FREEDOM AGENDA BRINGS DOWN GOVERNMENT: 2006 FIRST

UNCLAS SECTION 01 OF 04 SANAA 000926

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV KDEM KMPI KMCA ECON PHUM YM
SUBJECT: FREEDOM AGENDA BRINGS DOWN GOVERNMENT: 2006 FIRST
QUARTER REPORT

REF: A. SANAA 342

B. SANAA 2005 2922

C. SANAA 537

D. SANAA 649

E. SANAA 392

F. SANAA 146

SANAA 00000926 001.2 OF 004



1. SUMMARY: The Freedom Agenda had a dramatic impact in Yemen
within the last quarter, resulting in significant advances in
fighting corruption, women's representation in government,
independence of the judiciary, and other key areas. Post
marshaled a multilateral initiative to pressure President
Saleh directly on Freedom Agenda goals, and he responded by
naming a new government with a mandate for reform. The
prospect of rejoining the Millennium Challenge Account (MCA)
helped serve as a strong incentive for the ROYG to improve
governance, and targeted USAID and MEPI programs helped
strengthen the role of Parliament, local councils, and the
courts. The next quarter will be critical for advancing the
Freedom Agenda. Post is looking to build on recent successes
by engaging the new reform-minded cabinet. To do so,
particulary in elections monitoring, we will need additional
support from Washington. END SUMMARY.

--------------
U.S. Leads Full-Court Press For Reform
--------------


2. Freedom Agenda goals currently lead the political agenda
in Yemen, and Post's diplomatic strategies are showing
results on critical reform issues. In the last quarter, Post
combined bilateral meetings with ROYG officials, multilateral
coordination with the donor community, and targeted programs
to advance freedom and democracy in Yemen. With a specific
focus on fighting corruption, improving rule of law and press
freedom, and promoting free and fair elections, these
pressures culminated in President Saleh naming a new cabinet
with a reform mandate. (Ref A)


3. Last quarter began with a setback, as Yemen was suspended
from the MCA due to falling indicators. (Ref B) This delayed
ROYG implementation of its MCA Threshold Plan, with reforms
intended to reduce corruption and improve rule of law.
Yemen's suspension was noted in a letter from MCC CEO
Danilovich to President Saleh, detailing specific actions
Yemen could take to be reinstated. In the wake of this
disappointing news, Post encouraged the ROYG to continue with
reforms on its own accord, demonstrating to the MCA and
others that Yemen was committed to changing course. As part
of this message, the Embassy consistently encouraged ROYG
officials to expand the role of civil society and freedom of
speech in political discourse.


4. At the same time, Ambassador gathered a group of
international donors, including the embassies of Germany, the
Netherlands, and the U.K, as well the World Bank, to discuss
governance and corruption issues in Yemen. The group
developed a shared matrix of key short-term reforms the ROYG
could undertake to demonstrate its political will, and
engaged the Government in working groups on each of these
issues. The list included transparent tendering procedures,
protection for journalists, and prosecution of corrupt
officials.


5. In February, Ambassador and other heads of mission
delivered these points in a joint meeting with President
Saleh. (Ref C) Despite initial resistance by Saleh, he
promptly adopted the reform objectives as his own, dismissed
the Cabinet, and charged his new government with improving
Yemen's performance on international indicators. Many of the
reform objectives have been adopted by the Cabinet, and Post
is now monitoring progress on implementation. Below is a
detailed progress report for each of the five desired
outcomes for Yemen under the Freedom Agenda:

--------------
Reduced Corruption
--------------


6. The ROYG took dramatic steps in the last quarter to
confront the problem of corruption. Parliament is currently
considering a law that would create an independent
anti-corruption body, with investigative and prosecutorial
powers. The law has strong support from the President, and
would give teeth to existing oversight and auditing bodies.
The President also assigned a task force to study procurement
practices and to present a new tendering law. The law is
currently under consideration by the World Bank, and would
create a more transparent High Tender Board.


SANAA 00000926 002.2 OF 004



7. The USAID mission is preparing to support such efforts on
corruption by dedicating approximately USD one million of ESF
funds. The program will begin this quarter with an
assessment team, which will outline a comprehensive strategy
for combating corruption in Yemen. The team will analyze and
make recommendations on key sectors, including public finance
management, parliamentary oversight, and the business
community. Post then intends to offer buy-in to other donors
to implement the anti-corruption strategy.


8. Post continued to participate in the multilateral Public
Finance Management (PFM) reform group. In coordination with
the Ministry of Finance (MOF),the group drafted an action
plan for budgetary reform, which was repeatedly blocked by
the previous minister. The newly appointed MOF, by contrast,
is a strong supporter of PFM, and looks to sign a final
agreement within the coming weeks. Post had sought to
contribute a Treasury advisor for budgeting as part of this
initiative, but there are currently no available funds within
USAID or MEPI for this purpose.


9. Progress was slower on trade reform, as the previous
cabinet delayed Post's efforts to advance WTO-compliance in
customs valuation, telecom regulations, commercial law, and
other areas. The initial indication is that the new
ministers are more supportive of such reforms, and Post will
attempt to capitalize on this new opportunity in the coming
quarter. Trade reforms remain key to improving Yemen's MCA
indicators, and generally creating freedom for investment in
Yemen.

