SCENESETTER FOR VISIT OF DEPUTY SECRETARY LEW TO

S E C R E T SECTION 01 OF 05 ADDIS ABABA 001469

NOFORN
SIPDIS

E.O. 12958: DECL: 06/17/2019
TAGS: PREL PBTS MOPS KPKO ET ER SU SO
SUBJECT: SCENESETTER FOR VISIT OF DEPUTY SECRETARY LEW TO
ETHIOPIA

REF: A. 2008 ADDIS 1674

B. ADDIS 975

C. ADDIS 379

D. 2008 ADDIS 2325

E. ADDIS 1200

F. 2008 ADDIS 2262

G. ADDIS 594

H. ADDIS 1201

I. ADDIS 1202

J. ADDIS 1262

Classified By: Acting Political Counselor Ted Harkema. Reasons: 1.4 (B
).

Introduction
--------------


1. (S/NF) Your visit to Ethiopia comes at a time when the
Ethiopian Government's (GoE) growing authoritarianism (Ref.
A),intolerance of dissent, and ideological dominance over
the economy since 2005 poses a serious threat to domestic
stability and U.S. interests. The GoE has come to believe
its own anxieties about a fundamental shift in U.S. policy
against it. This self-induced crisis of confidence has
exacerbated the GoE's natural tendency of government control
over politics, the economy and personal freedoms. To
pre-empt retaliation, the GoE has increasingly purged ethnic
Oromos, Amharas, and others perceived as not supporting the
ruling Ethiopian People's Revolutionary Democratic Front
(EPRDF) from the military (Ref. B),civil service (Ref. C),
and security services. Such moves only add to the already
growing deep public frustration and have led to a vicious
cycle. The public is increasingly upset over double-digit
inflation (Ref. D),anxiety over their economic future (Ref.
E),the GoE's denial of the drought (Ref. F),growing public
inability to feed their families, and narrowing of political
space highlighted by the prominent arrest of opposition
leader, Birtukan Midekssa (Ref. G).


2. (S/NF) Without significant policy reform to liberalize the
economy and allow mounting political dissent to be vented,
the national elections in 2010, another season of failed
rains, increasing inflation, or a terrorist attack could
spark major civil unrest. The United States can induce such
a change, but we must act decisively, laying out explicitly
our concerns and urging swift action. Because the GoE has
enjoyed only growing international assistance and recognition
despite its recent record, it currently has no incentive to
veer from the current trajectory to which the EPRDF is so
committed. If we are to move the GoE, we must be willing to
use USG resources (diplomatic, development, and public
recognition) to shift the EPRDF's incentives away from the
status quo trajectory.

Your Role in Ethiopia
--------------


3. (S/NF) For USG leadership in moving the GoE to be
successful, we need firm backing from the interagency and the
willingness of senior officials to engage. We need to
reassure the Ethiopians that we value, and look forward to
continuing and expanding, our partnership in pursuit of our
mutual national interests. We need to reaffirm our
recognition of their contributions to our shared cooperation
on special projects and information sharing. If we are to
move them, though, we need to deliver an explicit and direct
(yet private) message that does not glad-hand them. We must
convey forcefully that we are not convinced by their
rhetoric, but rather that we see their actions for what they
are, and that we see their actions as potentially
destabilizing and undercutting Ethiopia's own interests. We
should then explicitly allay their anxiety by affirming that
we value what they have done in terms of economic growth and
institution building since 1991 in turning Ethiopia around,
that we are not trying to promote regime change, and that we
are delivering a similarly explicit message of the need for
change to opposition groups.


4. (SBU) As one of the most senior U.S. officials in the new
administration to visit Addis Ababa, Prime Minister Meles and
his senior officials are anxious to hear what you have to
say, and they will scrutinize your every word for indicators

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of any change in U.S. policy toward Ethiopia. Your arrival
follows the visit of Ambassador Rice to Addis Ababa in May
(Ref. H-J),and precedes by one week Assistant Secretary for
Africa Carson's planned visit.

