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
RUEHGV/USMISSION GENEVA 2159
RUEHC/DEPT OF LABOR WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
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.