PFDJ MONEY-MAN SPEAKS ON ERITREA'S WAR ECONOMY

C O N F I D E N T I A L ASMARA 000211

SIPDIS

SIPDIS

DEPT FOR AF/E

E.O. 12958: DECL: 04/14/2018
TAGS: ECON PGOV ER
SUBJECT: PFDJ MONEY-MAN SPEAKS ON ERITREA'S WAR ECONOMY

REF: ASMARA 198

Classified By: Ambassador Ronald K. McMullen for Reason 1.4 (d)


1. (C) People's Front for Democracy and Justice (PFDJ)
money-man Hagos "The Sack" Ghebrehiwot told the ambassador on
April 2 that Eritrea's current economic polices are "directly
tied to the situation" on the border rather than driven by
Marxist ideology, and that Eritrea's economy must remain on a
war footing until the standoff ends. He noted that the
Government of the State of Eritrea (GSE) supported pro-market
economic policies prior to the start of the border war in
1998, and that similar economic policies would follow
rapprochement with Ethiopia. Historically Eritrea never had
a strong private sector, Hagos commented, but rather a
small-scale, undiversified economy based on "non-advanced
trading." The GSE, through the PFDJ, created "from scratch"
the large-scale enterprises necessary for a modern economy,
he added.


2. (C) Hagos said the border war had led to a decrease in
loans and investment, causing hard currency reserves to
evaporate. The small amount of hard currency remaining must
be prioritized, he noted, with national defense always
getting the first slice of the pie. This has left the GSE
with difficult choices in funding priorities such as food,
fuel, and medicine. Hagos said the significant increase in
the cost of diesel fuel internationally forced the GSE to cut
consumption, and they can "no longer afford to import it."
Despite these difficulties, he listed several long-term GSE
economic investments in roads and microdams, and claimed that
Eritrea can maintain its war economy for "as long as
necessary."


3. (C) Hagos stated the oft-heard GSE refrain that foreign
aid weakens a country by making its people dependent, and
cited U.S. aid as a major cause of Ethiopia's internal
instability. He described the GSE's policy of self-reliance
as "misunderstood," noting that while Eritrea definitely
needs assistance, the GSE knows best how aid should be
distributed and used in order to facilitate later weaning of
the country from such dependence.


4. (C) COMMENT: The resident World Bank director (please
protect) said Hagos and others who run Eritrea's tiny command
economy may feign fondness for the private sector, but in
fact have grown attached to the power and riches that stem
from their positions. This is a variation on the theme that
Isaias uses the pretext of the ongoing threat from Ethiopia
to maintain his dictatorial grip on the country. END COMMENT.
MCMULLEN