The Ethiopian Leadership's Guiding Philosophy
--------------


5. (C) Understanding Ethiopia's domestic political and
economic actions, and developing a strategy for moving the
ruling party forward democratically and developmentally,
requires understanding the ruling Tigrean People's Liberation
Front's (TPLF) prevailing political ideology: Revolutionary
Democracy. Hard-line TPLF politburo ideologues explain the
concept in antiquated Marxist terms reminiscent of the TPLF's
precursor Marxist-Leninist League of Tigray. Western-leaning
TPLF members and more distant central committee members from
non-TPLF parties within the Ethiopian People's Revolutionary
Democratic Front (EPRDF) coalition generally shed the Marxist
rhetoric of the hard-liners. Still, these interlocutors
unanimously describe Revolutionary Democracy as a top-down
obligation of convincing rural Ethiopians of what is in their
best developmental and governance interest and providing the
structures to implement that until the people can do it for
themselves. Discussions with ruling party officials have
highlighted an EPRDF perception that the 2005 national
election results and turmoil stemmed from the party taking
the peasantry for granted and not adequately bringing them
into the discussion of democracy and development.


6. (C) As an extension of this philosophy, to the ruling
party, development is their gift to Ethiopia, and their first
priority. While they accept assistance from the
international community, they resent attempts by donors to
tell them how development should be done. The leadership
believes that only they can know what is best for Ethiopia,
and if given enough time, Ethiopia will transform itself into
a developed nation.

An Economic Overview
--------------


7. (SBU) Ethiopia remains one of the poorest countries in the
world. Ethiopia's 2008 Gross Domestic Product (GDP) was
approximately USD 25.7 billion, with an annual per capita GDP
of USD 324. Chronic cycles of drought, high population
growth, state and ruling party dominance in numerous
commercial sectors, inefficient agricultural markets, and
ever increasing power outages all act to limit Ethiopia's
economic development. The agricultural sector comprises 45
percent of GDP and employs 85 percent of Ethiopia's 79
million people. Although Ethiopia's economy is relatively
small, it is growing at a fast pace. The GOE publicly touts
that Ethiopia has experienced double-digit real GDP growth of
over 11 percent in recent years. The GOE predicts real GDP
growth of 10 percent this year. Many institutions, including
the World Bank and IMF, dispute the GOE's growth statistics,
stating that Ethiopia's real GDP growth rate will most likely
range between six and seven percent this year. Inflation
rates skyrocketed during the past year, peaking at 64 percent
in July 2008. Inflation has since fallen to 23 percent in
April 2009 and is expected to continue to fall in the coming
months; however, it continues to remain at troublesome levels.


8. (SBU) The GOE has identified five priority sectors for
development and export growth, including: textile and
garments, leather, flowers, fruits and vegetables, and
agro-processing (e.g., oil seeds and pulses). Total exported
goods have increased over 20 percent per annum on average in
the past five years. This year, however, exports are not
keeping pace with previous growth. Only USD 1.0 billion in
exports have been recorded through the first nine months of
this fiscal year and coffee exports--Ethiopia's major export
earner--are down 25% from last year. In the preceding fiscal
year, total exports reached USD 1.5 billion, of which coffee
constituted 36 percent. The GOE blamed coffee exporters (who
were allegedly hoarding supply) for the decline in exports
and as a result, revoked licenses of six major exporters,
detained some company owners overnight, and closed the
warehouses of over eighty firms. The reduction in coffee
exports appears to be tied to the decline in world prices as
well as domestic problems associated with new coffee

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marketing and control legislation and capacity constraints of
the newly established Ethiopian Commodity Exchange (ECX).


9. (SBU) Despite Ethiopia's export growth, the country
suffers a severe trade deficit year after year. Imports
totaled USD 6.8 billion in 2008, creating a trade imbalance
of USD 5.3 billion. Ethiopia mainly imports machinery, fuel,
and consumer goods. This trade deficit led Ethiopia into a
severe foreign exchange crisis and to depend on international
organizations and remittances to relieve some of the
pressure. Foreign exchange reserves plummeted to only four
weeks of import coverage in December 2008 at USD 700 million
and have only slightly recovered to about six weeks coverage
in May 2009 at USD 1.2 billion. The GOE has been forced to
ration hard currency, giving priority to exporters. Many
companies are suffering as they are unable to import spare
machinery parts and manufacturing inputs. Additionally, many
foreign companies are unable to repatriate their profits
without significant or indefinite delay. Aimed at easing the
balance of payments and foreign exchange crises, Ethiopia's
central bank depreciated the Birr 13 percent in the past five
months. The Birr is now trading at 11.27 per USD. An
additional Birr depreciation of 10 to 15 percent is expected
in the next few months. In the parallel market, the Birr is
trading at 13.3 per USD, an 18 percent spread from the
official rate. Many legitimate businesses are forced to
operate in the parallel market due to the current foreign
exchange crunch.

