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P 300802Z OCT 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 0700
INFO RUEHKA/AMEMBASSY DHAKA 1995
RUEHIL/AMEMBASSY ISLAMABAD 9031
RUEHKT/AMEMBASSY KATHMANDU 7269
RUEHLO/AMEMBASSY LONDON 5192
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RUEHON/AMCONSUL TORONTO 1353
RHHMUNA/HQ USPACOM HONOLULU HI
RUEHGV/USMISSION GENEVA 3802
RHEFDIA/DIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 04 COLOMBO 000999 
 
SIPDIS 
 
DEPARTMENT FOR SCA/INSB; H (pass to SFRC staff) 
 
E.O. 12958: N/A 
TAGS: PGOV PREL PREF PHUM PTER EAID MOPS CE
SUBJECT: Sri Lanka Scenesetter 
 
¶1. (SBU) Sri Lanka stands at a pivotal point in its modern history. 
The end of the long secessionist war with the LTTE opens up 
opportunities for national reconciliation, political reform, 
economic renewal, and international re-engagement.  The question is 
whether the Sri Lankan leadership has the vision, determination, and 
courage to seize the opportunity.  The Sri Lankans value their 
realtions with the United States.  Our challenge is strongly to 
encourage the Sri Lankan government to embrace reconciliation, 
accountability, and respect for human rights, while trying not to 
push the country towards Burma-like isolation from the West. 
 
Aftermath of the Conflict 
------------------------- 
 
¶2. (SBU) The final months of the war were brutal, inflicting heavy 
damage on all sides, both military and civilian.  Estimates of the 
number of dead and wounded vary widely, but outside observers agree 
that the civilian toll was high.  Many believed the Government of 
Sri Lanka (GSL) could have minimized those casualties had it allowed 
for some sort of negotiated surrender by the LTTE once the GSL had 
surrounded remaining LTTE fighters.  It is not clear, however, 
whether greater effort in that direction by the GSL would have been 
successful.  The LTTE seemed intent on holding out to the very end, 
forcibly recruiting civilians as young as 12 to continue the fight, 
and using their own civilians as human shields even when it appeared 
defeat was inevitable.  In the last days and weeks of the conflict, 
it became increasingly difficult to differentiate between civilians 
and LTTE combatants.  Most outside, neutral observers privately 
agree that the GSL could have finished off the LTTE more quickly if 
they had been willing to risk a higher level of civilian casualties. 
 The State Department's recent report to Congress on incidents 
during the final stage of the war makes clear that significant 
numbers of civilian dead and wounded were caused by both sides in 
the final months of the war. 
 
¶3. (SBU) President Mahinda Rajapaksa enjoyed immense popularity 
among the Sinhalese electorate at the end of the war.  He was seen 
as the political architect of victory in what many thought was an 
unwinnable war.  He appeared invincible at the ballot box in 
provincial elections during the first half of the year, and indeed 
this success carried through to October.  The government's budget 
suffered from the high cost of winning the war.  Expensive purchases 
of war-related equipment and ammunition, often on longer-term 
contracts and using up valuable foreign reserves, coupled with a 
drop in exports due to the global economic downturn, pushed Sri 
Lanka to request a stand-by arrangement from the IMF in early 2009. 
Approval of this instrument was delayed until July, but while 
foreign reserves dipped to only a month of imports in May, Sri 
Lanka's reserves have recovered since then, and the IMF review team 
issued a bullish report on their progress.  Sri Lankans are 
optimistic that the economy will improve, but it has been harder to 
lure foreign investment into the private sector.  Although there has 
been a great deal of interest, particularly in areas such as 
tourism, foreign direct investment is down so far in 2009, following 
the worldwide trend.  The overall defense budget has yet to see any 
sort of peace dividend.  Longer-term contracts with foreign 
suppliers of military equipment continue to weigh heavily on the 
budget, and the military has pushed for an expansion of bases and 
personnel in the north.  Many in the military believe that a 
continued high level of troops is required in the formerly LTTE-held 
areas to hunt down any remaining LTTE forces, seize hidden caches of 
weapons, and prevent any resurgence of violence.  At the same time, 
military and civilian officials have stressed to us that the bulk of 
the requested increase of about 15 percent in the defense budget is 
due primarily to the GSL's need to pay down military debts incurred 
during the final stages of the war. 
 
