VZCZCXRO8549
RR RUEHIK
DE RUEHLM #1144/01 3501120
ZNR UUUUU ZZH
R 161120Z DEC 09 ZFR
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 0986
INFO RUEHKA/AMEMBASSY DHAKA 2172
RUEHKT/AMEMBASSY KATHMANDU 7451
RUEHKA/AMEMBASSY DHAKA 2173
RUEHNE/AMEMBASSY NEW DELHI 3604
RUEHBY/AMEMBASSY CANBERRA 1022
RUEHOT/AMEMBASSY OTTAWA 0096
RUEHKO/AMEMBASSY TOKYO 4348
RUEHGV/USMISSION GENEVA 3916
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS SECTION 01 OF 05 COLOMBO 001144 
 
//CANCEL - WILL BE RESENT UNDER A NEW MRN /// 
 
STATE FOR F LESLEY ZIMAN 
STATE FOR USAID 
 
SIPDIS 
SENSITIVE 
 
E.O 12958: N/A 
TAGS: EAID ECON ETRD MV
SUBJECT:  Request for Economic Support Funds for the Maldives 
 
COLOMBO 00001144  001.4 OF 005 
 
 
//ZFR   ZFR   ZFR   ZFR   ZFR   ZFR   ZFR   ZFR   ZFR /// 
WILL BE RESENT UNDER A NEW MRN 
 
 
COLOMBO 00001144  002.6 OF 005 
 
 
in a large amount of foreign currency leaving the Maldives. 
 
¶8.  (SBU) The global financial crisis in combination with the 
swelling government payroll has brought the Maldives to the brink of 
bankruptcy.  The Gayoom Administration's profligate spending has 
left the Nasheed government in a tight economic bind (reftel C). 
The GOM employs an estimated 33,000 people -- more than 10% of the 
total population, 20% of the voting age population, and one third of 
the working population of Maldivian citizens.  Government 
expenditures account for 61% of GDP, and the cost of government 
salaries has risen from 13% of GDP in 2004 to 21% of GDP in 2008. 
Prior to the 2008 Presidential elections, the former government 
raised salaries and benefits for government employees.  The current 
Nasheed government raised salaries again in February 2009, in 
advance of the May 2009 Parliamentary elections.  In addition the 
government's limited capacity for budget management has resulted in 
unsustainable levels of government expenditures over the past 
several years. 
 
¶9.  (SBU) The government projects a 7% government deficit in 2009, 
but this is utterly unrealistic since it includes the expectation 
that the GOM will receive 22% of GDP in revenue from privatizing 
state-owned enterprises, which has not occurred.  Therefore the GOM 
government deficit for 2009 is likely to be well over 20% of GDP. 
The IMF program projects that the Maldives fiscal deficit will be a 
very high 33% of GDP in 2009.  The Md the 
U.S. dollar.  The overvalued currency makes Maldivian exports less 
competitive. 
 
¶10.  (SBU) The IMF board recently approved an agreement with the 
Maldives on a financial assistance package.  By accepting the IMF 
recommendation, the Maldives will reduce the size of the government 
deficit from 33% of GDP in 2009 to 18% in 2010 and finally to 4.25% 
in 2011.  The GOM has already started implementing several 
preconditions required by the IMF.  The Maldives plans reforms such 
as changing their tax system from import duties to direct taxes 
(reftel D).  The IMF also required the GOM to stop monetizing the 
deficit, i.e. using the Maldives Monetary Authority to print money 
for the government, and instead to move to selling government bonds 
on commercial markets.  Under the proposed program, the GOM must 
transfer 3,200 civil servants to the private sector, apparently 
through privatization.  Given its limited technical and managerial 
capacity, the Maldives will need technical assistance from donors to 
successfully implement the reforms detailed by the IMF. 
 
The Maldivian Environmental Crisis 
---------------------------------- 
 
¶11.  (SBU) The Maldives is comprised of over 1,190 islands, of which 
198 are inhabited and 94 are exclusive resort islands.  More than 
80% of the Maldives' land area is less than 1 meter above sea level. 
 The Maldives is extremely vulnerable to global climate change, 
which will impact the two significant industries in the country: 
tourism and fisheries.  Tourism could decline significantly, for 
example, if the Maldives' coral reefs are bleached due to increased 
water temperatures caused by climate change.  The fishery catch has 
been falling, apparently due to over-fishing and environmental 
changes. 
 
