![\"Patricia](\"https:\/\/www.colombotelegraph.com\/wp-content\/uploads\/2011\/11\/patricia-a-butenis1-colombo-telegraph.jpg\")
<\/a>Patricia Butenis<\/p><\/div>\n
The\u00a0Colombo Telegraph<\/a><\/span>\u00a0found the related leaked cable from the\u00a0WikiLeaks<\/a><\/span>\u00a0database. The cable was written on January 07, 2010 \u00a0by the US Ambassador to Colombo,\u00a0Patricia A. Butenis<\/a><\/span>.<\/p>\n She wrote; “The Tamil Diaspora could be an enormous resource for Eastern reconstruction, but the Diaspora has not invested yet. Our contacts gave several possible reasons, including that they were waiting for the political situation to stabilize, they were afraid that investment funds could be seized by the GSL, or they did not feel safe yet. Nevertheless, some Diaspora had visited the East, some were interested, and locals hoped that investments would come in the future.”<\/p>\n We publish below the statement in full;<\/p>\n […]<\/p>\n","protected":false},"author":22,"featured_media":36353,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,1,6969,2375,27],"tags":[],"class_list":["post-122613","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-colombotelegraph","category-news","category-popular-stories","category-stories","category-wikileaks"],"yoast_head":"\nUNCLAS SECTION 01 OF 04 COLOMBO 000010 \r\n\r\nSENSITIVE \r\nSIPDIS \r\n\r\nDEPARTMENT PLEASE PASS TO UNITED STATES AGENCY FOR \r\nINTERNATIONAL DEVELOPMENT \r\n\r\nE.O. 12958: N\/A \r\nTAGS: CE EAGR EAID ECON EFIN ETRD PGOV PHUM\r\nSUBJECT: EASTERN SRI LANKA MAKES POST-WAR ECONOMIC \r\nPROGRESS; ECONOMIC RESENTMENT LINGERS \r\n\r\nREF: A) COLOMBO 1109 B)COLOMBO 1136 \r\n\r\n\u00b61. (SBU) Summary. The Government of Sri Lanka (GSL) \r\ntouts the 'economic success' in Eastern Sri Lanka, where the \r\nfighting ended in 2007, as its blueprint for the \r\nreconstruction of Northern Sri Lanka. Econoff found that the \r\nbase economy in the East of paddy rice farming and fishing \r\nhas bounced back, the GSL has improved the road network, and \r\nthe number of security checkpoints has been reduced. Two new \r\napparel factories have been established, albeit with heavy \r\nsubsidies, and there is tourism development potential. \r\nHowever, the GSL has not been effective in overcoming other \r\nimpediments to economic development. Most strikingly, there \r\nis local resentment that large Sinhalese companies from \r\nColombo are receiving the prime tourist plots and government \r\ncontracts to the exclusion of local entrepreneurs. End \r\nSummary. \r\n\r\nBackground on the Eastern Province \r\n\r\n\u00b62. (U) Econoff visited two of the three districts in the \r\nEastern Province, Batticaloa and Trincomalee. Batticaloa is \r\nalmost entirely agricultural with little or no industry. A \r\nlocal business leader estimated that the Batticaloa \r\npopulation is 80% Tamil and 20% Muslim with almost no \r\nSinhalese Buddhists. Trincomalee has paddy rice production \r\nand fishing, but also possesses the world,s second largest \r\nnatural harbor and several industries. The population of \r\nTrincomalee is almost evenly split between Tamils, Muslims \r\nand Buddhists. \r\n\r\nBasic Agricultural and Fishing Economy Bounces Back \r\n\r\n\u00b63. (U) Agricultural rice production and the fishing \r\nindustry have quickly bounced back in both Batticaloa and \r\nTrincomalee. The Government Agent in Batticaloa described \r\nhow paddy rice production has more than doubled since the end \r\nof the war in 2007, increasing from 25,000 hectares in 2007 \r\nto 58,000 hectares in 2009. Moreover, the fish catch rose \r\nfrom 10,000 metric tons in 2007 to 17,000 metric tons in \r\n\u00b62009. The dramatic increases in paddy production and fish \r\ncatch were confirmed by business and NGO contacts. The \r\npattern is the same in Trincomalee, where paddy rice \r\ncultivation has increased from 150,000 hectares in 2007 to \r\n200,000 hectares in 2008 and 227,000 hectares in 2009. \r\nSimilarly, the fish catch has also increased sharply. A \r\ngovernment aligned academic stated that the GDP had risen 16% \r\nin the East as abandoned land has been put back into \r\nproduction. \r\n\r\n\u00b64. (SBU) All of the local contacts, from government \r\nofficials to business leaders to NGOs, agreed that the GSL \r\nhas substantially improved the road system in the Eastern \r\nProvince. Much of the road improvements have been funded \r\nwith Tsunami resources from donors. The road system still is \r\nnot complete; the primary roads in Trincomalee were new but \r\nthe roads in Batticaloa were in worse shape. The GSL has \r\nalso improved the rural