Sen believes the government should abandon its economic liberalization in the short run, focusing instead on poverty alleviation and populist measures to curb the cost of living,

5463 2/3/2003 9:16 03COLOMBO189 Embassy Colombo CONFIDENTIAL "This record is a partial extract of the original cable. The full text of the original cable is not available." "C O N F I D E N T I A L SECTION 01 OF 03 COLOMBO 000189

SIPDIS

DEPARTMENT FOR SA, D, SA/INS, LONDON FOR POL/RIEDEL; NSC FOR E. MILLARD

E.O. 12958: DECL: 02/03/2013

TAGS: PGOV, PREL, PTER, PINR, PARM, CE, IN, ECONOMICS, Elections, LTTE - Peace Process

SUBJECT: INDIAN HIGH COMMISSIONER ON SRI LANKA

Classified By: AMBASSADOR E. ASHLEY WILLS. REASONS 1.5 B, D.

1. (C) SUMMARY: I met for one hour today (2/3) with Indian High Commissioner Nirupam Sen concerning the current state of peace talks in Sri Lanka. To my surprise, we agreed completely on our analysis of the situation (the trend is not positive); on the reasons why (LTTE aggressiveness, cohabitation tensions, the economy and Muslim agitation in the east); and on the need for close Indo-US consultation and cooperation re Sri Lanka. And we came close to agreeing on what should be done to improve matters. We both think the LTTE needs to be told that it must accept phased demobilization of its military; in this regard, a crucial first step would be acceptance by the Tigers of international supervision of their long-range weapons on the Jaffna Peninsula. But whereas Sen believes the government should abandon its economic liberalization in the short run, focusing instead on poverty alleviation and populist measures to curb the cost of living, I believe we should keep the pressure on the GSL to push ahead with reform. END SUMMARY.

2. (C) I called on High Commissioner Sen at the Indian High Commission. I wanted to see how his and our assessments of current conditions in Sri Lanka compare. It turns out we agree completely on our analysis. Sri Lanka's attempt at peace has gone surprisingly well to this point but the sprint-like pace of progress will now slow to a mosey. This slowdown traces to four factors, any one of which by itself could undo the progress made thusfar.

The Tigers

3. (C) The biggest danger remains the Tigers. While Sen and I agree that the Tigers have given up their push for an independent Eelam, a de jure state, they want it de facto. This explains their aggressiveness in establishing courts, police forces, ""civilian"" LTTE authority in Sri Lanka's east and their unwillingness to consider disarming or demobilizing until a final peace deal is signed. Tiger aggressivness also traces to their sensing weakness in the south; they trust PM Wickremesinghe still but they worry that his government might not last. If he does fall, they want to get themselves into the best position they can geopolitically in the northeast. And if he doesn't fall and the peace talks proceed eventually to a negotiated settlement, the Tigers hope they will be in a strong enough position to insist upon the maximal devolution of power to the northeastern entity they expect to dominate. (Sen also agreed with our Embassy's ""sloppy scenario"", in which a final peace deal ultimately subverts the Tigers but he, like we, thinks there is much work to be done, and much luck needed, to reach that happy moment.)

Cohabitation

4. (C) Sen is convinced, and I now tend to agree, that the President can be expected to do whatever she can to unseat Ranil in the months ahead. If that means doing a deal with the extreme left JVP, so be it. If it means staging demonstrations over the rising cost of living or on privatization, so be it. She will only prorogue Parliament and go for a general election when she is convinced she can win, but in the meantime she can unsettle the south by any of several covert means while professing publicly to be for peace.

The Economy

5. (C) Ranil has long acknowledged that the attempt at peace must be accompanied by rapid economic growth. And so far, it has not happened. There was growth in 2002, his first year in power, but not enough to create a sense of well-being country-wide. The President, the JVP and others in the opposition will seize on this issue to put the PM on the defensive and divert his attention away from the peace talks.

Muslims

6. (C) Sen presented me with a chart indicating linkages between Muslim groups, mainly in Sri Lanka's east, and Pakistan's ISI. This does not consitute proof, of course, but we on our own have noted growing radicalism among Muslims in the east. This may well be partly because of money coming in from Pakistan and elsewhere in west Asia, but I am convinced an equally important factor is LTTE stupidity in pushing its aggressive agenda in Muslim areas. Meanwhile, the elected leaders of Sri Lanka's Muslims have been too busy vying for power to bother with genuine efforts to improve conditions for their constituents, much less think imaginatively about how Muslim interests could be protected in a final peace deal.

What Can Be Done to Improve the Odds

7. (C) Dispensing with any pretense at modesty, Sen and I agreed that India and the US are the two countries that matter most to the GSL and the LTTE. So it is very important that we consult and cooperate closely on Sri Lanka. We both thought the visit of Indian Foreign Secretary Sibal to Washington this week could be a good occasion for the two sides to dwell on Sri Lanka.

8. (C) As for specific steps, we reckoned that a positive move by the LTTE on its weapons could have a dramatically positive impact on southern politics and cohabitation. In particular, Sen and I thought it high time for the Tigers to acknowledge publicly that they must begin a phased disarmament and demobilization of their military. If they are truly committed to a peaceful, negotiated outcome, then this should not be too much to expect of them. Full disarmament and demobliziation can await a final deal, but the iterative process should begin now. In this regard, a first step that would be much admired would be their accepting international supervision, presumably through the Scandinavian-staffed Sri Lanka Monitoring Mission, of their long-range weapons on the Jaffna Peninsula. (I did not mention to Sen the Deputy Secretary's scheduled speech on Sri Lanka on February 14, but this might present a good opportunity for the US to call for such a move by the LTTE.)

9. (C) On cohabitation, we felt that both India and the US, and every other interested external party, should continue to use every meeting with both the President and the PM to emphasize the importance of a southern consensus on peace. The President, in particular, should have no doubts about how her attempts at destabilizing Ranil would be viewed by Sri Lanka's friends. It probably won't deter her, we calculated, but we should be clear with her anyway.

10. (C) Where Sen and I disagreed concerned the economy. He understandably worries that continued free-market reforms, which will lead to temporary unemployment and certain price increases, will give the President, the extreme left JVP and others in the opposition convenient pretexts for agitating against Ranil's government. This agitation could at least distract the GSL from pursuing peace and at most precipitate the government's fall, Sen fears. So he believes the government should abandon liberalization, ""at least for three to six months"", and pursue poverty alleviation and populist measures aimed at curbing the rise in the cost of living and creating employment.

11. (C) I share his concern but not his remedy. By septel, we will be reporting a conversation I had with Minister Milinda Moragoda this weekend in which he asks for our help in improving the terms of the IMF's planned Poverty Reduction/Growth Program for Sri Lanka. While I think we should urge the IMF to be generous in its PRG loan for Sri Lanka, I believe we must continue to insist on reforms that have the best chance of growing the country's economy. Sen's proposal is a quick, budget-busting fix; liberalization will take longer but it is only through further opening of the Sri Lankan economy that big amounts of foreign direct investment can be attracted. With the government's finances already severely constrained, the only possible source of funds for growth is FDI.

Comment

12. (C) Sen is an old-school, Nehruvian Indian diplomat, a Bengali leftist for whom anti-Americanism must be instinctive. But his country has changed and so too has his own attitude. We were so much in accord that it was a little surreal.

13. (C) But it is in any case welcome that we and India assess Sri Lanka the same. In the weeks coming, I hope we can come to terms with the GOI concerning how we can jointly or, more likely, separately exert constructive influence on the parties involved in the Sri Lankan peace attempt.

WILLS