SENATOR INOUYE MEETS WITH PRESIDENT ARROYO

UNCLAS SECTION 01 OF 02 MANILA 003450

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SENSITIVE
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STATE FOR H, EAP, AND EAP/MTS
USPACOM ALSO FOR FPA HUSO
SECDEF/OSD/ISA/AP FOR ALLEN

E.O. 12958: N/A
TAGS: PREL PTER MOPS ECON EFIN BM AS BX RP
SUBJECT: SENATOR INOUYE MEETS WITH PRESIDENT ARROYO

REF: A. MANILA 3098

B. MANILA 3401


1. (SBU) Summary: President Arroyo presented Senator Inouye
with the Philippines' highest award, the Order of Lakandula,
on August 14 in recognition of his contributions to the
U.S.-Philippines partnership. Senator Inouye praised her
policy achievements in fiscal reforms, counterterrorism, and
defense reform. She vowed to fight Abu Sayyaf terrorists "to
the finish," and expressed support for beginning Free Trade
Agreement (FTA) negotiations. Foreign Secretary Romulo
briefed on his recent trip to Burma and expressed optimism
that the regime would take steps in the right direction. End
Summary.


2. (SBU) In a ceremony at Malacanang Palace on August 14,
President Gloria Macapagal Arroyo awarded Senator Daniel K.
Inouye the Order of Lakandula in recognition of his
contributions to the U.S.-Philippines partnership, his role
as a distinguished WWII veteran, and his support for
Philippine veterans. She called Senator Inouye "one of the
best friends" of the Philippines. Accompanying the Senator
were Legislative Director Blanco, Defense Appropriation
Subcommittee Staff Director Houy, as well as the Charge d'
Affaires, POL/C, JUSMAG Chief, and Department of Veterans
Affairs Office Director. Joining the President were
Executive Secretary Ermita, Foreign Secretary Romulo, Defense
Secretary Cruz, Senate President Villar, Assistant Secretary

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of Foreign Affairs for the Americas Carandang, Department of
Foreign Affairs North American Division Director De Vega, as
well as the former Ambassador to the U.S. Del Rosario and
former POL/C Lourdes Yparraguirre.

Domestic Issues
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3. (SBU) In addition to expressing thanks and his sense of
honor at the award, Senator Inouye cited President Arroyo's
"political courage" in pushing through many important
measures, such as raising taxes. President Arroyo said
business people talk of a "sea change" in the Philippines and
were now more confident about its economic future and
investment climate. She noted the GRP had exceeded initial
revenue targets, while interest on debt was down
dramatically. The National Power Corporation was now running
without a loss for the first time in years. These fiscal
returns enabled the GRP to undertake long delayed
infrastructure investments, as she laid out in her July 24
State of the Nation Address (ref A).


4. (SBU) Charge noted U.S. business representatives were
pleased that Trade Secretary Favila had requested their views
on reducing bureaucratic "red tape." President Arroyo
announced a Summit on Competitiveness would be held in
September to seek further progress in improving the business
climate. She voiced strong support for an FTA with the U.S.,
urging that we begin negotiating soon, even if they take some
time to complete. She also described the important role of 8
million overseas Filipino workers, including in the U.S., the
Middle East, and 140 countries.

Counterterrorism
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5. (SBU) Senator Inouye praised the Philippine Defense Reform
(PDR) program, on which Secretary Cruz had briefed him
earlier that day. President Arroyo expressed thanks for U.S.
defense assistance, which she highlighted had grown
significantly since 2001. Charge noted that the GRP paid the
vast majority of PDR costs; President Arroyo estimated GRP
contributions at 5 billion pesos ($97m) per year. (Note: This
figure likely includes expenditures on the Capability Upgrade
Program. End note.)


6. (SBU) Senator Inouye also complimented the GRP strategy on
counter-terrorism, calling it the "Philippines model" -- a
combination of military efforts and humanitarian programs.
The Senator suggested he would encourage more Codels to visit
and see this model for themselves. President Arroyo called
it a "two-handed" approach, combining a hand of friendship
with a hand of law and order. She noted the three year
durable ceasefire with the Moro Islamic Liberation Front
(MILF) and praised MILF cooperation against terrorists,
kidnappers, and criminals. She expressed hope that the Moro
National Liberation Front (MNLF) on Jolo, where a major

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offensive by the Armed Forces of the Philippines (AFP)
against Jemaah Islamiyah and Abu Sayyaf Group leaders
continues, would provide similar cooperation (ref B). She
said she had sent AFP Chief of Staff General Esperon to Jolo
with instructions to "finish the fight." She also praised
the contributions to peace of USAID's LEAP Program in
reintegrating 28,000 MNLF insurgents. She noted, however,
that the MNLF now wanted the release of its imprisoned leader
Nur Misuari, about which she wanted to consult with friends
and allies, in return for full cooperation against
terrorists. She asked Senate President Villar if he would
support such a move, but he was non-commital. Secretary
Romulo described MNLF opposition to the Philippines' bid to
gain Organization of the Islamic Conference (OIC) observer
status.


7. (SBU) President Arroyo also commented that
U.S.-Philippines intelligence cooperation was proceeding
well. She noted counterterrorism collaboration with the U.S.
and Australia. Secretary Cruz described on-going Status of
Forces Agreement negotiations with Australia and predicted an
agreement with Brunei even sooner.


8. (SBU) Senator Inouye said he understood that morale was
improving among AFP troops, which President Arroyo attributed
to better and more equipment and improved first aid.
Secretary Cruz also cited more regular training and practice

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as factors. Charge noted that local communities on Jolo also
were receptive to the AFP during current operations;
Secretary Cruz agreed this was encouraging.

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Burma
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9. (SBU) President Arroyo noted that Secretary Romulo had
just visited Burma in one of his first acts since the
Philippines assumed the ASEAN Chair. Secretary Romulo
praised President Arroyo's consistent leadership on Burma,
including breaking with ASEAN consensus in order to support
UN Security Council consideration. He reported on his visit
to the new capital of Burma, where the "entire junta" had
received him. He extended President Arroyo's invitation to
Than Shwe to attend the ASEAN Summit in Cebu in December, and
commented that, if he attends, it would be a clear signal
that Burma intended to make progress on the roadmap.
President Arroyo commented that he had stayed away for
several years, since he did not want criticism for having
"nothing to report." Secretary Romulo claimed he also found
it hopeful that Burma was building a convention center in the
new capital for completion by 2008, another signal Burma
might seek ASEAN Chairmanship after Singapore, once it had
advanced on the roadmap. Burmese leaders had assured Romulo
they would try to convene a national convention and forge
national reconciliation. He said the Burmese leaders told
him they had already tried Western democracy and then
socialist democracy and now wanted to seek another format.
President Arroyo commented on "intense debate" among Burmese
policy makers, while Romulo pointed to the fate of Khin Nyunt
as a sign of what happens to the defeated.


10. (SBU) President Arroyo voiced support for release of Aung
San Suu Kyi and political prisoners. She noted, however,
that five ASEAN leaders meeting recently in Brunei had
pondered what role ASEAN could realistically play in
influencing positive change in Burma, when even the "Great
Powers" where unable to convince the regime. She said
ASEAN's influence lies partly in Burma realizing that fellow
ASEAN members, as neighbors, have Burma's interest at heart.


11. Senator Inouye did not have an opportunity to clear this
message.
Jones