IDPs 
---- 
 
¶4. (SBU) The most pressing issue the GSL must address, and indeed 
the issue that most concerns many in the international community, is 
the status of the 250,000-plus internally displaced persons (IDPs) 
currently held in largely closed refugee camps in northern Sri 
 
COLOMBO 00000999  002.2 OF 004 
 
 
Lanka.  Mostly ethnic Tamils escaped the conflict zone during the 
final months of the war, only to be placed in what the GSL calls 
"welfare camps."  The GSL's stated reasons for keeping the IDPs 
confined to the camps have been the need to screen for ex-LTTE 
combatants and the need to complete demining and other 
reconstruction-type projects in the IDPs' former villages and towns. 
 Conditions in the camps, while far from ideal, mostly meet basic 
humanitarian standards in terms of provision of food, water, and 
shelter.  There is great concern, however, that conditions in the 
camps will rapidly deteriorate with the onset of the monsoon season, 
which usually arrives in October but has not yet begun. 
International pressure on the GSL to release large numbers of the 
IDPs either to their homes or to host families increased in August 
and September.  The GSL recently announced its intention to 
accelerate releases from the camps and said it plans to release more 
than 40,000 in the next few weeks.  While confirmation of these 
figures is difficult, thus far, we have seen evidence that 
significant numbers of IDPs have begun to depart the camps and 
return to their homes or to host-family relatives.  There are also 
reports, however, that some "released" IDPs are being subsequently 
confined to transit camps, as local security officials are reluctant 
to release them.  Nevertheless, there has been an uptick recently in 
returns and we will watch carefully to see whether the GSL will meet 
the president's declared target of releasing 70 percent of the IDPs 
by the end of January. 
 
Other Human Rights Concerns 
--------------------------- 
 
¶5. (SBU) Human rights violations continue to be a problem in Sri 
Lanka.  Aside from possible violations during the final months of 
the war, and the continued confinement of so many IDPs, other human 
rights problems abound.  Disappearances, while significantly down 
over the past six months according to some indicators, remain a 
problem.  There also continue to be reports of extra-judicial 
killings, albeit at a reduced rate since the end of the war. 
Torture of LTTE-related detainees is suspected to continue, and the 
line between the judiciary and the military continues to be blurred, 
largely under the guise of the Prevention of Terrorism Act. 
 
¶6. (SBU) Media freedom is emerging of late as the low spot of human 
rights problems in the island.  Few truly independent sources of 
news exist in the island.  Those that remain are under constant 
pressure from anonymous threats, attacks and killings, as well as 
official harassment from the GSL, leading to widespread 
self-censorship.  Well-known cases include the killing in January of 
Lasantha Wickremetunga, editor of the Morning and Sunday Leaders, 
and the trial and conviction of J.S. Tissainayagam under the 
Prevention of Terrorism Act.  All these contributed to Sri Lanka's 
drop in the Press Freedom listing issued in October by Reporters 
Without Borders, which placed Sri Lanka near the bottom across the 
globe.  The international community continues to push for the 
release of Tissainayagam, and in a positive development, his two 
publishers were acquitted of terrorism-related charges on October 
26th. 
 
Reconciliation 
-------------- 
 
¶7. (SBU) Left unresolved are the many questions revolving around the 
ethnic tensions between Tamils and Sinhalese that were at the core 
of the 25-year conflict.  The structure of the LTTE in Sri Lanka 
appears to have been destroyed, with no functional ability to carry 
out attacks in the island.  Few Tamils in Sri Lanka express any 
desire to resume violent conflict.  Strong feelings remain, however, 
in particular among many Tamils in the north that their economy, 
culture, and lifestyle now will be overrun by the Sinhalese 
majority.  Rumors abound of plans for Sinhalese colonization of 
major Tamil towns in the north, and of plans to keep IDPs housed in 
camps indefinitely.  It should be noted, however, that disagreements 
over land claims in the north and east are more complicated than 
simple Singhalese confiscation of Tamil property.  While this 
sometimes may be the case, we are also aware of disputes on land 
claims that go back for years with no clear resolution. 
 
COLOMBO 00000999  003.4 OF 004 
 
 
 
¶8. (SBU) The big challenge for the Rajapaksa leadership is how to 
address these underlying causes of Tamil unrest, while at the same 
time appealing to the broader Sinhalese electorate and keeping 
hard-line Sinhalese nationalists in check.  There are several 
approaches available, including two approved but unimplemented 
constitutional amendments.  These amendments, the 13th and the 17th, 
provide various measures to decentralize power and address perceived 
ethnic-based inequities.  Additionally, a report was recently 
completed by the All Parties Reconciliation Council (APRC), a panel 
of experts and political actors from varied backgrounds appointed by 
the president to develop a reconciliation plan.  Between the APRC 
recommendations, the constitutional amendments, and other proposals 
suggested, different options available include such things as 
devolution of power to provinces, a second house in the parliament 
modeled somewhat after the U.S. Senate, and independent oversight 
bodies meant to serve as a check on powerful state institutions. 
 