roads, but they are still below the \r\nnational roads in the East. The improved roads have brought \r\nreal benefits in terms of reduced agricultural spoilage \r\nduring transportation (40% of the crops was lost before), and \r\nbetter roads for tourists. There still are problems. There \r\nwere heavy rains during econoff,s trip, and some bridges \r\nwere un-passable and some people were cut off in a remote \r\narea. \r\n\r\n\u00b65. (SBU) Although there are still many checkpoints, there \r\nare fewer than before, so security checkpoints no longer \r\nappear to be a major drag on commerce. USAID,s office on \r\nConnecting Regional Economies (CORE) conducted a study of \r\nlogistics in the East, and found that security checkpoints \r\nwere a major impediment to trade before the end of the Tamil \r\nTiger war in May 2009. At that time trucks went through \r\nmultiple checkpoints where they frequently needed to unload \r\ntheir cargo, taking hours at each checkpoint and sometimes \r\ndamaging the cargo. There have been dramatic improvements, \r\nwith many fewer checkpoints, and drivers are stopped only if \r\n\r\nCOLOMBO 00000010 002.3 OF 004 \r\n\r\nthey do not have proper documentation. Econoff observed many \r\ncheckpoints, but almost all cars and trucks were lazily waved \r\nthrough, and usually the checkpoint was empty. Our contacts \r\ndid state that there are still some roads which are off \r\nlimits to civilians, and security around key areas, such as \r\nthe port or government officials, remains tight. \r\n\r\nTourism is the Sector with the Most Near Term Potential \r\n\r\n\u00b66. (SBU) Although the East has world class beaches and \r\nother tourist attractions, so far only domestic tourists are \r\nvisiting Eastern Sri Lankan, and long term growth will \r\ndepend on greatly improved tourist facilities. According to \r\nthe CORE study sponsored by USAID, the East Coast only has \r\neight 'graded' hotel establishments, with 230 beds. The \r\noccupancy rate in these hotels was 22% in 2008, but this has \r\nincreased so much in Trincomalee (due to domestic tourism) \r\nthat it can be hard to get a room in one of the few decent \r\nhotels there. The accommodations in Batticaloa are well \r\nbelow international standards, and members of the Batticaloa \r\nChamber of Commerce said that travelers usually do not stop \r\nthere but stay in neighboring districts. The growth in \r\nInternational tourism would be aided by a large airport, but \r\nthe Trincomalee airport only has a couple of flights per \r\nweek. Tourists must take a day long trip each way from \r\nColombo in order to visit. \r\n\r\n\u00b67. (SBU) As part of the GSL,s goal to increase tourist \r\narrivals from 500,000 per year to 2,500,000 by 2016, the GSL \r\nis allocating land for tourist development in Trincomalee . \r\nOur contacts agreed that all or almost all of the prime \r\ntourist land was being allocated by the government to Colombo \r\n(Sinhalese) firms, and local companies were being shut out. \r\nThe Government Agent for Trincomalee (appointed by President \r\nRajapaksa and in charge of the area) said that he allocated \r\nland based on factors such as capacity to develop \r\ninternational hotels, financing, experience and environmental \r\nconsiderations. The government agent, Major General de \r\nSilva, added that the local companies simply do not have the \r\ncapacity to build a large international hotel. Members of \r\nthe Trincomalee Chamber of Commerce implicitly agree, by \r\narguing that the government needed to provide them with bank \r\nloans and allow them to build small hotels or guest houses. \r\nOther contacts alleged that the prime tourist land was \r\ndistributed by the GSL based on favoritism. In any case, \r\nalthough Colombo firms have taken the land, they have not \r\nbegun work, but they are waiting until after the upcoming \r\nelections season to begin investing. The CORE study projects \r\nthat if hotel construction begins in the next two years, it \r\nwill be up to five years until the hotels are open and \r\noperational. Progress in Batticaloa is much further behind, \r\nas the local business leaders are discussing building a \r\nsingle three star hotel to house business travelers. \r\n\r\n\u00b68. (SBU) The port of Trincomalee is the second largest \r\nnatural harbor in the world (after Rotterdam), but it has not \r\nserved as a catalyst for regional development. The \r\nTrincomalee Port has three large companies: Prima Wheat \r\nMill, Indian Oil Company and Toyota Cement, and each company \r\nhas a private dock to import their industrial inputs. The \r\nmain dock is