SCENESETTER FOR PRESIDENT SALEH'S VISIT TO

C O N F I D E N T I A L SECTION 01 OF 04 SANAA 003136

SIPDIS

E.O. 12958: DECL: 10/26/2015
TAGS: PREL PTER KDEM ECON EAID MASS MARR PINS YM COUNTER TERRORISM DOMESTIC POLITICS DEMOCRATIC REFORM
SUBJECT: SCENESETTER FOR PRESIDENT SALEH'S VISIT TO
WASHINGTON

Classified By: AMBASSADOR THOMAS C. KRAJESKI, FOR REASONS 1.4 (B) AND (
D).


1. (C) Summary: President Ali Abdullah Saleh arrives in
Washington looking for increased military support and
economic deliverables for Yemen, while at home he has shown
little willingness to make the tough decisions necessary for
the future of his country. Yemen remains an important
regional ally in the GWOT and the ROYG has cooperated, albeit
inconsistently, on counter-terrorism issues. Democratic
reform appears stalled amidst growing concerns on press
freedom and the 2006 elections. Corruption is undermining
Yemen,s economy and discouraging investment, and is
increasingly becoming a threat to stability. For Yemen to
overcome its many challenges, it is imperative that Saleh
choose the path of reform. End Summary.

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Background: Saleh's Stark Choices
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2. (C) When President Saleh visits Washington in November,
he will be seeking affirmation of Yemen,s achievements in
security cooperation, democracy and economic development. He
believes Yemen should be "rewarded" for these achievements by
graduating to a strategic relationship with the United States
-- a relationship for which his government has not completed
the groundwork. Since unification in 1990, the ROYG has
recorded notable successes in close coordination with the
USG, including the creation of the Yemen Coast Guard,
multi-party elections, and partial economic reforms. The
current reality, however, is more troubling. Yemen is
resting on its past laurels and has yet to make the hard
decisions necessary for long-term reform. When it comes to
counter-terrorism, fighting corruption, and expanding
democratic freedoms, the President generally says the right
things, but has not completely followed through.


3. (C) Given the challenges facing Yemen in the next decade,
the President can no longer have his cake and eat it too.
For Yemen to become a more effective partner in the GWOT, the
USG requires sustained cooperation on CT issues, including
comprehensive intelligence sharing and effective control of
Small Arms/Light Weapons (SA/LW). On the economic and
political fronts, cooperation with the United States and
other donor countries continues to suffer from the lack of a
genuine commitment to reform.


4. (C) Yemen,s stability is threatened by one of the
fastest growing populations in the world, diminishing oil and
water resources and stagnant economic growth. Last summer,s
nationwide riots in response to price hikes and an unsettled
situation in the northern region of Saada, demonstrate lack
of confidence in the central government in many areas of the
country. This environment of instability, coupled with a
largely unregulated arms trade and increasing frustration
over rampant high-level corruption, offers fertile ground for
extremism.


5. (C) Saleh, Yemen,s president since 1978, has time and
again proven an astute short-term political tactician,
maintaining a political balancing act between tribal and
regional interests that has kept Yemen relatively stable
during his 27 years in power. Unification pushed Saleh to
start down a democratic path, and the country,s extreme
poverty has compelled him to seek the favor of the
international community by engaging donors on reform. He has
grown comfortable with the recognition and benefits that come
with the "reformer" mantle, yet despite its head start, Yemen
now lags behind other countries in the region.


6. (C) In July, Saleh issued a highly publicized announcement
that he would not run in the 2006 presidential election, a
promise he is now predictably in the process of retracting.
This decision will likely prove positive for Yemen,s
short-term stability, but it demonstrates the extent to which
Yemen continues to be governed by the President,s whim.
Saleh has yet to demonstrate a long-term vision for the
country, at a time when the Yemeni state is on the brink of
failure )- a sobering prospect with serious implications for
regional stability and the GWOT. If Saleh,s greatest
achievement -- the stability and unity of the country -- is
to survive beyond his rule, he must take bold steps to
strengthen and reform Yemen,s military, democratic, and
financial institutions. He must also demonstrate greater
tolerance for genuine opposition and criticism. Allowing the
opposition to field a serious candidate to run against him
would be a real coup for democratic reform.


