PRESIDENT GUSMAO SAYS RAMOS-HORTA WILL LEAD A REFORM

S E C R E T SECTION 01 OF 03 DILI 000357

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SUBJECT: PRESIDENT GUSMAO SAYS RAMOS-HORTA WILL LEAD A REFORM
GOVERNMENT

REF: (A) DILI 355; (B) DILI 356

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CLASSIFIED BY: Grover Joseph Rees, Ambassador, U.S. Embassy
Dili, Department of State.
REASON: 1.4 (b),(d)




1. (C) Summary: Ambassador met today with President Xanana
Gusmao, who gave a detailed account of the negotiations that led
up to the appointment of the new Government that was sworn in
today. The President also expressed his confidence that Prime
Minister Jose Ramos-Horta will lead a reform government,
listening respectfully to the recommendations of the Fretilin
party leadership but following his own instincts on election law
and anticorruption efforts. Gusmao dismissed speculation that
Fretilin insider and new First Deputy Prime Minister Estanislau
Da Silva would dominate the new government, stating that
reform-minded Second Deputy Prime Minister Rui Araujo would be
responsible for all areas that were the focus of corruption
allegations under the government of former Prime Minister Mari
Alkatiri. The President said he will address the nation today
to set forth what he regards as urgent priorities for the new
government. The President also said it will be necessary to get
at least some Timorese police (PNTL) officers back on the
streets in Dili in order to create security conditions that will
allow internally displaced persons (IDPs) to return to their
homes. Finally, President Gusmao suggested that former Prime
Minister Alkatiri is more likely to be convicted of serious
crimes if Timorese prosecutors wait until the conclusion of the
impending international investigation, which Gusmao expects to
produce new evidence of criminal activity by Alkatiri and other
Fretilin leaders. End summary.

Negotiations with Fretilin
--------------

2.(C) Ambassador Rees met today, July 11, with President
Gusmao, who expressed optimism about the new Government he swore
in yesterday. Gusmao said his negotiations with four Fretilin
leaders over the shape of a new government had gone quickly ---
see Reftels --- because he managed to convice them that it would
not be to their advantage to push him too far. The President
said that on several occasions when the Fretilin delegation had
put forth an unacceptable demand, "I kept telling them I would
dissolve Parliament" if they did not show some flexibility.


3. (C) Gusmao's account of the negotiations was somewhat
different and more elaborate than press accounts, which
indicated that Fretilin had simply proposed him three names from
which he chose Ramos-Horta. According to Gusmao, the Fretilin
delegation led by Estanislau Da Silva first proposed a slate led
by Da Silva himself for Prime Minister, with Ramos-Horta and
Fretilin insider Antoninho Bianco for deputy prime ministers.
Gusmao did not react to this proposal --- which the delegation
surely knew would not be acceptable to him --- but instead took
notes, declared the meeting at an end, and said he would have to
take time to consider the proposal. The Fretilin leaders then
suggested a variation that was even less acceptable to the
President: Bianco for Prime Minister, with Da Silva for First
Deputy and Ramos-Horta as Second Deputy. Gusmao again reacted
by saying he would take their proposal under consideration.
Fretilin then proposed their third-choice package with
Ramos-Horta for Prime Minister and the other two as deputies.
Gusmao now indicated that they were finally getting somewhere,
but asked about the possibility of Dr. Rui Araujo, the highly
regarded Minister of Health in the Alkatiri government, in place
of Bianco. They said they had checked with Araujo and he was
unavailable. The President then suggested they adjourn the
meeting until the following day.


4. (C) According to Gusmao, he himself then called Dr. Araujo,
who said he would be honored to serve as one of the Deputy Prime
Ministers. When the meeting reconvened on Saturday afternoon,
Gusmao confronted the Fretilin delegation with this new
information and re-urged his suggestion of Ramos-Horta, Da
Silva, and Araujo. The Fretilin delegation responded by asking
him to explain what was wrong with Bianco, as well as why he did
not want Da Silva (who was in the room) for Prime Minister.
According to the President, he reminded them again that he could
always dissolve Parliament and call early elections, and they

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finally agreed to his preferred slate.


5. (C) The President said that the Fretilin leaders displayed no
embarrassment about suggesting a government composed almost
entirely of members of their own inner circle --- essentially
the Alkatiri government without Alkatiri --- and seem to regard
him as unreasonable for suggesting alternatives. He indicated
that he had written in his notes of the Friday meeting, "They
are not aware of the crisis."


6. (C) President Gusmao indicated that the idea of having a
Prime Minister and two Deputy Prime Ministers had been his own
idea, because Ramos-Horta, while a good leader, is not a good
administrator. He said that in the new Government Ramos-Horta
will directly supervise the ministries of Foreign Affairs,
Defense, and Interior as well as a commission on national
reconciliation. Dr. Araujo will supervise the Ministry of
Finance --- including government procurement and the customs
service, which has been the target of numerous corruption
allegations --- as well as public grants and other areas that
need to be made or kept transparent and noncorrupt. Da Silva
will be in charge of implementing the national development plan
and preparing laws, codes, and regulations (including a civil
service law and regulations governing the police and the
military) that the Alkatiri government neglected to enact. But
the final decision on the content of these laws will be
Ramos-Horta's, and Gusmao said he expects to consult frequently
on these matters with Ramos-Horta. Gusmao said he will allow
the "declaration of crisis", under which he assumed authority
over security and defense, to lapse later this month so as to
normalize the situation, but that he will continue to work
closely with Ramos-Horta on these areas.