¶9. (SBU) President Rajapaksa has not shown a preference yet for one 
approach over the others.  He has stated that he will not tackle any 
such political reform until after presidential and parliamentary 
elections take place in early 2010.  Naturally this delay engenders 
skepticism from many in the Tamil community, but it is true that he 
would be able to implement much deeper reforms if he obtained a 
two-thirds' majority in the parliament, enabling him to amend the 
constitution. 
 
 
Elections 
--------- 
 
¶10. (SBU) Presidential elections are likely to be held earlier than 
the regularly scheduled date in 2011, but the scenario remains 
unclear.  Earlier it was widely assumed the president would call 
presidential elections in January followed by regularly scheduled 
parliamentary election in April.  Recently, however, rumors have 
circulated that the two elections would be held together in April. 
The president is scheduled to announce his intentions at the 
ruling-party conference in November.  The president's opponents are 
largely disorganized and share little common ground.  The rumor mill 
has suggested that General Sarath Fonseka, seen as the architect of 
the military victory over the LTTE, may run against Rajapaksa, but 
potential allies have not yet agreed to join together to back him as 
their candidate and seem to prefer if he would join just their own 
party instead. 
 
The Economy 
----------- 
 
¶11. (SBU) Sri Lanka's economy grew relatively well throughout the 
war years, and Sri Lankans hope the end of the war could trigger an 
economic boom.  Sri Lanka averaged 5 percent GDP growth over the 
last 20 years, and they have attained a per capita income of USD 
2,000, the highest in South Asia after the Maldives.  Sri Lanka has 
developed a strong textile industry, which constitutes 43 percent of 
their total exports, and they still have significant tea exports. 
But economic opportunities are unevenly distributed.  The Western 
Province, where Colombo is located, contributes almost 50 percent of 
Sri Lanka's GDP, while there are many fewer opportunities in other 
areas, especially the former conflict regions.  President Rajapaksa 
supports a state-directed economy that emphasizes infrastructure 
development, such as roads, and splashy projects, such as the 
enormous Hambantota port being constructed by the Chinese in the 
South in the president's home region.  Private investors are coming 
to look at Sri Lanka, but it is unclear whether the government will 
create a business-friendly environment to capture foreign 
investment, except in sure-fire areas such as tourism.  Due to 
political strains with the U.S. and the West, Sri Lanka is looking 
more to its "new friends" in China, Iran and Libya, but these 
countries do not have the export markets to replace the U.S. and the 
West.  Perhaps the biggest threat looming on the horizon is loss of 
the EU's GSP-Plus trade concessions, which could result in the loss 
of USD 150 million in trade and the possible loss of thousands of 
jobs. 
 
COLOMBO 00000999  004.2 OF 004 
 
 
 
¶U. S. Assistance 
---------------- 
 
¶12. (SBU) The U.S. has many assistance programs with Sri Lanka in 
the areas of civil society, economic development, international 
visitor exchanges, humanitarian assistance training for the military 
and more.  One of the most important components of U.S. aid to Sri 
Lanka is USAID assistance.  USAID has invested more than USD 1.9 
billion in Sri Lanka since 1956.  In 2008, the USD 134.5 million 
tsunami reconstruction program was completed successfully, and the 
rehabilitated infrastructure was handed over to the Government of 
Sri Lanka.  Current programs focus on the Eastern province and 
adjoining areas, and USAID plans to extend assistance to the north 
by helping conflict-affected communities return to normalcy as 
quickly as possible.  In 2009 the overall USAID budget was USD 43.12 
million. 
 
¶13. (SBU) USAID's economic growth programs are helping to create 
public-private partnerships, which will foster stability, create 
sustainable jobs, and jump-start much-needed economic development 
particularly in conflict-affected areas.  Democracy and governance 
programs provide technical training and support to local government 
institutions, civil society organizations, community reconciliation 
groups, and professional journalists.  USAID is working in special 
post conflict programs addressing the reintegration needs of ex- 
combatants in the community.   Small-scale infrastructure programs 
have helped to rehabilitate seven schools and one hospital damaged 
during the conflict.  USAID provides humanitarian assistance to Sri 
Lanka through both food and non-food aid and in 2009 provided around 
USD 36.3 million in assistance.  More than 280,000 internally 
displaced people (IDPs) were assisted by providing water and 
sanitation facilities, temporary shelters, emergency medical 
treatment, and mobility aids for the disabled.  Emergency assistance 
provided food to more than 50 percent of the IDPs in the former 
conflict areas. 
 
 
BUTENIS