¶12.  (SBU) The GOM, led by President Nasheed, has issued several 
clarion calls regarding the environmental risks faced by the 
Maldives.  In October, the GOM conducted an underwater cabinet 
meeting to illustrate the future risks they face.  This meeting 
received extensive international media attention.  Last month, the 
Maldives hosted a climate change conference during which President 
Nasheed passionately called for additional funds to adapt to climate 
change and rising sea levels (reftel E).  The GOM hopes to become 
the first carbon neutral country by 2012 by increasing dependence on 
renewable energy sources. 
 
Other Challenges 
---------------- 
 
¶13. (SBU) There is a lack of Maldivian institutional capacity, and 
 
COLOMBO 00001144  003.6 OF 005 
 
 
the GOM officials are not well trained in the functions they are 
expected to perform.  As a result, there is a dearth of bureaucrats 
who can effectively formulate and implement policy.  GOM employees 
are particularly weak on fiscal management and oversight. 
 
¶14. (SBU) The youth constitute 20% of the population with a high 
population growth rate.  At the same time, there is a very high rate 
of unemployment amoncreasing in 
this region and the drug traffickers are hard to intercept due to a 
weak coastal guard system. 
 
GOM - A Strong U.S. Partner 
--------------------------- 
 
¶15.  (SBU) President Nasheed has steered the Maldives toward close 
association with the United States.  In addition to a pro-democracy 
orientation and pro-Western economic policies, the GOM has come 
through for the U.S. on difficult political steps:  the Maldives has 
announced that it intends to establish diplomatic relations with 
Israel, (although it has not done so yet)(reftel F), and has taken 
positions at the United Nations that support U.S. priorities, on 
Kosovo recognition and human rights issues in Iran. The Maldives has 
also taken some politically difficult stands on votes in the United 
Nations (see reftels G and H). 
 
¶16.  (SBU) As a moderate Muslim country with an indigenous and 
successful - if fragile - democratic movement, the Maldives is a 
valuable symbol in the Muslim world.  Government and business 
leaders are now concerned, however, that young Muslims, frustrated 
with poor employment prospects, could become radicalized.  There are 
worrisome signs.  President Nasheed has warned that 10 Maldivians 
were recently killed in Waziristan in Pakistan fighting for 
extremist movements, and 100 Maldivians are still fighting in 
Afghanistan and Pakistan.  If severe political and economic turmoil 
develops in the Maldives, the youth could become disaffected and 
turn to extremism. 
 
Authoritarian Forces Could Topple the GOM 
----------------------------------------- 
 
¶17.  (SBU) The nascent democracy in the Maldives is at risk because 
the government is gridlocked.  The party of former President Gayoom 
won a plurality of seats in the May 2009 Parliamentary elections - 
two more seats than President Nasheed's party.  The parliament is 
largely stalemated, as each side scrambles for the independent 
legislators to form ad hoc majorities.  The GOM has only passed four 
minor laws with the new parliament, that do not address the pressing 
challenges (reftel I). 
 
¶18.  (SBU) With the GOM unsuccessful thus far in effectively 
addressing the Maldives' economic crisis, the government's 
popularity is falling and it faces serious efforts to topple it from 
power.  There has been growing tension between the supporters of 
President Nasheed and former President Gayoom over a corruption 
probe by a Presidential Commission questioning the former President. 
 In November, the opposition Gayoom party brought a motion of no 
confidence against Foreign Minister Sheheed, one of the GOM'sf layoffs for a third 
to one half of these employees.  This economic reality, though 
needed, is dangerous for the government, especially with the 
authoritarian opposition party seeking to destabilize the government 
and return to power. 
 
Action Request: Interagency Assessment Team 
------------------------------------------- 
 
¶19.  (SBU) The Maldives requires substantial and sustained U.S. 
engagement and assistance to address its myriad of political, 
economic and environmental challenges.  Post requests that an 
interagency team visit the Maldives to explore the opportunities to 
assist the Maldives.  Post's preliminary proposals for Economic 
 
COLOMBO 00001144  004.6 OF 005 
 
 
Donor Coordination 
------------------ 
 
¶20. (SBU) Post will canvass other donors to avoid costly duplication 
of efforts.  The GOM has compiled a list of donor programs, which 
post is in the process of verifying.  The GOM plans to convene a 
donors' conference in January or February to seek additional 
resources, and Post will meet with donors in mid December to 
coordinate efforts (reftel J). 
 
