MCC ESSENTIAL TO STABILITY AND REFORM IN YEMEN

S E C R E T SANAA 002922 SIPDIS FOR U/S BURNS FROM AMBASSADOR KRAJESKI; PLEASE PASS TO NEA FOR A/S WELCH; USAID FOR BRENT; MCC FOR A/CEO SETHNESS; TREASURY FOR FRANCO E.O. 12958: DECL: 10/05/2015 TAGS: ECPS EFIN EIND EINV PGOV KMCA KMPI YM ECON COM SUBJECT: MCC ESSENTIAL TO STABILITY AND REFORM IN YEMEN Classified By: Ambassador Thomas C. Krajeski for reasons 1.4 (b) and (d ). ¶1. (S) Summary: Millennium Challenge Corporation programs are crucial to Yemen's future and to U.S. national security interests. Yemen stands at an important crossroads in its path to development and reform. For Yemen's reformers, MCC offers an important way forward. If the United States walks away from these champions, it will pave the way towards economic and political collapse. Failure for the Yemeni state would undermine security on the Arabian Peninsula, provide a haven for transnational terrorists, and provide a ready pool of recruits for extremist movements. End summary. ¶2. (S) After unification in 1990, the ROYG took serious steps to expand democratic freedoms, liberalize the economy, and improve the welfare of its citizens. Yemen held multi-party elections at all levels of government, allowed for independent print media, and partially adopted a World Bank/IMF program of fiscal responsibility and market liberalization. In more recent years, however, internal politics and the spread of corruption have delayed further advances, and in some cases progress has even been reversed. Journalists often face serious harassment for challenging government policy; the ROYG has delayed for four years implementation of necessary economic reforms; and falling immunization rates have opened the door to the spread of polio and other diseases. These are serious problems, many of which are reflected in the most recent MCC indicator scores. ¶3. (S) Post is working with a core group of committed reformers within the ROYG. These forward-looking officials face formidable challenges in transforming their government and creating opportunities for their fellow citizens. In 2005, the reformers demonstrated their ability to overcome resistance from entrenched interests and deliver necessary policy changes. In July, the ROYG partially lifted fuel subsidies in accordance with the recommendations of the WB/IMF, recuperating much needed revenue. The ROYG is actively pursuing trade reform, and is enacting customs and tariff legislation to comply with the rules of the WTO. Parliament has shown an increasing willingness to address official corruption and to demand accountability. ¶4. (S) Many of Yemen's key reformers have pinned their reputations on the MCC. In developing a Threshold Program proposal for MCC, ROYG reformers obtained official endorsement from the President and Cabinet. In a written document, the ROYG took the important step of admitting serious deficiencies in rule of law and the administration of justice, specifically addressing the need to combat corruption, and asked the USG for assistance. This unprecedented approach has generated considerable interest outside ROYG ministries as well. Members of Parliament are requesting that post educate them further on the MCA process and how they can help improve Yemen's prospects. ¶5. (S) In the face of serious challenges in ruling justly, investing in people, and advancing economic freedom, Yemen is looking to make the right choices in a crucial period of transition. If reformers can manage to carry the day and implement necessary changes, Yemen has the potential to join the family of economically viable democratic nations. If they fail, Yemen may become a failed state, endangering its neighbors and fueling extremism. It is therefore important to U.S. national security that we remain committed to the MCC process in Yemen at this time, and approve Yemen's MCC Threshold operational plan. The process may prove difficult, requiring an extended Threshold period before full admittance to the MCA, but post believes that, considering the alternatives, this will prove a worthwhile investment. Krajeski