7. (S) (Please strictly protect): Commenting on Minister of
Labor Arsenio Bano, an Alkatiri ally who is regarded as capable
and moderate and who had been mentioned as a possible deputy
prime minister, Gusmao said that "Arsenio deceived us. When he
worked in civil society, he was a wonderful guy. But when he
became a Minister he behaved very badly." The President said
Bano, who is in charge of distributing internationally-donated
food in IDP camps, had distributed some of the food to
participants in the recent pro-Alkatiri demonstrators.


8. (C) The President acknowledged that by agreeing to a
government that can serve through the 2007 elections, he has
lost the leverage he had to force Fretilin to hold a new party
Congress at which its leaders would be elected by secret ballot
as required by law. See Ref A and refs therein. However, he
expressed confidence that the courts would rule in favor of a
legal challenge to the May Congress that has been filed by
Ambassador Jose Luis Guterres, who was unsuccessful in his
challenge to Alkatiri for Fretilin's top post after the Congress
voted to ignore the secret ballot requirement.

Ramos-Horta will be a reform Prime Minister
--------------


9. (C) Asked about the tension between Ramos-Horta's ambitious
program of open governance, anticorruption, and election reform
and his promise to consult closely with the Fretilin political
committee (see Ref A),Gusmao expressed confidence that
Ramos-Horta would be guided by his own principles rather than by
the desires of Fretilin leaders. He said "he will talk with
Alkatiri, but he will not give in to him. That's not the kind
of Prime Minister he wants to be, and it's not the image he
wants to have." Gusmao pointed out that Ramos-Horta had
announced soon after his swearing-in that he will revise the
draft Penal Code to eliminate the criminal defamation provision
that had been a pet project of Alkatiri's.

More police necessary for IDPs to return home?
--------------


10. (C) The President said he had chosen not to give a speech at
yesterday's swearing-in ceremony because he did not want to
distract attention from Ramos-Horta's address. Instead, Gusmao
will give his own address to the nation today outlining
priorities for the new Government. Chief among these would be
creating security conditions under which the many thousands of
IDPs in church facilities and elsewhere can be persuaded that it

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is safe to return home.


11. (C) Echoing previous statements by Ramos-Horta, the
President said that as soon as this weekend the government
should select a few neighborhoods that have not been too badly
damaged by the recent violence. International police should be
joined by "Timorese police, the village chiefs, and youth
organizations" in providing the pervasive security presence that
will be necessary to convince residents of these neighborhoods
to return to their homes. The President acknowledged a
difference of opinion with international police officials, who
he said are currently of the view that no PNTL officers should
be returned to duty in Dili until the conclusion of a lengthy
vetting and/or retraining process that has yet to begin. He
said these officials may have a "misperception" that PNTL
officers were involved in widespread violence in Dili during
April and May. He said only a few PNTL members had committed
violent acts --- primarily those from eastern districts who
joined armed FDTL groups on May 23rd through May 25th, as well
as a group headed by former deputy district commander Abilio
Mesquita that had committed various crimes including an attack
on the home of FDTL commander General Taur Matan Ruak --- and
that these officers are no longer in Dili. (Note: Mesquita has
been arrested and is in detention, while all or almost all of
the PNTL members who joined with FDTL are reportedly now located
in FDTL facilities in Metinaro and elsewhere.) Gusmao also said
that if a police officer who was guilty of brutality or
corruption was returned to the streets, members of the community
would not hesitate to complain. Gusmao said he hoped to sit
down with international police officials soon to discuss this
issue and that he "must" convince them, because in his view the
international police presence alone will be insufficient to
restore law and order to the neighborhoods so that it will be
safe for IDPs to return.

Criminal proceedings against Alkatiri


12. (S) Asked what he thought would happen in the criminal
investigation into charges that Alkatiri had distributed arms to
Fretilin insiders with instructions to kill government
opponents, Gusmao said the proceeding was going slower than
expected but that this might be a good thing, since the
allegations that are currently well-documented enough to serve
as the basis for criminal charges are only the tip of the
iceberg. If Alkatiri were formally charged now, he might be
able to persuade the court that he distributed weapons "only to
protect people, not to kill." But the President predicted that
the international commission of inquiry, whose staff have
recently begun to arrive in Dili, would find new evidence of
similar activities by Alkatiri involving other armed groups. He
also hoped that by putting together a comprehensive picture of
what happened at key times during the security crisis, the
international commission's report would make clear that
Alkatiri, by encouraging General Matan Ruak to launch an FDTL
attack on PNTL officers in Dili on May 25, was complicit in the
killings of unarmed police officers that day. Finally, Gusmao
said that renegade police officer Abilio Mesquita (see paragraph
11) had met with Alkatiri and received several thousand dollars
from Alkatiri's brother shortly before he was arrested, possibly
in exchange for agreeing to kill ex-guerrilla leader Railos, the
principal complainant in the criminal case against Alkatiri.
The President said he now believes Mesquita's May 23 attack on
General Matan Ruak's house may have been instigated by former
Minister of the Interior Rogerio Lobato, possibly with the
complicity of Alkatiri, to create a pretext for the May 25 FDTL
attack on police officers and installations.


13. (U) Comment: During today's meeting the President appeared
calm, focused, and happier than he has been in months. He is
optimistic that the new Government will make a difference.
Although the President sometimes differs with Ramos-Horta on
matters of style and substance, he trusts him, and he expects to
serve as the new Prime Minister's principal advisor and
collaborator. End comment.
REES