BASOTHO PUBLIC ENTHUSIASM WANING FOR YET-UNSIGNED MCC

UNCLAS SECTION 01 OF 02 MASERU 000182

SIPDIS

SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: EAID ETRD PGOV PREL LT MCC
SUBJECT: BASOTHO PUBLIC ENTHUSIASM WANING FOR YET-UNSIGNED MCC
COMPACT

REF: MASERU 149


1. Summary: At an April 4 luncheon with GOL Ministers held in
honor of AF/S Director Dan Mozena's visit, government discussion
focused mainly on the status of Lesotho's proposal for
Millennium Challenge Account funds. Ministers urged MCC
Associate Country Director Deidra Fair for incremental release
of pre-Compact funds. Ministers Thahane and Malie reiterated
the government's request for a Compact-signing timeline and a
specific list of objectives to accomplish throughout the term of
the Environmental Impact Assessment (EIA) . Ministers asserted
that the initially enthusiastic Basotho are losing interest as
the third annual qualification for MCC approaches, yet monies
remain un-disbursed. Mozena noted that in the U.S., the lengthy
start-up time of the new agency had frustrated some since only
one compact had been announced. The ministers also discussed
regional trade issues, the current condition of SADC, the state
of U.S. - SACU Free Trade Agreement negotiations, and the
upcoming local government elections. Note: before she departed
Maseru, Fair did provide much of the information requested.
End Summary

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GOL VIEWS
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2. During AF/S Director Mozena's familiarization visit to
Maseru, April 3-6, 2005, Ambassador Perry hosted an April 4
luncheon gathering of ministers. Minister of Foreign Affairs
Moleleki, Mininister of Finance Thahane, Minister of Trade and
Industry, Cooperatives and Marketing Malie, Minister of
Agriculture Phororo, and Minister of Local Government Sekatle
attended. MCC Associate Country Director Deidra Fair, who
travelled to Lesotho March 30 - April 9, 2005, for follow-up
meetings and the April 7-8 Private Sector Development Forum (to
be reported septel),also attended.


3. While Lesotho qualified to compete for MCC funds in 2004 and
2005 (and expects to qualify again in 2006) the GOL faces
increasing public skepticism for a program that initially
generated countrywide excitement, according to Minister Malie.
He suggested holding a press event to release a loose timeline
and explain the current status of Lesotho's proposal, because he
perceived growing discontent among Basotho who are eagerly
anticipating the job creation implicit in infrastructure and
water development projects. Ministers agreed that pre-Compact
release of some resources could revitalize public interest in
the bulk-water and infrastructure development projects .
Ministers enunciated the GOL's desire to have a checklist of
triggers, linked to a specific timeline, demarcating
disbursement of funds at particular junctures. Mr. Mozena
reported a growing climate of concern among U.S. constituencies
regarding deficit spending, and encouraged the GOL to move
quickly to utilize MCC funds before Congress might have an
opportunity to make funds unavailable.

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MCC Response
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4. In response, Ms. Fair reassured that despite domestic
imperatives, Lesotho would indeed have access to all three
years' money upon completion of the Compact. She also indicated
that although the MCC was not yet ready to commit to such a
precise timeline, the agency continues to consider
gradual-disbursement structures. The critical milestone for
moving forward with Lesotho's MCC Compact will be the completion
of the EIA, but, she added, many interim measures should be
taken, namely private sector reforms, improvement of access to
credit, initiation of hydro- and geologic feasibility studies at
the Metolong Dam Site, and passage of gender and land tenure
legislation. Instead of concentrating on project upstarts such
as roads and electricity extension, which are actually
incorporated into Lesotho's dam proposal, the GOL should submit
to the MCC a proposal addendum making a stronger case for how
the dam project will elicit poverty reduction and development,
sector by sector.


5. MFA Moleleki suggested that the EIA be conducted in
conjunction with early phases of the dam project, its findings
utilized as a tool to mitigate projected negative impacts.
While the GOL would prefer such a "turnkey" operation, the
minister alluded to failure of this method during earlier
highlands projects and ensuing scandals. Ms. Fair emphasized in
response that dam projects always invite intense scrutiny from
Congress and the American public, and that a completed EIA and
mitigation program would be necessary before funds for the
Compact could be released. As far as the MCC and Congress are
concerned, a concurrent EIA and construction timeline would not
be acceptable. Mr. Mozena added that while on-paper reforms are
necessary, investment-flow into Lesotho would depend heavily
upon the perception of a business-enabling environment, stemming

MASERU 00000182 002 OF 002


from de facto positive experiences of existing business people
in Lesotho.


6. Minister Sekatle requested explanation of the differences
between Lesotho's and Madagascar's MCC timelines, and Ambassador
Perry cited Madagascar's successful conduction of truly free and
fair (though difficult) national elections and pursuit of
politically risky reforms as clear signals to the U.S. of that
country's commitment. Madagascar's proposal also encompasses
diverse rural development goals rather than a single,
contentious infrastructure development project, which made for
an easier "sell" to the U.S. public and Congress.

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Regional Trade Structures; Local Elections
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7. Regarding the end of Lesotho's term as chair of the SADC
organ troika, Ministers Malie, Thahane, and Phororo classified
the recently-restructured organization as "more executive" and
less dynamic, neither clarifying the specific roles member
states are to play, nor rendering less blurry the overlap
between NEPAD and SADC. Internal conflicts of interest caused
by dual memberships in entities such as COMESA and SACU obstruct
U.S. dialogue with SADC, but the Minister of Agriculture asked
how the entire organization could be ostracized due to the
behavior of one member. Mr. Mozena reminded that the remaining
SADC member states have repeatedly refused U.S. offers to engage
in dialogue excluding Zimbabwe.


8. Discussions also covered the state of U.S. - SACU FTA
negotiations. Minister Malie attributed the stalemate, which
stalled at the introduction of "second phase" issues including
government procurement and the environment, to a lack of
flexibility on the part of the U.S. regarding the template
although the GOL has been one of the leading proponents of the
SACU-FTA. Mozena explained that the U.S. presents the FTA as a
package rather than a phased agreement in order to sell the
policy in an increasingly hostile domestic environment.


9. Other topics included the April 30, 2005 local government
elections and the vocal opposition to the requirement for 1/3 of
seats to go to female candidates. Minister Sekatle pointed out
that in many districts the GOL expects as many as 50% or more
seats to go to women, and described one constituency where women
already hold nine of eleven local leadership positions. Mr.
Mozena concluded by commending the Government of Lesotho for its
commitment to key U.S. interests, namely democracy and liberty,
and aggressive approach to combat the spread of HIV/AIDS.


10. Comment: While the ministers' concern about the slow pace
of the MCC proposal approval process is understandable from
their point of view, it should be noted that the original
proposed Compact submitted in late September of 2004 required
substantial reworking. The second version was ready only a few
days before the MCC technical team visit in March (ref). As
the team noted then, large infrastructure projects, particularly
involving dams, will undergo intense examination both within the
MCC and by Congress, thus lengthening project preparation time.
After consultations with the Ambassador and subsequently with
DCM and AF/S Director as well as with the MCC home office, Ms.
Fair did provide the GOL an excellent informal timeline of the
remaining steps in the approval process and a list of actions
that the GOL should undertake while the EIA is conducted. MCC
may be able to assist in funding some of these activities -- a
measure that would address the public concerns noted. End
Comment.



PERRY