¶21.  (U) Other donor activities include the United Nations 
Development Program (UNDP), which has $43.6 million in projects in 
the Maldives, with assistance concentrated on reconstruction from 
the 2004 tsunami ($40.3 million) and the Global Fund for AIDS, 
Tuberculosis and Malaria ($2.4 million).  Additionally, the World 
Bank is initiating an anti-corruption program in the Maldives. 
 
Strategy for Cost Containment 
----------------------------- 
 
¶22.  (SBU) Post will maximize use of the Economic Support Funds 
(ESF) to address the Maldives' myriad needs.  Since international 
NGO advisors can be very expensive, Post suggests using interagency 
USG personnel or third country nationals - such as from within South 
Asia - as technical advisors to cut costs.  In addition, the 
Maldives is a small island country which can ill afford a large 
government superstructure.  The Maldives only has 300,000 citizens, 
so it cannot hope to replicate the government bureaucracies of large 
developed nations.  Post suggests looking to other small island 
countries with efficient governments as models. 
 
¶23.  (SBU) Post is also exploring means other than ESF monies to 
address Maldivian needs.  Other avenues of funding from DOD and the 
State Department will be used to expand assistance to the GOM in 
areas of border security, interdiction of narcotics traffic and 
transnational crime by providing assessments, training and equipment 
to law enforcement and security agencies.  Post has also requested 
$3.4 million in 1206 Funds from DOD for the Maldives.  Additionally, 
to advance counter-extremism efforts, Post is utilizing Civil 
Military Support Element (CMSE) and Military Information Support 
Team (MIST) personnel.  Post is working with the Treasury Department 
on a counter-terrorism financing conference, and DEA is conducting 
specialized training.  Thus, any ESF programs would complement, 
rather than duplicate, other USG efforts already underway. 
 
Action Request: ESF Funding for Technical Assistance 
--------------------------------------------- ------- 
 
Political and Governance Reform Assistance 
 
¶24.  (SBU) Building an effective democratic system that efficiently 
delivers government services is a critical political need for the 
Maldives.  Lack of capacity at all levels is a tremendous obstacle. 
Post suggests that in collaboration with USAID technical assistance 
programs be developed in key areas including: 1) drafting 
legislation; 2) judicial training; 3) building capacity of local 
government officials, and [4) creating awareness of democratic 
systems.  Post requests $10 million in ESF funds over three years 
for this component. 
 
Economic Growth Assistance 
 
¶25.  (U) Post proposes developing an Economic Governance and Growth 
Initiative in collaboration with USAID for the Maldives.  We propose 
that an expert team design a technical assistance and capacity 
building project to address the following illustrative areas: (1) 
valuation and privatization; (2) sale of government bonds; (3) tax 
policy; (4) tax administration particularly, excise and large 
taxpayer unit and customs; (5) private sector competitiveness; (6) 
information technology security; (7) external debt management; (8) 
legal and regulatory reform; (9) workforce development; and (10) 
 
COLOMBO 00001144  005.2 OF 005 
 
 
budget control and expenditure framework.  These programs will 
provide the Maldives invaluable assistance in implementing the 
potential IMF program.  Post requests $10 million in Economic 
Support Funds over three years in this sector. 
 
Environmental Protection Assistance 
 
¶26. (SBU) The rising sea levels poses a major threat to the very 
existence of the countrr endangered coral reefs; 5) improved rainwater 
harvesting and sewerage issues; and 6) protection for utilities and 
key infrastructure.  In addition, the GOM has requested a marine 
research island, which merits further review.  Post does not 
currently have in-house expertise in this sector and would need to 
bring technical expertise on board to assess and define program 
needs.  Post anticipates initial support requirements of $8 million 
in ESF funds over three years for environmental protection. 
 
¶27. (SBU) Post is also requesting a 10-day National Oceanic and 
Atmospheric Administration (NOAA) course entitled "Planning for 
Climate Change in the Coastal and Marine Environment" (reftel K). 
 
Social Protection Assistance 
 
¶28. (SBU) The Maldives has a serious drug issue, which some ascribe 
to Western influence.  To complement the DEA efforts mentioned 
above, post requests assistance to strengthen drug rehabilitation 
centers.  Currently the Maldives has one such center, which could 
greatly benefit from more sustained U.S. engagement and support. 
Post anticipates the need for $2 million over three years in initial 
ESF support in this sector. 
 
 
BUTENIS