ERITREA: AGOA RESPONSE

UNCLAS ASMARA 000847 SIPDIS SENSITIVE SIPDIS DEPT FOR AF/EPS: JANET POTASH DEPT ALSO FOR AF/E PLEASE PASS TO USTR FOR CONNIE HAMILTON E.O. 12958: N/A TAGS: AGOA ECON ETRD ER SUBJECT: ERITREA: AGOA RESPONSE REF: STATE 163056 ¶1. (SBU) Post point of contact: Pol/Econ Officer Holly Holzer, Tel: 291-1-12-00-04, Fax: 291-1-12-75-84, email: holzerhc@state.gov ¶2. (SBU) Post's response is keyed to outline provided by AF/EPS. Begin text: Country Background Summary: Eritrea's economic policy continues to be built on a "no peace, no war" philosophy. The Government of the State of Eritrea (GSE) justifies its iron grip on the economy, as well as its restrictions on political freedoms, on the basis of national security needs. The GSE contends that the unresolved border dispute with Ethiopia continues to present a core threat to Eritrea's sovereignty; the GSE purports that upon demarcation of the border, the country will embrace democracy, a market economy and free trade. The GSE's current approach has severely crippled Eritrea's economy leaving Eritrea with high trade deficits, extremely limited foreign reserves, and a growing debt to be serviced. With a population estimated at 4.4 million, Eritrea's estimated Gross Domestic Product in 2005 was $954 million and the estimated 2004 Gross National Income per capita was $180. Eritrea remains one of the poorest and least developed countries in the world, ranking 161st out of 177 countries in the 2005 UN Human Development report. While the Constitution calls for three functioning branches of government - legislative, executive and judicial - and for democratic freedoms, these have not been implemented. ¶I. Market-based Economy: ¶A. Major Strengths Identified: - The investment code proclaimed in 1994 states that Eritrean law will offer a supportive environment for private businesses, both foreign and domestic. - The GSE has expressed a commitment for private entities to establish, acquire, own and dispose of most business enterprises and asserts that property interests are protected and enforced. ¶B. Major Issues/Problems Identified: - In practice these laws are not followed and the GSE regularly implements policies and practices contrary to free-market principles. - In January 2005, the GSE stopped the free import of goods into Eritrea. Private businesses must request special permits from the GSE in order to import goods into the country. The permits regularly are denied. - While no official barriers for export to the U.S. exist, government practices, restrictions on imports and limits on foreign exchange have virtually eliminated all trade with the U.S. - The GSE has a history of expropriating profitable businesses and property, those of its own citizens and of foreigners. - In late 2004, the GSE shut down all mining operations in the country at great financial loss to the foreign mining companies investing in Eritrea. In 2005, they lifted the ban with verbal promises to the mining companies it would not occur again. - The GSE controls the transfer of hard currency into and out of Eritrea. The restrictions on foreign currency prevent companies from exporting to the U.S., or outside Eritrea. - The ruling and sole political party, in conjunction with the government and the military, dominate all sectors of the economy, control the market and can fix prices as desired. All major industries and large businesses are owned by the political party, the government or the military. - Nearly 350,000 Eritreans, both men and women, under the age of 40 remain conscripted in national service and an estimated 250,000 men and women remain in military service, with compulsory military training for all high school graduates. Conscriptees are given no definite end date to their service; some citizens have been in compulsory service for over 10 years. - While the GSE did eliminate the dual exchange rate, the fixed exchange rate of 15 nakfa per 1 USD is overvalued, presently the black market exchange rate is 50% lower at 22 nakfa per 1 USD. - The primary focus of the Central Bank is not monetary policy but the financing of government operations. - The GSE does not publish or make public economic data. II. Political Reforms/Rule of Law/Anti-Corruption: ¶A. Major Strengths Identified: - The GSE professes to support the rule of law and an independent judiciary. - There are stringent legal measures against corruption. Giving or receive bribes is a criminal act. ¶B. Major Issues/Problems Identified: - The GSE established by proclamation a separate judicial system, the special courts, to operate in conjunction with the existing independent judiciary. Administered by the military, the special courts are overseen by the Office of the President, operate in parallel with the existing judiciary system and do not always follow the rule of law. - The Constitution approved in 1997 has yet to be implemented and National Assembly elections have not been held. - A multi-party democratic system does not exist. - Individuals arbitrarily arrested by the police are often held for extended periods of time without due process, and often are never formally charged with a crime. - GSE operations are not transparent and government officials often make decisions not based on written policy or regulations. - Individuals report having to pay small fees or bribes in order to obtain government services, especially in relationship to immigration. III. Poverty Reduction: ¶A. Major Strengths Identified: - The GSE actively promotes programs in health, education and development with a commitment to reducing poverty. - They cooperate with UN agencies and have received support for the health and education projects from the World Bank and the EC. - Eritrea has a low HIV infection rate (3%) and has positive health trends. - The GSE is committed to self-reliance and the government expresses a commitment to equitable development. - The GSE has a stated policy of moving toward food security. ¶B. Major Issues/Problems Identified: - Limited resources and capacity constrain the GSE's ability. - Institutional capacity