U.S. AND YEMEN FIGHT CORRUPTION WITH EYE ON MCC

UNCLAS SECTION 01 OF 02 SANAA 002693 SIPDIS SIPDIS E.O. 12958: N/A TAGS: PREL PGOV EAID ECON KMPI KMCA YM SUBJECT: U.S. AND YEMEN FIGHT CORRUPTION WITH EYE ON MCC REF: A. SANAA 2254 ¶B. SANAA 146 SANAA 00002693 001.2 OF 002 ¶1. SUMMARY: On September 13, Ambassador signed a USD 1.73 million agreement with the Republic of Yemen Government (ROYG) for anti-corruption programming. Minister of Planning and International Cooperation (MOPIC) Abdulkareem al-Arhabi is planning to visit Washington October 11-12 in advance of a broad fundraising Consultative Group (CG) meeting in London. Ambassador stressed that any additional U.S. assistance would come from the Millennium Challenge Corporation (MCC),which requires continued ROYG commitment to reform. Much will depend on the new government named after the September 20 elections, and Ambassador offered to host a meeting immediately after the elections with key ministers and donor representatives to discuss shared reform objectives. END SUMMARY. -------------- USAID Backs ROYG in Fighting Corruption -------------- ¶2. As part of post's strategy to strengthen anti-corruption efforts in Yemen, Ambassador and USAID Mission Director signed a Limited Scope Grant Agreement on September 13 with Arhabi. The agreement outlines a commitment by USAID to spend USD 1.73 million on a range of anti-corruption activities, including tendering and tax reform, support for the judiciary, and investigative capacity within the government and in the media to tackle corruption cases. -------------- MCC the Only Game in Town -------------- ¶3. Expanded cooperation in fighting corruption is part of a broader effort by the ROYG to improve its standing with MCC and regain eligibility as a Threshold country. In a meeting afterwards, Arhabi shared his intention to visit Washington October 11-12, in advance of a broader CG fundraising meeting in London, November 15-16. (Ref A) Ambassador said that he would be in the United States at the same time, and hoped to attend certain meetings with Arhabi. He stressed, however, that any additional development money from the United States would have to come from MCC -- the ROYG will not be able to depend on significant new contributions from traditional sources of aid, including Economic Support Funds, the Middle East Partnership Initiative, or United States Department of Agriculture Food Aid. Pressing developmental needs in Iraq, Afghanistan, and Lebanon, said Ambassador, have put additional pressures on these sources of funding. ¶4. The upcoming September 20 elections will be an important factor in the MCC Board's decision, said Ambassador. Other reform issues are also important, if not as high profile, including passage of bills on procurement and anti-corruption, and a decision to the join the Extractive Industries Transparency initiative. (Ref B) A recent ROYG decision to spend USD 500 million on military aircraft does not help Yemen's case, said Ambassador. Donor countries will wonder why Yemen would spend such a large sum on weaponry instead of schools or health clinics. Arhabi agreed, saying he makes the same argument in Cabinet in favor of spending for development goals, but that the Ministry of Defense has its own agenda. -------------- Ambassador Pursues Common Vision on Reform -------------- ¶5. Ambassador expressed his hope that the Gulf Cooperation Council (GCC) countries would show generosity in addressing Yemen's development needs at the upcoming CG, but did not know who would attend from Washington at this point. Arhabi plans to visit a number of donor countries in advance of the CG, and Ambassador suggested a small meeting beforehand of reform-minded ministers and select members of the donor community. Minister Arhabi welcomed the idea, and Ambassador suggested his residence as a venue. -------------- COMMENT: Where to Reform After Elections? -------------- ¶6. The anti-corruption agreement between USAID and the ROYG is part of a broad push on reform since a new cabinet was appointed in February 2006. There is little question that Arhabi and other key ministers (including Finance, Oil, and Justice) are committed to reforms required by MCC, the World Bank and others. They have made significant progress in a number of areas, including the independence of the judiciary, public procurement, and elections administration, but the SANAA 00002693 002.2 OF 002 future of reform and the reformers remains uncertain. Assuming President Saleh wins the upcoming election, all eyes will be fixed on changes to his government, particularly the office of Prime Minister. For Yemen to win support from MCC, the GCC, and others, the post-election government must have an even greater commitment to reform than its predecessor. Krajeski