7. (C) The following paragraphs offer further details on the
challenges and opportunities for USG-ROYG cooperation,
including CT cooperation and SA/LW proliferation, democratic
and economic reform, and corruption.

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CT Cooperation and SALW Trade
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8. (C) Yemen remains an important regional partner in the
GWOT, with a post-9/11 string of CT successes. The ROYG has
stepped up its own efforts against terrorist cells in Yemen,
leading to significant arrests over the past few months. The
Political Security Organization has also provided acccess to
information on several of the detainees on a case-by-case
basis. Routinizing this access, however, has been a problem.
ROYG action to put SA/LW traders out of business has also
not materialized.


9. (C) Complicating our CT cooperation is the fact that
Saleh performs a delicate balancing act between competing
interests. He clearly recognizes the threat terrorist
elements pose to regime stability and is appreciative of USG
support to strengthen the security forces. At the same time,
he is careful not to provoke arms dealers, tribal leaders and
others who oppose closer ties with the United States. Saleh
maintains power through a complex network of deals and
alliances, and has been less than enthusiastic about engaging
in more comprehensive and consistent bilateral cooperation
that could threaten that delicate network.


10. (C) Despite these obstacles, the USG and the ROYG have
succeeded in creating out of whole cloth Yemen's two premier
CT forces: the Central Security Forces ) Counter Terrorism
Unit (CSF-CTU) and the Yemen Coast Guard (YCG) within the
Ministry of Interior (MOI). With USG training and equipment,
CSF-CTU and YCG have become capable and professional forces
that have already logged notable successes in a short period
of time.


11. (C) The next phase for CT cooperation will be to expand
and normalize cooperation with the MOD. Spurred on by MOI
success, MOD is now seeking a better working relationship
with the USG. Post is encouraged by the recent submission of
MOD,s 3-5 year Counter Terrorism and Border Security Plan,
but given MOD,s direct involvement in fueling Yemen,s
robust illegal arms trade, a political commitment to an
inventory control system within MOD -- as a clear condition
for continued assistance -- remains the highest priority.

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Democracy and Economic Reform
--------------


12. (C) ROYG officials generally contend that Yemen is
already a democracy, a change it undertook independently
following unification in 1990. Yemen held successful
multi-party parliamentary elections in 1997 and 2003, and
created elected local councils in 2001. Parliament began
using its power to draft legislation and call up ministers
for questioning for the first time this year. Optimism
regarding the country,s political future has been offset in
2005, however, by increased attacks on the press and by harsh
criticism of opposition political parties.


13. (C) Ambassador recently generated a storm of debate when
he suggested in a newspaper interview that Yemen,s democracy
had &stalled," due largely to a marked deterioration in
press freedom in 2005. The high-profile imprisonment of the
editor-in-chief of the independent &Al-Shura8 newspaper
ended on March 24 with a presidential pardon, but in the
months that followed, four papers reported closures and at
least seven journalists were attacked for criticizing the
Government. The Government,s repeated attempts to restrict
speech have had a decidedly chilling effect on public
discourse over corruption and other important issues. The
President continues to deflect criticism of press freedom
restrictions as unacceptable meddling in internal matters.


14. (C) Few are taking seriously Saleh's claim that he will
not run again, especially since the ruling General People's
Congress (GPC) leadership has told us they fully intend to
nominate Saleh at their annual convention in November. A
coalition of opposition parties called the Joint Meetings
Party (JMP) coalition has unofficially declared that it
intends to run a candidate, but it is far from certain that
Saleh would be facing a serious challenger this summer. In
addition, the ROYG has yet to pass essential electoral law
reform, and continues to drag its feet on redistricting
requirements.


15. (C) Of greatest import to most ordinary Yemenis,
however, is the increasingly fragile economy. Yemen's
rapidly decelerating GDP growth has been temporarily offset
by high oil prices, but Yemenis continue to be buffeted by
high inflation. In July, the ROYG finally began
implementation of an IMF/World Bank reform package by
reducing fuel subsidies, reforming the civil service, levying
a sales tax and reducing customs tariffs. Many of these
initiatives, however, remain stalled or only partially
implemented and have provoked significant opposition from the
business community and the broader population.


