Identifier
Created
Classification
Origin
05SANAA328
2005-02-16 14:06:00
CONFIDENTIAL
Embassy Sanaa
Cable title:  

POWERFUL FINANCE MINISTER AL-SALAMI ON THE

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C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000328 

SIPDIS

E.O. 12958: DECL: 02/14/2015
TAGS: EFIN EINV KMCA KMPI PGOV YM KBIO DOMESTIC POLITICS
SUBJECT: POWERFUL FINANCE MINISTER AL-SALAMI ON THE
CHOPPING BLOCK?

Classified By: Ambassador Thomas C. Krajeski for reasons 1.5 b and d.

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000328

SIPDIS

E.O. 12958: DECL: 02/14/2015
TAGS: EFIN EINV KMCA KMPI PGOV YM KBIO DOMESTIC POLITICS
SUBJECT: POWERFUL FINANCE MINISTER AL-SALAMI ON THE
CHOPPING BLOCK?

Classified By: Ambassador Thomas C. Krajeski for reasons 1.5 b and d.


1. (C) Summary. Time may be up for Finance Minister
al-Salami. Rumors are spreading throughout Sanaa that
President Saleh will remove the Minister from office in an
upcoming cabinet shuffle. A number of small but significant
political losses for Salami appear to give teeth to this
rumor. Salami, who has long been unpopular with the general
public, has recently become the target of personal attacks
from the press and other ROYG officials. Reform minded ROYG
officials, including Hafiz al-Mo'ayed at the Agricultural
Bank, seem willing to take him on, perhaps because they sense
Salami no longer has the support of President Saleh. There
have been prior rumors of a cabinet shuffle that have not
come to fruition, and many ROYG officials have been counted
out, only to be rehabilitated. Nevertheless, there are
significant indicators that Salami's power base, which rests
on his control of the ROYG purse strings, has become too
large for President Saleh's taste. End Summary.

--------------
Saleh's Support for Salami Waning
--------------


2. (C) Minister of Finance Alawi Saleh al-Salami has
dominated the ROYG through control of its purse strings for
nearly two decades. He has held the positions of Finance
Minister or Central Bank of Yemen (CBY) Governor since 1986,
and has had the added title of Deputy Prime Minister since

2001. In recent days, however, Salami has suffered some
political setbacks, and rumors abound that he will soon be
removed from office, with most predictions pointing to a
cabinet reshuffle this spring.


3. (C) In early February, President Saleh reached into the
MOF and demoted Salami's chief of staff and right-hand-man,
Saleh Sha'aban. According to former MP Saadaldeen Talib,
Sha'aban now retains only the formal title of Deputy Minister
for Planning, however, no such planning office exists on the
MOF's organizational chart. When Salami recently tried to
remove some top officials in the Customs Authority, Saleh

prevented him from doing so. President Saleh also recently
removed Mohammed Atieg (al-Salami),Salami's live-in
son-in-law. Atieg who headed IT projects at the MOF and CBY
was renowned for demanding large personal commissions from
bidders on IT projects. At MOF, Atieg was responsible for
the Accounting Financial Management Information System
(AFMIS),a donor-funded project to bring transparency to the
budgeting process. AFMIS has been plagued by delays and cost
overruns, and IMF and World Bank officials complain of
corruption and mismanagement.


4. (C) The opposition and independent press has begun
publishing increasingly bold articles about corruption at the
Finance Ministry. On December 27 "al-Shumo'a" featured a
picture of Salami and MOF colleagues on the back page and
cited "financial and administrative corruption." The
recently demoted Sha'aban is reported to have arranged a
number of large-scale corrupt transactions while under
Salami's protection.

--------------
Reformer Mo'ayed a New Favorite?
--------------


5. (C) Salami is locked in another high-profile power
struggle with Agricultural Bank Chairman Hafiz al-Mo'ayed.
Salami removed Mo'ayed as head of the Customs Authority,
where he was know as a reformer. Salami placed Mo'ayed at
the failing Agricultural Bank. However, instead of sinking
with the bank, Mo'ayed has managed to improve the bank's
fortunes. According to the local press, the ROYG recently
increased the bank's capital, allowing it to expand its
business from narrow agricultural investments to broader
development loans. The bank was renamed the Rural
Development Bank, and given increased independence from the
MOF.


