UNCLAS SECTION 01 OF 03 DILI 000359

SIPDIS

SIPDIS

DOD FOR OSD, PLEASE PASS TO USAID

E.O. 12958: N/A
TAGS: PREL PGOV TT
SUBJECT: CHALLENGES IMMENSE AS GOVERNMENT PASSES THREE MONTH MARK


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Summary

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1. (SBU) Three months after taking office, Prime Minister
Gusmao can tally several accomplishments: selecting some
energetic and skilled ministers, a couple of key legislative
victories and the proper identification of policy priorities all
linked to resolving causes or consequences of the 2006 crisis.
Fretilin appears to be maturing into its role of parliamentary
opposition, aggressively scrutinizing government programs while
rebuilding and readying itself for an opportunity to return to
power. Major challenges remain for the new government,
including in the short term the drafting and passage of a 2008
budget, and taking effective action to resettle the tens of
thousands of refugees that continue to huddle in wretched camps
across Dili and elsewhere. Weak institutions, poor
administrative capacity, tremendous poverty, a disillusioned
populace and a fractious leadership riven by personality
conflicts will hinder the government's ability to spur the
nation's development. Our focus remains on assisting
Timor-Leste - in concert with the UN and other donors - with
essential elements of reform: implementing property rights,
professionalizing the military and police, advancing the rule of
law, prompting economic growth and strengthening the capacity of
key institutions of this still very vulnerable democracy. End
summary.



Two political uncertainties: a) whither Fretilin?

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2. (SBU) Since the parliamentary elections of June and the
installation of a new government in August 2007, two
uncertainties have dominated Timor politics: a) how well will
the ruling coalition perform and b) whither Fretilin? On the
latter, concerns of just a couple of months ago that either the
party or its supporters would continue to take to the streets,
violently or otherwise, and seriously destabilize the government
have faded. Although Fretilin maintains its stance that the
government is illegal and unconstitutional, it has become an
active and arguably constructive player in parliament,

thoroughly scrutinizing the government's recently passed
transitional 2007 budget. Negatively, it promises a blanket
"nay" to all government legislation; positively, its close
oversight of government programs promises a level of supervision
and discipline that the previous Fretilin government - to the
nation's detriment - never had to face.




3. (SBU) Indeed, some question the party's future relevance.
Observers informed us that a recent, oft-delayed national party
retreat was sparsely attended and flat (but not without some
enthusiasts - press accounts, later confirmed, noted that
several in attendance urged creating cells to foment
anti-government activity). Former supporters fault the party's
strident claims of governmental illegitimacy, combined with a
reluctance to mount a proper legal challenge, as incoherent and
weak. That said, former PM Alkatiri appears once again to have
consolidated control over the party, has launched efforts to
strengthen local affiliates, and both privately and publicly
asserts his confidence that Fretilin will be back in power
within two years. Meanwhile, he waits for the government to
stumble.



And b) will the coalition deliver?

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4. (SBU) Whether the government can improve on its
predecessor's poor record of delivery of essential public
services, providing security and justice, and enhancing the
country's economic performance remains to be seen. Centrifugal
forces within the four-party ruling coalition, generated by both
personality and policy, seemingly have lessened with the
successful passage of the government's program and the

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transitional 2007 budget, but remain dangerous. (Astonishingly,
the four party chiefs have not met since the government took
power in August.) Ministers now are focused on drafting and
passing a full 2008 budget. The news emanating from this
process is not always pretty: some ministries sought wildly
ambitious increases in spending, others saw pet (but potentially
productive infrastructure) projects cut. Further, in the rush
to complete a draft budget, the reliance on international
technical advisors has deepened, undermining efforts to enhance
the administrative capacity of Timorese ministerial staff, even
their basic comprehension of the budget process.



Weak managerial capacity

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5. (SBU) In theory, once completed, the budget will clarify the
government's program priorities and, once implemented, increase
the delivery of public services. Even with the best budget in
place, however, government operations will continue to be
hamstrung by very weak administrative capacity. The middle
managers that compiled a record of executing less than 10% of
the 2006 capital budget are still in place. Ominously, the
ongoing shutdowns of the country's electricity company, with
rolling blackouts averaging more than 12 hours a day in Dili, is
darkening the government's effort to establish itself as
competent. Cognizant of the possible political damage, the PM
himself responded with publicized visits to the main power
station and direct appeals to his Indonesian counterpart for
help with extra engineers and generators.



