ECONOMIC REFORM PART DEUX: ROYG MAKING LIMITED

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000037

SIPDIS

E.O. 12958: DECL: 01/03/2115
TAGS: PGOV KCOR KMCA KMPI YM ECON COM DEMOCRATIC REFORM
SUBJECT: ECONOMIC REFORM PART DEUX: ROYG MAKING LIMITED
CONCESSIONS TO PARLIAMENT


Classified By: CDA Nabeel Khoury for reasons 1.4 (b. and d.)


1. (C) Summary. During a rancorous Parliamentary session on
December 26, Prime Minister Ba Jammal's bodyguards ushered
him out of the building while he was trying to give a speech
promoting the government's 2005 budget. Attached to the
budget are much needed economic reforms including reduction
of the diesel subsidy, implementation of a general sales tax,
and amendments to the customs and general investment laws.
After what newspapers are calling an "attack," Parliament was
shut down for two days before reconvening the contentious
budget debate December 29. Also on December 29, President
Saleh announced judicial reforms that may well signal his
first attempt to respond to Parliamentary demands that the
executive get serious about addressing corruption. End
summary.

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Ba Jammal Returns -- Ousted Again -- Parliament Shut Down
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2. (SBU) On December 26, Prime Minister Ba Jammal made a
second attempt at defending economic reforms, now attached to
the ROYG's 5 Billion USD 2005 budget plan. Ba Jammal's
bodyguards, sensing a physical threat, swiftly removed the
widely unpopular PM from Parliament. In violation of
constitutional law, Parliament was shut down for two days and
several MPs staged sit-ins in front of the building.
Parliament reopened on December 29. (Note: In September he
was also whisked out of Parliament under threat of violence
while advocating for the reforms package, at that time being
considered separately from the budget proposal. End note).


3. (SBU) According to several contacts close to Parliament,
on the day of the ruckus, many MPs raised conditions for
approving the budget, including calling on the executive to
fully implement the Local Councils Law. (Note: In effect,
this would mean that fifty percent of national investment
budget would be obligated to local councils in 2005 as
opposed to the current 11 percent. Many councils scarcely
receive any budget and several, including in the Marib
governorate, have never met. End note). Other
Parliamentarians demanded amendments to the budget to limit
the power of the Ministry of Finance to disburse funds, and
anti-corruption amendments to the tendering law.

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Saleh Announces Judicial Reforms
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4. (SBU) In a December 29 speech to the higher judicial
council, Saleh announced judicial reforms including the
dismissal of 22 judges for misconduct and the retirement of
108 elderly judges. Saleh sent eight judges to the so called
"accountability council" for misconduct, and added several
new undersecretaries to the Ministry of Justice. The
Judicial Inspection Commission was also granted increased
staffing and funding to enhance its oversight capabilities.
State run press referred to these changes as "sweeping."

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Rumors of Riots and Price Hikes
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5. (C) Sanaa this past week was riddled with rumors that the
government is raising prices on all foodstuffs, diesel prices
will double overnight and mass demonstrations will occur
downtown. The Joint Meeting Party, a coalition of eight
opposition parties, announced their objection to the "doses,"
and called on Yemenis to oppose price hikes. According to a
senior Yemeni NGO democratic expert, Northern tribes and
members of the military who benefit from diesel smuggling are
fueling the opposition to economic reform. Northern Brigade
Commander Ali Muhsen, rumored a potential successor to Saleh,
is said to be behind the opposition and many in Sanaa note
that it is his papers that are predicting economic disaster
if such reforms are implemented.


6. (SBU) PM Ba Jammal announced on January 6 that Parliament
passed the government's budget late the previous evening by a
majority of 161 votes, versus 25 opposing, and six
abstaining. Many from the opposition Islah and YSP parties
simply walked out during the session. (Note: Details of this
session will be covered septel. Semi-official al-Thawra
daily bannered "no increases in oil or oil or gas
derivatives." End Note).

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Comment:
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7. (C) Although the executive in Yemen is not required to
seek approval of its budget program from Parliament, Saleh
put the budget before Parliament with the economic reform
package attached in a likely attempt to delay implementation
and gain political cover for reforms that are not popular
with the public. Parliament seized the opportunity to
leverage some of their long-standing complaints on corruption
and fiscal decentralization. Post believes that most MPs
simply oppose reforms because they will personally lose
revenue, however, there are several reform minded MPs working
to stop the reform package because they believe the ROYG is
not doing enough to fight corruption. Saleh, who has stayed
out of the high-volume debate, allowed Parliament to voice
its opposition and was able to put off frustrated World Bank,
IMF and Donor reps calling for the economic reform package.
Mission's MEPI and USAID funded activities in
decentralization and parliamentary strengthening will serve
to buttress the continued effort to reform.


8. (C) Comment continued. While Parliament's central goal to
decentralize is still actively being debated, Saleh's
announcement on judicial reform is likely a concession to
Parliament's long-standing corruption complaints. Removing
the diesel subsidy and implementing the general sales tax
would have seriously affected tribal and business interests,
crucial to Saleh's balance of power. The political will to
take on those measures is still clearly not there.
Nevertheless, Parliament continues to gain momentum on issues
of corruption and decentralization and the liberal minded at
least are proving to be a positive force against
state-corruption, even as the majority are still blocking
needed economic reform. Senior ROYG officials hoping to gain
democratic cover for their self interested policies have
unwittingly unleashed an increasingly vocal and active
Parliament. End comment.
KHOURY