TIMOR-LESTE EAGER TO BEGIN WORK ON MCC COMPACT AND

UNCLAS SECTION 01 OF 02 DILI 000094

SIPDIS

SENSITIVE
SIPDIS

FOR MCC CEO JOHN J. DANILOVICH FROM AMBASSADOR KLEMM

E.O. 12958: N/A
TAGS: KMCA TT
SUBJECT: TIMOR-LESTE EAGER TO BEGIN WORK ON MCC COMPACT AND
REMEDIATION



1. (SBU) Embassy Dili welcomes and is ready to support the
initiation on March 25 of discussions between MCC Vice President
John Hewko and his team, and senior members of the government of
Timor-Leste (GOTL) on a potential MCC Compact as well as Timor's
remediation process. The March 25 teleconference will launch a
series of meetings that will hopefully include a reintroduction
trip by an MCC team to Dili in April 2008.


2. (SBU) Since delivering your December 21, 2007, letter
regarding Timor-Leste's reselection as a MCC compact eligible
country to Prime Minister Xanana Gusmao, I have had many
meetings with senior GOTL officials regarding a possible MCC
Compact. My interlocutors have included President Jose Ramos
Horta, Interim President Lasama de Araujo, Vice Prime Minister
Guterres, Foreign Minister Da Costa and, repeatedly, Finance
Minister Pires, Infrastructure Minister Lay and MCC Compact
Negotiator Saldanha. All have told me - ceaselessly and
uniformly - that they are grateful that Timor remains compact
eligible because the MCC will help them both achieve urgent
policy reform and boost Timor's economic and social development.
Finance Minister Pires, responsible for Timor-Leste's
remediation program, has expressed nothing but eagerness to
begin discussions with MCC staff in order to use those
consultations to speed needed reforms and quicken the
improvement in Timor's policy performance. Indeed, she shared
with me weeks ago her disappointment that mutual scheduling
conflicts have delayed the opening round of discussions until
late-March.


3. (SBU) The tragic events of February 11 did nothing to shake
this resolve. In contrast to previous political crises in
Timor, most notably the 2006 upheaval that saw the collapse of
its security services and most of the central government,
Timor-Leste's governing institutions performed remarkably well
after 2/11. The Prime Minister, demonstrating great personal
courage, and his ministers quickly convened the appropriate
government councils, consulted with parliament, spoke to the
public, and implemented proportionate measures. With few
exceptions, actions taken since 2/11 have been meticulous in
their adherence to the constitution and law. Instead of openly
and fatally feuding as in 2006, the military and police
established a joint command to bring the perpetrators to
justice. There has been a strong consensus across the political
spectrum in support of the government's actions to date. Dili
and the remainder of the country have remained remarkably calm,
business quickly returned to normal and crime fell to record
lows.


4. (SBU) Similarly, the government never hesitated after 2/11 in
pursuing its development agenda or tackling other priorities. I
met with the Finance Minister just days after the 2/11 attacks
and she was wholly focused on her work - including preparing for
discussions with the MCC. A major conference hosted by the
government for its multi- and bilateral development partners
will take place as scheduled on March 27-29 in Dili. The
government is using the event to define its policy priorities
for 2008 and seek donor support. A draft policy matrix
identifies priority areas that resemble the MCC's policy
categories: ruling justly (for Timor, "clean and effective
government" and "public safety and security"),investing in
people ("improving social service delivery," and "addressing the
needs of the youth") and economic freedom ("employment and
income generation"). The policy matrix also highlights the
government's intent to effectively resolve two other major
issues stemming from the 2006 crisis: reintegration of thousands
of families from IDP camps back into society, and dealing with
some 600 former members of the military that seek redress for
past grievances.


5. (SBU) Instead of grinding to a halt as the result of February
11, Timor's leaders recognize that their efforts to improve
public services, fully realize the rule of law and boost
investment in education, health and social infrastructure must
if anything accelerate. February 11 was a reminder not only of
serious unresolved political conflicts dating from 2006 and
earlier, but also of the dire social and economic conditions in
Timor - its extreme poverty and lack of development - that
helped generate those political conflicts. Consequently, the
GOTL's council of ministers since 2/11 has without delay
approved and sent to parliament a sweeping tax reform package to
boost Timor's business environment, reviewed laws and
regulations governing the media and telecommunications sector,
and passed laws to finally give full legal standing to a number
of ministries and departments. Its policy priorities for 2008
include the submission to parliament of a land law and the
creation of a property registry toward the full extension of
property rights; investment in the prosecutor general's office
to reduce a debilitating case backlog and improve access to the
formal justice sector; and steps to improve budgeting, budget

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execution and accountability, including the rationalization of
the government's three agencies charged with combating
corruption.


6. (SBU) At this moment of Timor-Leste's heightened
vulnerability, it is my view and that of my mission that the
U.S. also should maintain -- if not accelerate -- our extensions
of concrete support. We just launched two major USAID programs,
one to extend property rights and another to provide job skills
and employment to youth in the districts, to boost the prospects
of economic development and support MCC goals. We will be
applying for DOD 1210 funding to fill a major financial and
activity gap in the GOTL's plan to provide housing for IDPs.
Accordingly, we strongly encourage the Millennium Challenge
Corporation to engage as expeditiously as possible with the GOTL
to remediate its policy performance and negotiate a compact.
Minister Pires and her team have suggested they are seriously
looking at using MCC support - if they are able to qualify for a
compact - to build out a national road network. If undertaken,
such a project would have enormous economic and social benefits,
none the least enabling Timorese farmers to bring their surplus
production to market and creating much needed employment.


7. (SBU) Ambassador Danilovich, Embassy Dili eagerly waits to
support you and your Timor-Leste team. Please do not hesitate
to let me know how I can personally assist.




RECTOR
KLEMM