little used aside from some shipments of coal. \r\nThe port director has big plans to create a dry dock for \r\nrepairing ships and gaining some of the regional \r\ntransshipment trade. None of our other business or \r\ngovernment contacts foresee any major development of the \r\nTrincomalee Port, other than an Indian-financed coal power \r\nplant. According to a CORE study, the Port of Trincomalee \r\nreceives 4% of the Sri Lankan import cargoes, measured by \r\nweight. Econoff met with GSL officials in Colombo, who have \r\ngreat plans to expand the Port of Colombo (currently \r\nreceiving 95% of Sri Lanka,s cargo) and to build an enormous \r\nport in President Rajapaksa,s home region of Hambantota in \r\nthe South, but few plans are underway to expand the Port of \r\nTrincomalee. \r\n\r\n\u00b69. (SBU) The GSL plans to expand Trincomalee,s \r\nindustrial base are having limited success. Sri Lanka is not \r\n\r\nCOLOMBO 00000010 003 OF 004 \r\n\r\nkeeping their present industrial base happy. The Prima Wheat \r\nmill has plans to expand, but it has been unable to do so for \r\ntwo years because they have not received the required 13 \r\npermits. Indian Oil is also frustrated that the government \r\nprevents it from importing more oil and opening more service \r\nstations, since the Indian Oil service stations compete with \r\nthe government gas stations. When asked about the \r\nTrincomalee business climate, one business leader said that \r\nhe would not recommend investing in Trincomalee because there \r\nis too much red tape and the wage costs are increasing. The \r\nGSL established an export processing zone near Trincomalee, \r\nbut despite constructing several buildings they have been \r\nunable to lure any companies to the EPZ. Even the successes \r\ncreate problems. The GSL has an agreement to build an \r\nIndian-financed coal plant in the Port of Trincomalee, but to \r\nclear the necessary land the GSL has relocated 2,000 people \r\nfrom their land to new government allocated land, which has \r\ngenerated complaints. There are two apparel factories in the \r\nEast, Brandix and TriStar. Econoff visited Brandix, \r\nestablished by a large Colombo company with the laudatory \r\ngoal of bring together workers from the Sinhalese, Tamil and \r\nMuslim communities. The GSL has provided heavy subsidies \r\nthrough a five year income tax holiday for the entire company \r\nto the Brandix factory. USAID in a public\/private \r\npartnership is financing training for the 600 local workers \r\nfrom all three ethnic communities, many of whom are war \r\nwidows, former combatants, or women from Internally Displaced \r\nPersons camps. Brandix even requires the work teams to eat \r\nlunch together, or else the different ethnic groups would \r\nself segregate for lunch. The Brandix factory is not yet \r\nprofitable, however, as there has been heavy turnover of \r\n30-40% (Muslim girls in particular quit due to family \r\npressure), and Brandix must work on soft work skills with \r\ntheir employees, such as the importance of coming to work on \r\ntime every day. Econoff visited the factory, which was short \r\nstaffed due to a threat of poor weather, and observed a good \r\nportion of the workers chatting rather than industriously \r\nsewing clothes. Econoff was also told that the TriStar \r\nfactory receives heavy subsidies, although it was not clear \r\nif these were more than the five year tax holiday.. \r\n\r\nImpediments to Increased Economic Development \r\n\r\n\u00b610. (SBU) Land issues are a major problem in the East. \r\nThe local government has a difficult time determining land \r\ntitle, since the LTTE controlled certain areas for years and \r\npeople who were forcibly evicted from their lands are coming \r\nback and demanding their land. The Government Agent of \r\nBatticaloa stated that land title is an enormous headache. \r\nIn urban areas the title owners may have left 20-30 years \r\nago, then other people have lived in the houses and improved \r\nthem, or bought and sold them. The government experiences \r\nthe same problem in Trincomalee, and there the GSL gives the \r\nreturnees new land instead of their original plots. The \r\nsituation in the country is even harder, because many paddy \r\nfarmers never had property title in the first place. The \r\nland was left uncultivated for years due to the war, and now \r\nthe government is trying to allocate land between the current \r\noccupants and the returnees. Several representatives of the \r\nUnited Nations thought that the government was distributing \r\nland based on favoritism and bribes, and that the land issue \r\nhas stirred up ethnic division. Land title is also required \r\nfor bank financing. \r\n\r\n\u00b611. (SBU) Although state and private sector banks have \r\nincreased their branches in the East, local business leaders \r\nstill cannot get loans. Members of the Batticaloa and \r\nTrincomalee Chambers of Commerce complained bitterly that \r\nthey could not receive bank loans because there were too many \r\npaper requirements, and they lacked proper land title or \r\nother collateral, so they turned to the informal market where \r\nthe interest rates were twice as high. A regional \r\nrepresentative from Hatton National Bank reported that it was \r\nhard to find good projects for lending, and they only lend \r\nout 45% of the money taken in through deposits. \r\n\r\n\u00b612. (SBU) There are also several cases where water \r\n\r\nCOLOMBO 00000010 004 OF 004 \r\n\r\nshortages restrict economic growth. The East has ample \r\nrainfall three months for one paddy rice crop, but the second \r\ncrop requires irrigation. Water shortages can create \r\nproblems for industry. For example, a proposed pineapple \r\nprocessing plant never materialized because the GSL could \r\nnot guarantee water supplies. \r\n\r\n\u00b613. (SBU) Eastern farmers and fisherman are also impacted \r\nby the lack of storage facilities and value added food \r\nprocessing. Since they cannot store their rice or fish \r\ncatch, farmers and fishermen must sell immediately to Colombo \r\nmiddlemen to transport the goods, reputedly at very low \r\nprices. The East also exports raw fish, with no processing, \r\nso there is less value added. There is progress in the \r\ndairy sector, where, with USAID assistance, there are new \r\nmilk storage facilities so cattle farmers receive higher \r\nreturns. \r\n\r\n\u00b614. (SBU) The GSL Board of Investment (BOI) provides 15-20 \r\nyear tax holidays for investments in the North and East, but \r\nlocals have little enthusiasm for the BOI incentives. \r\nAlthough large Colombo companies are receiving BOI \r\nincentives, members of the Batticaloa Chamber of Commerce \r\nsaid that locals did not know how to write proposals, they \r\ndid not have the proper collateral of capacity, so none of \r\nthem have received BOI incentives. \r\n\r\n\u00b615. (SBU) The Tamil Diaspora could be an enormous resource \r\nfor Eastern reconstruction, but the Diaspora has not invested \r\nyet. Our contacts gave several possible reasons, including \r\nthat they were waiting for the political situation to \r\nstabilize, they were afraid that investment funds could be \r\nseized by the GSL, or they did not feel safe yet. \r\nNevertheless, some Diaspora had visited the East, some were \r\ninterested, and locals hoped that investments would come in \r\nthe future. \r\n\r\nStrong Ethnic Tension \r\n\r\n\u00b616. (SBU) Our contacts saw all local issues, from \r\ngovernment allocation of land and contract awards, through an \r\nethnic prism. Several contacts worried that Tamils and \r\nMuslims were being shoved aside in favor of Sinhalese from \r\nColombo or the South. The area still felt militarized, with \r\nfrequent security checkpoints, although people were waved \r\nthrough. Former military leaders hold key unelected \r\npositions and represent the federal government, such as \r\nEastern Province Governor Rear Admiral Wijewickrema and the \r\nTrincomalee Government Agent Major General De Silva, (both \r\nappointed by the GSL). Several Tamil contacts also reported \r\nthat they must register with the GSL when they travel to \r\nColombo, which is not required of others. In general, ethnic \r\nidentity and resentment are just below the surface in the \r\nEast. \r\n\r\n\u00b617. (SBU) Comment. The GSL has successfully brought back \r\npaddy rice production and fishing, but the way forward is \r\nmuch harder. The GSL can pursue some ethnically neutral \r\ndevelopment strategies such as road building, incentives for \r\napparel factories, and improved storage facilities. However, \r\nthe region,s best immediate bet is tourism, and the local \r\ncompanies simply do not have the capacity to build \r\ninternational quality hotels. The GSL could set aside some \r\nplots for local investors, but it has not done so. The GSL \r\npolicy to award land to Colombo developers, combined with \r\nissues of land allocation for returnees, has helped \r\nexacerbate a tense ethnic situation. In short, the East has \r\nrecovered its basic agricultural capacity, but improvements \r\nin the economy have not yet ameliorated ethnic tension. End \r\nComment. \r\n\r\nBUTENIS<\/pre>\n","protected":false},"excerpt":{"rendered":"