6. (C) Many believe that Mo'ayad's rise has infuriated
Salami, who accused him of embezzling 400 million Yemeni
Riyals (2.1 million dollars) from the Yemeni Soccer
Federation. (Note: Mo'ayad served as Vice Chairman in the
Federation with Mohammed Abdulleh al-Qadi, a notoriously
incompetent relative of the President. Qadi was head of the
government-owned Yemen Drug Company--now bankrupt, and is
currently an MP. The Federation's accounts are closed, and
there is no clear record of what happened to the funds. End
Note). Some ROYG insiders, however, now believe the
President is backing Mo'ayad, who is related to him by
marriage, and there are rumors that he will be the next head
of the CBY. On February 13, a confident Mo'ayad told a USAID
officer, "I will win" against Salami. There are additional
rumors that Saleh may pick Mo'ayad to head the CBY, which at
present is largely directed by the powerful Minister of
Finance.

7. (C) According to an official at the Ministry of Civil
Service, Salami enraged the President with a recent budget
proposal. MOF planned to increase the civil service by a
total of 4500 positions, 2500 of which were to be created in
the MOF. Many of these jobs were slotted for Salami's family
members and allies. (Note: Salami's personal corruption is
common knowledge in Yemen. His house alone is worth millions
of dollars. End note.)

--------------
End of an Era at Finance?
--------------


8. (C) The MOF wields tremendous power over other
ministries, as well as regional and local government, through
direct appointments and allocation (or non-allocation) of
funds. Under Salami, the MOF has become increasingly bold.
MOF official Ibrahim al-Nahari shared that the Minister seeks
to swallow up some key functions of other ministries,
including insurance and trade. According to Omar Bazara,
Assistant Sub-Governor at the CBY, the MOF pressures the CBY
to handle government payroll in place of commercials banks,
and it is widely assumed that Salami maintains a loyal cadre
at MOF who pocket false or double paychecks. Mo'ayad says he
has been fighting to process teachers' paychecks through the
Agricultural Bank to free up money for investment, but Salami
has refused. Salami is also suspected of falsifying ROYG
budget data for international consumption by delaying payment
to ministries and government contracts. This improves the
ROYG's balance sheets on paper, but has a negative ripple
effect on Yemen's investment climate.


9. (C) Many reformers in Yemen view Salami as a nexus of
corruption and the obstacle to economic reform. Lamis
al-Iryani, Communications Director for the Social Fund For
Development (a quasi-governmental development body created by
the World Bank),said that her office recently completed a
modernization program at the Ministry of Social Affairs. The
MSA recorded all welfare recipients on a database, thereby
avoiding "ghost cases" and other forms of petty corruption.
When the SFD attempted to expand these accountability
measures to include external audits, transparent budgeting,
and processing of employee payroll through a commercial bank,
the Salami-appointed SFD Financial Manager blocked these
additional reforms. MOF appointees have raised similar
obstacles to decentralization efforts, refusing to transfer
funds to locally elected councils and thwarting local
initiatives.



10. (C) Comment. Salami began as one of the few Yemeni
technocrats to build his career from within the government,
rather than depending on tribal ties. He gained credibility
with the IMF and World Bank in the late 90's for implementing
policies of fiscal restraint. During the years of financial
reform that followed Yemen's civil war, he managed to
stabilize the currency and control government spending.
Rumors about cabinet reshuffles are common and should be
taken with a grain of salt, but Saleh's recent moves may
indicate that Salami's star is fading. The Yemeni public is
becoming tired of large-scale corruption at the MOF,
Parliament is demanding reforms, and the President appears
ready to crack down on Salami's mini-empire of patronage and
nepotism.


11. (C) Comment continued. The depth and permanence of this
Saleh-Salami spat is uncertain. Salami may have grown too
powerful for Saleh's taste, and may have made the mistake of
cutting the President out of a lucrative deal. Saleh may
find Salami a convenient scapegoat and consider sacrificing
him to appease growing donor dissatisfaction with MOF,
particularly the World Bank. One source said that Salami,s
fate depends on the outcome of Bank President Wolfensohn,s
February 13 - 17 visit to Sanaa. No matter what Saleh's
motives, Salami's departure would be a welcome opportunity
for those working to expand economic reforms. Salami,s MOF
is widely viewed as an impediment to donor efforts to support
decentralization, fight corruption and encourage investment.
Of course, if Saleh were to dismiss Salami only to replace
him with a relative or tribal loyalist, the result could be
more of the same. There is momentum building for change and
Saleh, in replacing Salami, would have an opportunity to
weigh in on the side of reform.
Krajeski