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