U.S. CONVENES DONOR GROUP TO CONFRONT CORRUPTION

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 003610

SIPDIS

E.O. 12958: DECL: 12/31/2015
TAGS: PREL PGOV ECON EINV KMCA KMPI YM ECON COM
SUBJECT: U.S. CONVENES DONOR GROUP TO CONFRONT CORRUPTION
IN YEMEN

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


1. (C) SUMMARY. Following Yemen's suspension from the
Millennium Challenge Account Threshold Program (MCA),
Ambassador gathered an informal group of key donors to
discuss ways of jointly pushing for reform in Yemen.
Declining performance in political and economic indicators
has already led to a reduction in development assistance from
the World Bank, and could soon affect others. The donors
agreed on specific short-term benchmarks that the ROYG could
use to demonstrate its commitment to reform. Despite efforts
to diffuse the coordinated donor pressure, the ROYG has been
forced to react. Reformers within the ROYG have urged the
donors to take the reform message directly to President
Saleh. END SUMMARY.


2. (C) In the wake of Yemen's November 2005 suspension as a
Threshold country, post engaged other donors concerned with
governance issues and ROYG corruption. Ambassador convened
an informal contact group consisting of the major bilateral
donors in Yemen: the U.K., Netherlands, and German missions.
The group expanded to include the World Bank during a
December 11 visit from Chrik Poortman, World Bank Vice
President for the Middle East. Falling indicators on the
Bank,s Country Policy and Institutional Assessment (CPIA)
index have caused the Bank to reduce development assistance
by more than 30 percent for 2006. Other donors, including
the Dutch and British, are linked to the CPIA index and could
face similar reductions in aid to Yemen in the next year.


3. (C) The donors agreed that a lack of political will for
reform and pervasive corruption impedes reform efforts. The
World Bank currently holds approximately USD 700 million in
undisbursed funds, earmarked for Yemen in previous fiscal
years, which it has been unable to spend because of
procurement irregularities, corruption, and bureaucratic
delays. By presenting obstacles to reform at every turn, the
ROYG has reduced progress on critical programs to a
standstill. Donors have experienced severe delays in
technical programs aimed at reforming tendering practices,
public finance management, the civil service, and
administration of elections -- this at a time when Yemen's
future depends on good governance and sound economic
management.


4. (C) Ambassador suggested to other heads of mission that
there is a window for reform following President Saleh's trip
to Washington, but it may not last. It is critical, he
continued, that the donors send a clear message that the ROYG
must demonstrate political will within the next six months.
The donors agreed to a list of key short-term deliverables to
be used as reform benchmarks, including:

- Protecting freedom of the press;
- Ensuring non-partisan elections monitoring;
- Publicizing corruption reports and taking legal action
against violators;
- Reducing bureaucratic obstacles to opening a business; and
- Joining the Extractive Industries Transparency Initiative.


5. (C) Having received news of the donor discussions, Deputy
Prime Minister and Minister of Planning and International
Cooperation (MOPIC) Ahmad Sofan summoned all major donors to
a meeting on December 11. Sofan presented the ROYG's reform
agenda, urged donors to cooperate with the ROYG on such
efforts, and promptly left the room. Sofan's reform plan
resembled similar proposals made by the ROYG and the ruling
General People's Conference in the run-up to the party
convention in Aden. Although touching on many of the same
target areas for reform, the plan was generally light on
specifics and devoid of benchmarks or timelines.


6. (C) Donors responded uniformly that more concrete action
was necessary in the near term, reflecting the urgent state
of affairs for Yemen's development assistance. MOPIC
proposed that donors work together with the ROYG in four
joint working groups to address political rights, rule of
law, corruption, and the enabling environment for business.
The groups were organized by Jalal Yaqoub, coordinator for
MCC within MOPIC. Members of the donor contact group took
the lead in each of the working groups (post led the
political group),bringing donors to a consensus on shared
objectives before meeting with the ROYG. This process
expanded the circle of donors to include the United Nations,
France, Denmark, and the European Community.


7. (C) The first working group met to discuss corruption on
December 27, with donors recommending benchmarks for the next
six months in procurement reform, budgeting, and the release
of information to the public on corruption. ROYG
representatives, including officials from the Ministry of
Finance and the President's Office, were resistant to donor
suggestions and hesitant to commit their ministers to
specific actions. After the meeting, Yaqoub told Econoff
that the mid-level officials in the working groups would not
be able to pursue specific reforms without "instructions from
above." He urged the donor group to discuss proposed reforms
with Saleh directly. Post is currently working with
representatives of the European Union, World Bank, and U.N.
to arrange a joint meeting for the heads of of these missions
with the President in January.


8. (C) COMMENT: Coordinated donor activity has succeeded in
increasing pressure on the ROYG to enact specific reforms.
The focus on short-term benchmarks and political will
surprised ROYG officials who are used to high-minded
strategies for ending poverty and long-term plans for
introducing political reform. The ROYG's move to form
official working groups and joint strategies is largely
designed to diffuse this pressure, and to create divisions
within the donor community. ROYG reformers, however, are
quietly happy with the donor initiative, but realize that the
donors must energize the President if it is to have any
chance of flourishing. With Yemen's development program on
the brink, there is unanimous agreement among donors to do
just that. END COMMENT.
Krajeski