USDA SIGNING: A SMALL STEP FOR FOOD AID, A BIG

UNCLAS SECTION 01 OF 02 SANAA 000872

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV EAGR EAID YM
SUBJECT: USDA SIGNING: A SMALL STEP FOR FOOD AID, A BIG
STEP FOR YEMEN



1. SUMMARY: After months of questions about the USDA Food
For Progress program in Yemen, Ambassador started fresh on
March 27, signing an allocation minute with the ROYG to fund
programs with 2004 funds. The new agreement seeks to correct
many past problems by introducing new transparency and
oversight measures. It will fund critical programs in health
and agriculture, and complete work on Phase 3 of the Saila
drainage road in Sanaa. Most importantly, Yemen's new
cabinet appears serious about controlling corruption -- a
positive sign for broader reform efforts under the Millennium
Challenge Account and the Freedom Agenda. END SUMMARY.

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Ambassador Rolls Out 2004 USDA Programs
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2. On March 27, Ambassador signed an allocation minute with
the ROYG for 2004 USDA Food For Progress programming. In
addition to Ambassador, Minister of Planning Abdulkarim
Al-Arabi and Minister of Finance Seif Al-Asali were also
signatories. Arhabi praised the collegial process that
produced the agreement, and emphasized the quality of the
projects selected. Ambassador highlighted the value of this
program, as it directly links American farmers to the Yemeni
people, helping to provide them with long-term stability and
security.


3. Under 416 (b) funding totaling almost USD 12 million, the
Embassy and the ROYG agreed to:

* Complete the third phase of the Saila drainage road in
Sanaa;
* Provide management to the President Hospital in Marib;
* Construct a new hospital in Shabwa;
* Provide micro-loans to small businesses; and
* Undertake a variety of infrastructure projects through the
Social Fund for Development.


4. Under PL-480 funding, totaling nearly USD 11 million, the
Embassy and the ROYG agreed to:

* Support agricultural water projects;
* Fund projects for livestock, veterinary care, and plant
production/protection; and
* Complete the Maghrabah rural access road.

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A New Way of Doing Business
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5. The agreement was delayed over six months due to
irregularities in the management of funds. By the ROYG's
admission, over USD 12 million in USDA funds had been
misallocated since 2001. In early December, 2005, a USDA
compliance team visited Sanaa to investigate these findings
and to recommend improved practices. Post is awaiting a
final report from the USDA compliance team detailing their
findings.


6. In the interim, the 2004 allocation minute established new
procedures for managing USDA funds to improve transparency.
All USDA money will be held in interest-bearing accounts in a
commercial bank (the Yemen Bank for Reconstruction and
Development). The ROYG will provide regular bank statements
to post, and all transfers will require authorization from
both parties. In addition, the ROYG agreed to wave customs
fees on donated commodities in future agreements, and to
clearly itemize administrative fees associated with the
program.

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Promises of Transparency
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7. In a reference to the irregularities that have plagued
Food For Progress in Yemen over the past year, Arhabi
expressed his regret that Yemen was not included in the 2005
program. He also promised greater transparency in the
implementation phase of the program. Ambassador shared his
optimism for the future of Food For Progress programs in
Yemen, and was hopeful that the ROYG would be included in the
2006 commodities allocation.

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Turning Over a New Page
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8. COMMENT: What a difference a new cabinet makes. Until
recently, questions about USDA funds threatened the program
with cancellation, and seemed to exemplify the overall spirit
of mismanagement and corruption in the ROYG. With the

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signing of the 2004 allocation agreement, the newly appointed
Ministers of Finance and Planning appear eager to turn over a
new page. They readily agreed to critical reforms, such as
the use of commercial bank accounts, which had long been a
point of contention with the previous cabinet. In general,
the Ministers are eager to strengthen relations with the
Embassy and with the international community in general.
This bodes well for the implementation of broader reforms
necessary for the Millennium Challenge Account and the
Freedom Agenda, and for the future of USDA assistance to
Yemen. END COMMENT.
Krajeski