VZCZCXRO5747
PP RUEHLMC
DE RUEHLM #0322/01 0540942
ZNR UUUUU ZZH
P 230942Z FEB 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC PRIORITY 5513
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP
UNCLAS SECTION 01 OF 02 COLOMBO 000322
SIPDIS
SENSITIVE
SIPDIS
STATE FOR SCA/INS AND EB/IFD
MCC FOR S GROFF, D NASSIRY, E BURKE AND F REID
E.O 12958: N/A
TAGS: EAID PGOV CE
SUBJECT: SRI LANKA: UK CONSIDERING CANCELING TSUNAMI DEBT RELIEF
REF: A. NASSIRY-GABOR TELCON 20 FEBRUARY 2007
B. 2006 COLOMBO 2127
1. (SBU) Summary: The UK is considering canceling $80 million in
debt relief provided to Sri Lanka following the 2004 tsunami because
of concerns that Sri Lanka is not meeting pro-peace conditions of
the debt relief agreement. The UK's privately-conveyed concerns
were leaked to the Sri Lankan press - possibly in an attempt by the
Government of Sri Lanka to pressure the UK not to cancel the
assistance. End Summary.
2. (SBU) The United Kingdom's Department for International
Development (DFID) has asked the Government of Sri Lanka (GSL) to
address concerns that the GSL may not be adhering to the conditions
of the UK's debt relief granted following the 2004 tsunami. John
Culley, of British High Commission political section in Colombo,
told Econoff that the 2005 UK-GSL $80 million debt relief agreement
was intended to be "conflict sensitive" in that it should not free
up other GSL funds to be used in the country's conflict with the
separatist Liberation Tigers of Tamil Eelam. For this reason, the
agreement included the following explicit requirements:
o GSL adherence to international obligations, in human rights and
other areas;
o no initiation of conflict;
o no unjustifiable military expenditures; and
o no breakdown of transparency and accountability.
3. (SBU) According to Culley, DFID was concerned about specific
examples, cited by observers such as the Co-Chairs and the Sri Lanka
Monitoring Mission, of departures from the first three conditions.
Interestingly, DFID did not have reservations about the GSL's
performance on the fourth condition, although many other donors have
significant concerns. Culley did not elaborate on the instances
that the UK had flagged. He said that UK Secretary of State for
International Development Hilary Benn wrote to GSL Finance Secretary
PB Jayasundera February 11 to ask the GSL to explain how its actions
were consistent with the terms of the debt relief agreement. Culley
expected that discussions between the two governments would continue
for at least a few weeks before the UK would make a final decision
on whether to cancel its debt relief.
4. (SBU) According to Culley, the UK's debt relief agreement
consisted of a UK commitment to pay 10 percent of all Sri Lanka's
debt payments to the World Bank's International Development
Association from 2005 to 2014. The total projected amount of relief
is 41 million British pounds, or about $80 million. This figure
represents about 60 percent of the value of the UK's ongoing
assistance to Sri Lanka. Culley emphasized that the UK had not made
a decision to cancel the debt relief, nor had it decided what it
would do with the funds if the debt relief were cancelled. It was
possible, he said, that DFID would give equivalent funds to the
United Nations or the International Committee of the Red Cross for
humanitarian work in Sri Lanka; but it was also possible that the
money would not be reprogrammed for Sri Lanka.
5. (SBU) In declining to share with Embassy a copy of the "private
and confidential" Benn letter, Culley explained how the substance of
the letter came to be reported in the Sri Lankan newspaper, "The
Sunday Times" on February 18. According to Culley, DFID delivered
the letter to the Sri Lankan High Commission in London with the
request that it be transmitted to Sri Lanka's Ministry of Foreign
Affairs and Ministry of Finance. After the Sunday Times report
appeared in Colombo, the British High Commission checked with the
two ministries and found that they had not yet received copies of
the letter. Thus, the High Commission concluded, the Sri Lankan
High Commission had likely leaked the issue to the Sunday Times.
6. (SBU) Culley surmised that the Sri Lankan High Commission's
motivation in leaking the contents of the Benn letter to the press
was to put pressure on the UK not to cut its aid, much as had
occurred following the German government's recent announcement that
it intended to redirect tsunami aid from Sri Lanka to Indonesia and
not commit new aid to Sri Lanka until peace talks resumed (ref B).
7. (SBU) Comment: The British High Commission's guess that the GSL
leaked this matter to the press in order to create pressure on the
UK not to follow through seems plausible. If this was the GSL's
strategy, it is unlikely to work - Germany in fact did not back off
its intention to shift tsunami aid from Sri Lanka to Indonesia and
suspend new aid, it only softened its public statements on the
matter. Meanwhile, DFID has ample reason to regard recent GSL
performance on human rights, the conflict, and military expenditure
as inconsistent with the terms of its bilateral debt relief
COLOMBO 00000322 002 OF 002
agreement.
BLAKE