
 
¶13.  (U) Italy: No change in funding, although some activities in 
Jaffna and Trincomalee have been suspended due to the security 
situation. 
 
¶14. (SBU) COMMENT: In 2006, the World Bank, ADB, Japan and Germany 
accounted for 80 percent of the foreign aid spent by the Government 
of Sri Lanka.  All other donors accounted for less than 20 percent, 
with USAID's FY-06 program of approximately $7 million accounting 
for less than one percent of the World Bank's assistance.  Of the 
major donors, only Germany has shown a willingness to impose any 
conditionality on the GOSL through its foreign assistance program. 
Other donors who do have major concerns about human rights and the 
resumption of the conflict in Sri Lanka in general do not have aid 
programs of major significance and have chosen to downsize their 
programs or redirect them to address the consequences of the 
conflict and/or peacebuilding.  For assistance reductions to truly 
have an impact on the GSL, the three major donors - the ADB, World 
Bank and Japan - would need to significantly change their policies. 
This is unlikely to occur in the near future.