C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000612

SIPDIS

STATE PLEASE PASS TO MCC

E.O. 12958: DECL: 03/13/2015
TAGS: KCOR PGOV ECON YM KMCC ECON COM
SUBJECT: FINANCE MINISTER SALAMI PUTS A GOOD SPIN ON HIS
COMMITMENT TO REFORM

REF: SANAA 328

Classified By: Amb. Thomas Krajeski for reasons 1.4 (b. and d.)


1. (C) Summary and comment: In a cordial and open meeting on
March 13 with Deputy Prime Minister and Minister of Finance
Alawi al-Salami, Ambassador highlighted U.S. efforts to
support decentralization, urged the ROYG to take serious
anti-corruption and transparency efforts and encouraged Yemen
to take concrete steps to improve its investment climate.
Salami was quick to assure the Ambassador he and his Ministry
are ready and willing to support USG goals. Characterizing
himself as a reformer, Salami has placed himself on the side
of Ba Jammal -- behind the government's reform plans, but he
is still in the sites of a skeptical parliamentary
opposition, which reportedly continues to talk of unseating
both men. (Reftel). End summary and comment.

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Decentralization: We're putting a
Finance Office in Every District
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2. (C) Claiming that the Ministry of Finance has been a keen
supporter of decentralization since the enactment of the 2001
local council law, Salami said his ministry is training local
council officials to better manage budgets. Salami explained
that while the local council law compares favorably to those
of their Arab neighbors, Yemen's implementation and
enforcement should be enhanced. A new plan to manage local
government expenditures, he noted, will be completed shortly.
In defense of his ministry, Salami said that local councils
have not been aggressive enough in pursuing their own sources
of income and rely too heavily on disbursement from central
authorities. According to Salami, the central budget has not
been expanded to provide local councils with additional
resources. Salami further complained that the Ministry of
Finance now staffs accounting offices in every district to
handle its new funding mandate. But, he explained, he
authorized and funded the expansion to support
decentralization goals. (Comment: The Ministry

of Finance's
expanded presence through new offices to control local
council budget disbursement is widely considered an effort to
assert control over the councils and therefore, a setback to
decentralization. End comment.)


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Ministry of Finance Leads (Anti)-Corruption Efforts
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3. (C) Salami affirmed the ROYG's commitment to fighting
corruption, adding that it was he who signed the UN
Convention on Anti-Corruption. Salami said the cabinet
approved the convention, and it is now before Parliament,
along with a letter from him urging its immediate passage.
(Comment: Post has seen little evidence of a "push" to ratify
the convention. End comment). Ambassador underscored that
Yemen must take, as part of its MCC Threshold program
proposal, concrete, tangible steps to fight corruption and
improve transparency. Salami said that studies have proven
that Yemen has sound laws governing tendering, but lacks the
ability to implement regulations and follow the procedures.
Salami announced that a two-year study authored by Crown
Agents on the ROYG's tendering procedures will be published
soon. The MOF plans to adopt the recommended steps to
improve its tendering process.

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Financial Infrastructure Reform
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4. (C) In a likely bid to stave off a message on the need for
improved fiscal accountability, the DPM volunteered that he
and his Ministry were working with the Dutch and the World
Bank to design a workshop focusing on ways to improve Yemen's
budget classification system. (Note: Due in large part to
inaction by the MOF, attempts to improve Yemen's fiscal
accounting have languished for five years. Thom Sprenger, of
the Dutch Embassy, told Pol/Econ Deputy that MOF's agreement
to hold the workshop constituted a major victory for the
World Bank and indicates Salami might be yielding to donor
pressure. End note). Salami quickly agreed with
Ambassador's point that the Central Bank of Yemen (CBY)
should wean itself away from commercial business, but
contended that until his ministry can operate more like a
treasury department, the CBY must continue to perform
commercial bank functions. Salami said his eventual goal was
the creation of necessary financial infrastructure for Yemen
to have a stock market, but noted that they still had to
improve the banking system and the transparency of Yemen's
private sector. (Note: The stock market is a pet project of
the Ministry, even though most experts believe it will be
years, if ever, before Yemen is ready for advanced financial
systems. End note).

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Three Bids for Aden Port
--------------


5. (C) Ambassador raised concerns over the soundness of the
Aden Port Tender. Acknowledging "interference in the
process," Salami announced that only three companies
submitted final bids for the Aden Port Management: Kuwait and
Gulf League Co., Manila based, ECTS and Dubai Ports
International. Deputy Finance Minister, Ahmed Ghalib, added
that the decision could come as early as the week of March

19. Salami confirmed that World Bank and Dutch advisors were
involved in the tendering process to assure international
investors that the process is sound. Salami pointed to Post's
updated Investment Climate Statement that was recently
received negatively by some Yemeni officials in the press, "I
am not criticizing it. I agree completely," he said. Salami
closed the meeting saying Yemen's future lay with the private
sector and agreed that Yemen must continue to improve its
investment climate.

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Comment:
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6. (C) Comment: Salami was in rare form, laughing, nodding
and smiling at the Ambassador, as opposed to his normal,
stoic self. By agreeing to fire close and disliked aides
(Reftel), Salami may have weathered another political battle.
Salami is a survivor and may have ceded just enough control
to maintain his very powerful position. Salami's ability to
frustrate everyone from World Bank officials to Yemeni
Ministers, however, could still lead to his ouster. Liberal
minded Yemenis scoff at Salami's painting himself as a
crusader against corruption and point to his extravagant
houses as proof of malfeasance. Yet, any serious
anti-corruption effort must work with the Ministry of Finance
and Post will seek to capitalize on his willingness to work
with us, for now. End comment.
Krajeski