C O N F I D E N T I A L SECTION 01 OF 02 SANAA 001193

SIPDIS

E.O. 12958: DECL: 05/27/2013
TAGS: PREL PGOV EAID YM ECON COM
SUBJECT: DEPUTY PRIME MINISTER SOFAN: ECONOMIC ISSUES AND
AVENUES FOR FUTURE COOPERATION

REF: SANAA 1150

Classified By: Ambassador E. J. Hull for reasons 1.5 b. and d.


1. (C) Summary: Newly appointed Deputy Prime Minister and
Minister for Planning and International Cooperation Ahmed
Sofan outlined the new government's priorities to Ambassador
in a courtesy call on May 26. Sofan also said that he expects
the long-delayed gun-control legislation to pass Parliament.
Welcoming President Bush's free trade proposal, Sofan
reinforced his committment to cooperate fully with the USG on
assistance-related issues. End Summary.


2. (U) On May 26, Ambassador paid a congratulatory call on
newly appointed Deputy Prime Minister and Minister of
Planning and International Cooperation Ahmed Sofan. Sofan
was promoted in the recently formed cabinet from Minister of
Planning and Development to Deputy Prime Minister and his
ministry was given new oversight authority over international
cooperation.

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New Agenda: Economics and Combating Terrorism
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3. (U) Sofan highlighted three priorities for the new
government's agenda: economic reforms, implementation of the
poverty reduction strategy formulated by the World Bank, and
enhancing counterterrorism activities.


4. (C) Expressing concern over the effect of declining oil
prices on the Yemeni economy, Sofan said that if oil prices
fall below 25 USD a barrel the ROYG may seek donor support.
Even now, he added that the public may be surprised at next
year's budget, implying that there may be cuts. Adding that
regional economic cooperation has not fulfilled expectations,
Sofan said that the Yemeni public may see a disconnect
between their social welfare needs and the current economic
reality.


5. (C) Sofan predicted that he thought Yemen would be more
forthcoming in the political realm of combating terrorism by
making its position very clear to the public. On a related
issue, the Ambassador raised the long-delayed gun control

legislation -- which inter alia could ban private ownership
of MANPADS -- and noted its passage would be an "important
step." Sofan responded by saying that he thought they were
going to succeed in gaining its passage.


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Free Trade Agreement: Supportive, but
Regional Integration Faces Hurdles
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6. (C) Sofan supports President Bush's Middle East Free Trade
Initiative because he believes it will offer better
assistance to the private sector than other USG assistance
projects. He specifically asked for an American firm to help
with Yemen's public relations and complained that the ROYG
received very little assistance in that area from other
donors. Programs funded by the USG through the National
Democratic Institute to facilitate democracy, Sofan added,
were helping Yemen's reputation. However, he repeated, an
American PR firm was the best solution to promote Yemen's
tourism, business and image abroad.


7. (C) Turning to the possibility of regional free trade
agreements, Sofan recalled that in the past, internal Arab
politics had frustrated regional trade promotion programs.
Recalling the first Arab Free Trade Agreement in 1958, Sofan
declared that no progress has been made since then to
facilitate trade. Moreover, the U.S. Free Trade Agreement
with Jordan has hurt Egyptian textile trade with the U.S.
Sofan noted that the Gulf countries have similar economies
and must compete against each other for business.


8. (C) Instead, Sofan encouraged the USG to consider short
term initiatives that would help the Yemeni economy and
pledged that he would work with the USG to determine what was
needed. For example, he thought the Ministry of Trade and
Industry may need special experts on preparation of documents
for World Trade Organization accession.

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Civil Service Reform: The Slower Approach
--------------


8. (C) Sofan reinforced the new government's committment to
civil service reform, saying there was "no question of not
doing it." Suggesting that as many as 300,000 civil servants
would eventually have to be laid off, and that salaries would
have to be raised to ten times the amount presently offered,
Sofan said the new government would embark, of necessity, on
a "slower approach" to civil service reform. The government
will focus on encouraging employees to retire, ending "double
dippers" (people who hold jobs at more than one ministry) and
minimizing the bureaucracy. Sofan added that the World Bank
program on civil service reform would not be sufficient to
carry out a complete overhaul of the civil serve and there
may be areas for future USG cooperation.

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Encouraging Increased Interaction
--------------


9. (C) Positively assessing USG and ROYG assistance
cooperation, Sofan pledged to continue USG and ROYG close
interaction, especially with the imminent arrival of USAID.
Ambassador described the process that determines whether
Yemen qualifies for the Millennium Challenge Account and
pointed out that he may return to Sofan and ask for his
specific help in certain categories where Yemen may fall
short. Sofan agreed and pledged to work closely on MCA.
Sofan closed by explaining that his new Ministry was created
to centralize all interaction on assistance, with the goal of
stemming corruption. Before, he added, too many Ministries
were involved in making decisions on assistance and this
process allowed for corruption.
HULL