16. (C) Even with reform measures and projected revenues
from natural gas exports, the World Bank projects a large
fiscal deficit and balance of payments gap that the ROYG will
be unable to fill without extensive administrative reforms
and growth in the non-oil production sector. This does not
bode well for average Yemenis who live on an average annual
income of only USD 650. Further austerity measures without
an effective program for economic development will have a
devastating effect on the populace and would likely bring
renewed social unrest.

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Corruption Threatening Stability
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17. (C) Corruption permeates every level of Yemen,s
economy, from oil and telecommunications to teachers,
salaries. Smuggling reportedly comprises over half of
imports and military officers have derived considerable
profits from diesel smuggling. Corruption creates hardships
for Yemeni citizens, and has become a destabilizing factor:
frustration and anger with the corrupt political and tribal
elites was one of the causes of nationwide riots in July
sparked by increased fuel prices.


18. (C) The President has publicly condemned corruption on a
number of occasions, but has taken few measurable steps to
solve the problem. Saleh has long depended on direct payment
to tribes and political supporters to maintain his rule, but
such practices are robbing the treasury of much-needed
revenue and are hampering investment.


19. (C) On October 18, for example, the Cabinet formally
announced that it would not renew Hunt Oil,s production
sharing agreement in Block 18, one of the richest fields in
Yemen. Hunt has been operating in Yemen since 1984, and had
agreed on a five-year contract extension with the Ministry of
Oil. Parliament rejected the agreement, charging corruption,
and the ROYG has acquiesced by granting drilling rights to
the Yemeni-owned Safer Company. Hunt executives intend to
litigate for breach of contract, and will likely announce the
lawsuit during the President,s visit to Washington. Most
sources believe that Saleh is behind the ROYG decision to
effectively nationalize Block 18, but there is a possibility
that he will attempt to use it as a bargaining chip during
his visit.

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U.S. Programs Offer Support for Reform
--------------


20. (C) Modernizing elements within the ROYG are pushing a
reform agenda to improve the investment climate, rule of law,
and good governance. These initiatives are increasingly
catching Saleh,s interest, but they must ultimately obtain
his full support if they are to succeed. At the center of
these efforts is the Millennium Challenge Account (MCA).
Yemen's concept paper for the MCA Threshold program has been
accepted, and the ROYG submitted its implementation plan to
Washington for approval in September, with a focus on
reforming the judiciary and the administration of land
titles. MCA has proven a valuable tool for the Mission to
encourage the ROYG to tackle corruption, which has been
designated as a cross-cutting theme throughout the action
plan.


21. (C) MEPI programs are also playing a key role in
bringing political and economic reform to Yemen. Supoprted
by MEPI-funded efforts, Yemen,s political parties appear
ready to announce a quota for women candidates in upcoming
elections, and Parliament is becoming increasingly vocal in
challenging executive power. The President recently
announced plans for the direct election of governors and
district officials, a product of MEPI support for
decentralized government.

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Status Quo Not Enough
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22. (C) Saleh,s meetings in Washington offer an important
opportunity to firmly nudge Saleh towards needed reforms and
better cooperation on CT efforts. Previous U.S.-Yemeni CT
cooperation offers a good foundation and Yemen continues to
be central to U.S. regional aims. As such, it is critical
that Yemen make the transition from ad hoc cooperation to a
fully developed security partnership. In the past, Yemen has
done enough on political and economic reform, relative to its
neighbors, to remain in our good graces. With Yemen facing a
looming economic crisis and a stalled democratic process,
however, if Yemen continues to merely tread water, it will
drown. Saleh must offer Yemen the leadership it needs by
fully supporting economic and political reforms. On both
fronts, we need to dangle the carrot of pushing for more
military and economic assistance if Saleh demonstrates
serious political will in fulfilling his promises to us and
to the donor community at large.
Krajeski