--------------
Open and Competitive Elections
--------------


10. With presidential and local council elections only six
months away, electoral reforms became highly politicized in
the last quarter. The Embassy is contributing essential
programs to the broader elections strategy coordinated by
UNDP. Under NDI's women and political parties program, all
major parties adopted a new strategy of designating 15
percent of local council districts for women candidates.
Post will closely observe implementation of this plan. The
ruling GPC party decided independently to reserve 15 percent
of its leadership positions for women, and two women
surprisingly announced their candidacy for president.


11. Post played a mediating role between the GPC and the
opposition in disputes over representation on elections
oversight committees. (Ref D) To Saleh, Post urged compromise
and stressed the importance of fair elections over one-party
dominance of the system. At the same time, Post urged the
opposition to be realistic in their demands. The SCER
currently contends that it will nominate neutral committee
members, but after several meetings between Saleh and the
opposition, there remains a strong possibility that the two
sides will still reach a compromise. Some of these issues
were exacerbated by the ROYG's unwillingness to adopt earlier
recommendations made under a MEPI-funded IFES program to
amend the electoral law.


12. NDI issued a critical report regarding by-elections in
the newly created governorate of Raimah, in which there was
reported to be considerable voter fraud. In response to
international criticism, Saleh agreed to allow international
observers from the E.U. and elsewhere to monitor the national
elections. USAID is currently supporting an NDI monitoring
program for the registration period. Post supports a
comprehensive elections monitoring program, as outlined in an
unsolicited proposal from NDI to MEPI. This would ensure
coordination between international and local organizations,
and allow for uniform conclusions on the administration of
elections.

--------------
Strengthened Rule of Law
--------------


13. The ROYG took the dramatic step of recommending the
removal of the President as Head of the Supreme Judicial
Council. This was a major component of Yemen's MCA Threshold
Plan, which it moved to implement even after being suspended
from the program. This came as a surprise to many observers,
who believed it would take years to achieve this goal. The
change is currently in draft form, and must be approved by
Parliament. For the first time, the ROYG also opened the
Higher Judicial Institute to women.


14. Several MEPI-funded programs began creating a network of
reform-minded legal professionals. ABA-CEELI held its first

SANAA 00000926 003.2 OF 004


workshop on law practice management, and a representative for
the ABA delivered a well-received address on human rights to
the Yemen Law Faculty. Yemen sent four judges to Qatar,
where they participated in commercial law training hosted by
the Commercial Law Development Program, and five judges for
training in intellectual property rights under the auspices
of the U.S. Patent and Trademark Organization.

--------------
Increased Government Accountability
--------------


15. Parliament set an important precedent last quarter, with
support from a MEPI-funded NDI program, of overriding a
presidential veto of its own by-laws. In addition to
asserting the constitutional power of the legislature,
Parliament also expanded control over its own budget, agenda,
and committee leadership. The first test of its newfound
independence, however, came with the election of the
parliamentary leadership, and resulted in the reelection of
the President's preferred candidates. (Ref E)


16. Post continued to make progress in government
decentralization, in partnership with UNDP and other donor
countries. MEPI funds, administered by USAID, helped
district governments draft and implement their own investment
budgets and increase governance capacity. The new MOF
expressed strong support for decentralized government, and
promised to transfer a great share of health and education
budgets to the local level. USAID will provide bridge funds
for the decentralization program until December 2006.


17. The ROYG has also taken important steps to improve
accountability in the oil and gas sector by joining the
Extractive Industries Transparency Initiative (EITI). (Ref F)
Post, the World Bank, and others urged the ROYG to sign EITI
as an important step toward improved transparency in Yemen's
most critical sector. (NOTE: Approximately 80 percent of
government revenue is derived from oil sales. END NOTE.)


18. Yemen's civil society remained relatively energetic, and
Post advanced a number of programs to make NGOs more
effective in advancing reform. MEPI small grants funded the
production of a public awareness film on violence and women's
education, while two more are expected on fighting terrorism
and corruption. Another MEPI program run by Partners for
Democratic Change focused on teaching conflict resolution
techniques to local leaders. The Civil Democratic Forum, a
local NGO, began a program to help transform welfare NGOs
into effective forces for political change. Post continues
to explore the possibility of creating an NGO training center
to improve the advocacy skills of local groups.

--------------
Free and Independent Press
--------------


19. Ambassador and DCM again took strong public positions
last quarter in defense of a free press, yet abuses against
journalists continued. A recent report by the Committee to
Protect Journalists confirmed that the ROYG is not doing
enough to protect the press. Behind the scenes, however,
Post worked to advance Freedom Agenda goals in private
meetings with ROYG officials, pushing the Shura Council to
include journalists and civil society when considering a new
press law. In addition, the new Minister of Information met
with the Yemeni Press Syndicate, and offered to help them
draft compromise legislation.

--------------
COMMENT: TIME FOR RESULTS
--------------


20. In the last quarter, the President took a clear position
in support of Freedom Agenda goals, and cleared his
government of obstructionist ministers. The new Cabinet
responded quickly to international pressure for reform, and
is implementing important measures to fight corruption,
strengthen judicial independence, and improve governance.
The next quarter will be an important test of the ROYG's
commitment, however, with the run-up to elections and
possible readmission to the MCA. Changes in personnel and
administrative procedures alone do not constitute reforms,
but must be followed by measurable outcomes. Following up on
the successes of last quarter, Post will press for such
outcomes as the next step of implementing the Freedom Agenda.
In some areas, however, such as public finance management,
diminishing resources limit our options to effect change.
Post welcomes any and all additional engagement from
Washington to realize the Freedom Agenda in Yemen.

SANAA 00000926 004.2 OF 004


Krajeski