Short term priorities

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6. (SBU) The new government deserves credit for clearly and
correctly identifying its short term priorities. These are
dealing with the IDP camps, the military "petitioners" and the
fugitive desperado Alfredo Reinado - all three either cause or
consequence of the 2006 crisis. Upon taking office, the
government sought to develop a policy on IDPs quickly and placed
deputy prime minister Guterres in charge. Among government
leaders there is general acceptance that IDP policy must include
action on property rights, an end to the full provision of food
rations, a housing program and improved security and policing in
residential neighborhoods. To date, however, there's been no
meaningful action on any of these components. Meanwhile, some
of the camps have become increasingly politicized. The
nationwide distribution in late October of some 1000 new tents,
needed due to the approach of the rainy season, led to
disturbances at one camp midway between Dili and Baucau. Camp
leaders claimed the government shortchanged them for political
reasons, scuffled with Portuguese police and shut down traffic
on the sole east-west corridor for several hours.




7. (SBU) Bringing Reinado to justice and putting to rest the
financial and political claims of the military petitioners also
will not come easy. In both cases, the government has opened
channels of consultation or negotiation, but they have not yet
borne fruit. If not handled astutely and resolutely, they could
generate charges of regional favoritism or impunity, or again
become serious political flashpoints.



Structural challenges

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8. (SBU) Beyond the short term problems, Timor-Leste's
leadership must confront the many unresolved dynamics behind the
2006 crisis that continue to impede the strengthening of key
democratic institutions, the realization of social and economic
development and the ability of the state to function free of a
UN mandate. These include a still unreconstructed security

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sector (especially the police); an inadequate justice sector;
astonishingly poor infrastructure; dangerously high youth
unemployment; a highly centralized government with poor public
outreach and feedback mechanisms; and enormous requirements for
investment in education and human capital. Timor's population
remains disaffected and disillusioned, but with high
expectations that the recently elected president and government
will deliver on their 2007 campaign promises to hasten justice,
security and economic development. Until these underlying
political and social conditions are resolved, the nation remains
vulnerable to future punctuations of violence and instability.



Uncertain security sector reform

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9. (SBU) Security sector reform arguably is one of the
government's most critical tasks given the collapse of, and
conflict between, the police and military that occurred in 2006.
But, there are notes of discord. In one of our conversations
with the prime minister, constitutionally responsible for the
police and military, he downgraded security sector reform as a
lower tier priority. Always a man of action, President Ramos
Horta, although he has no executive authority for this sector,
took the initiative in August by establishing a team under his
leadership to develop policy and coordinate with the UN and
other interested parties. But, he appointed as head of his
reform team a former minister of defense who resigned in
disgrace after the 2006 crisis, and who envisions a leisurely
ten or 15 year timeline for reform. Observers believe it's only
a matter of time before the latent President-PM conflict over
who has authority for security sector reform bursts into the
open.




10. (SBU) Meanwhile, former PM Alkatiri questions the legality
of ISF operations in Timor, despite having signed the invitation
to enter the country in 2006. Some Timorese police commanders
publicly have scorned UNPOL mentoring (a key component of the
UN's mandate to build a responsible and professional force) and
the number of misconduct infractions by UNPOL-screened police
officers has risen steadily in recent months, including two
murders. Plus, more than one government leader has suggested
privately that UNPOL is constraining, not supporting, the
reconstruction of the Timor police. With police behavioral and
discipline problems again on the rise, this is wishful thinking
alarming in its implications.



Our focus

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(SBU) Embassy Dili's priorities are to assist Timor-Leste
strengthen its democratic institutions; provide security and a
competent, responsive justice system; and use the skills of its
people and its natural resource wealth to create sustainable
economic and social development. Concretely, we are urging
Timor's leadership to enact full property rights as a step
towards resolving the IDP problem and improving the investment
environment. We are developing a large youth employment program
centered on strengthening vocational skills. We are engaged
vigorously (and gratefully) with PACOM on the possible expansion
of programs aimed at the professionalization of Timor's military
and are exploring with the Department of Justice a resumption of
programs to support the reconstruction of its police.
Strengthening the administration of justice and spurring
employment in rural districts are other program priorities.
With the aim of improving local donor coordination among
bilateral partners and across UN agencies, we're exploring
possible security sector trilaterals respectively with Australia
and Japan, and with Australia and Portugal. And we're trying to
lure China into any donor mechanism available.
KLEMM