to implement development programs is weak. - In a country that consistently faces food shortages, the GSE inexplicably in July 2005 requested that USAID, Eritrea's largest bilateral development partner, cease operations. - In Spring 2006, the GSE abrogated nearly all food aid programs in the country in order to implement a cash-for-work program. To date, post has seen no evidence of a viable cash-for-work program. International donors did not agree to this diversion from agreements already in place that specified food aid was to be distributed freely. The GSE refused to negotiate this decision with donors and impounded over 80,000 metric tons of food aid in spring 2005. How the appropriated food has been distributed or monetized remains unknown. - The Government has, through policy and by directive, reduced the number of NGOs from over 40 in 2004 to only 11 in 2006, most of which were engaged in poverty reduction programs. Remaining NGOs are subject to strict guidelines, including limiting the number of expatriate staff and restrictions on travel outside of Asmara. NGOs also cite difficulties with importation of capital equipment and program supplies; NGOs no longer have duty exemptions and are taxed at commercial rates. A number of NGOs have also reported significant delays in project implementation due to obstacles in obtaining memoranda of understandings with technical ministries. - The conscription of a majority of the labor market into the military and national service has had a deleterious effect on the economy, particularly in the agricultural sector, by removing a participating member of the household (often the head of household) from being able to support the family either through labor or through income. IV. Worker's Rights/Child Labor/Human Rights: ¶A. Major Strengths Identified: - In principle there are no government restrictions on the formation of unions and forced or compulsory labor, including by children, under the Constitution is prohibited. - The labor law states that no one under the age of 14 may work and that employees under the age of 18 may not work more than 7 hours per day. - Child labor is not known to be problem. - Workers are permitted to remove themselves from dangerous worksites without retaliation. - Eritrea has ratified seven of the eight fundamental ILO Conventions. - The GSE does make efforts to address the victimization of sex workers, including of children, and to assist orphaned children. - While female genital mutilation remains widespread, the GSE does have an active program aimed at eliminating this practice. ¶B. Major Issues/Problems Identified: - Eritrea's human rights record worsened during the reporting period. - The GSE continues to detain two Eritrean U.S. Embassy employees who were arrested without charge in October 2001. The families of both employees do not have access to them; the employees' physical location is unknown. - In September 2001, the GSE arrested without charge 11 prominent political figures who called for political reform. The GSE claims they were arrested for national security reasons and not for their political views. They continue to be held incommunicado and the GSE refuses to provide information, will not allow family to visit them, and has not provided them with due process. - In September 2001, the government closed the entire independent press and arrested without charge journalists, editors, and publishers. Five years later, the press remains closed. - Freedom of assembly, association and speech is restricted. - Basic freedoms are severely restricted and individuals are often arrested under the guise of "national security" and detained at length without charges being filed. - Citizens do not have the right to change their government. Individuals who criticize the government are arrested and detained. - Eritrea has not ratified ILO 182 on the Worst Forms of Child Labor. - The government mandates national or military service for all men ages 18 - 40 and all women 18-27 who do not have children. Those in national service are assigned to work in government jobs or for businesses owned by the government or sole political party at significantly reduced wages. The government has even assigned these workers to foreign (non-U.S.) companies operating in Eritrea. - The penal code prohibits torture, however, physical and mental torture is used by security forces. - In 2004 and again in 2005, the U.S. designated Eritrea as a Country of Particular Concern for violations of religious freedoms. - Members of non-registered religious groups are often arrested and held without charge. - Human rights organizations are not permitted in the country. - The GSE restricts the travel of all foreigners, including diplomats, UN employees and tourists in the country. ¶V. International Terrorism/U.S. National Security: Major Strengths Identified: - Eritrea has long claimed to be a supporter of the U.S. efforts to secure U.S. National Security. Major Issues/Problems Identified: - Bilateral relations between the U.S. and Eritrea have deteriorated over the past year. - No active exchange of information exists between Eritrea and the U.S. nor does Eritrea participate in any U.S.- sponsored training and has denied flight clearance requests for U.S. personnel involved in regional counter-terrorism programs. - The GSE states that upon demarcation of the border with Ethiopia, the relationship with the U.S. will normalize, with the implication that they will support U.S. counter-terrorism programs in the Horn, if and when, this occurs. - In the past, the GSE has offered logistical support and use of airfield and port facilities to U.S. forces in the Global War on Terrorism. Yet, to date the GSE continues to restrict flight clearances and this support has not materialized. - In public speeches and official press releases in 2005, the GSE has downplayed U.S. concerns about terrorism in the Horn of Africa. In speeches made at Eritrean national holidays in May 2006, President Isaias pointedly made reference to the "terrorism fantasy" of the U.S. in the Horn. End Text. McIntyre