The Government's Role in the Economy
--------------


10. (SBU) Since the early 1990's, Ethiopia has pursued a
development strategy based on a mixed economy of both state
and private enterprises. While the private sector role is
expanding, the state remains heavily involved in most
economic sectors and parastatal and ruling-party affiliated
companies continue to dominate trade and industry, hampering
full and free competition. All land in the country remains
state owned, although long-term leasing arrangements and
rural land registration for farmers have improved in recent
years. Foreign investment restrictions are widespread,
including key sectors such as banking, insurance, and
telecommunications. The state-owned Ethiopian
Telecommunications Corporation (ETC) is the only service
provider in the sector, creating an environment of poor
telecom service and access. In a country of nearly 80
million people, there are only 920,000 fixed phone lines, 1.8
million cell phones, and 29,000 internet connections. The
GOE maintains a hard line stance on these key sectors, but
some eventual liberalization is assumed to take place as part
of the ongoing World Trade Organization (WTO) accession
negotiation.

The Domestic Political Environment
--------------


11. (C) The May 2005 elections and their aftermath continue
to weigh heavily on Ethiopia's domestic political scene, and
as a result, the government is systematically closing
political space in Ethiopia. The U.S. Embassy has taken the
lead in advocating for transparent and open national
elections in 2010, the next major milestone in Ethiopia's
democratization process. 2005 saw the opposition take 170
seats in the 547 seat national parliament, a dramatic
increase over the 15 seats they held for the previous decade.
While the runup to these elections was the most free and
fair in Ethiopia's history, and the opposition made
significant gains, the government manipulated the vote count,
prompting the opposition to launch an organized civil
disobedience campaign that turned violent when confronted by
security forces. These security forces killed nearly 200
protesters, detained more than 30,000 suspected
demonstrators, and arrested most of the opposition leadership
charging them with capital crimes ranging from treason and
genocide to "outrages against the constitution." The leaders
were tried and found guilty, but pardoned in 2007. Some of
the leaders stayed in Ethiopia, but others left and are now
advocating for a change of government "by any means
necessary." Since 2005, the government has enacted laws
which limit and restrict party politics, the media, and civil
society. While the ruling Ethiopian People's Revolutionary

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Democratic Front (EPRDF) coalition can overcome the barriers,
the fragmented and under-funded opposition parties have found
their operations restricted. Laws have been passed regulating
political financing, access to the press, and ability of
civil society organizations (NGOs) to receive funding from
foreign sources and participate in the political process.
The April 2008 local elections saw the ruling party take over
all but three of over three million seats. While many
opposition parties boycotted the local elections due to
incomplete implementation of the electoral law, their
inability to field and register candidates, difficulties in
gaining access to press coverage and finances, and local law
enforcement officials failing to investigate the opposition's
charges of harassment make efforts to correct these problems
and push forward for a more open electoral process in 2010
ever more critical.

New CSO Law a Particular Problem for U.S. Assistance
-------------- --------------


12. (SBU) On January 6, the Ethiopian Parliament passed a new
Charities and Societies Proclamation (CSO law) to regulate
the conduct of civil society organizations. As expected, the
law prohibits civil society organizations that receive more
than ten percent of their funding from foreign sources from
engaging in activities that promote human rights and
democracy, the rights of children and the disabled, equality
among nations, nationalities, people, gender and religion,
and conflict resolution or reconciliation. The CSO law
provides an ill-defined carve-out for activities funded
pursuant to a bilateral agreement with the Ethiopian
government. As a result, it is difficult to determine at
this time the extent to which the law will impact USAID
grantees or other implementing partners, particularly in such
restricted areas as democracy and governance. The CSO law
also delineates stiff penalties for violations of its
provisions, including potential criminal liability and fines
of up to USD 5000 for organizations and USD 2000 for
individuals.

Reassessment of U.S. Aid to Ethiopia Needed
--------------


13. (SBU) Ethiopia is now the second largest recipient of
U.S. foreign assistance in sub-Saharan Africa. However, the
preponderance of this assistance is humanitarian, including
food aid, the President's Emergency Plan for AIDS Relief
(PEPFAR),the Child Survival and Health Program Funds (CSH),
of which a significant share supplements the Government of
Ethiopia budget. Relatively little assistance, about five
percent of the total, directly contributes to Ethiopia's
internal economic stability and sustainable growth.
Assistance designed to promote economic stability
concentrates on agricultural development -- particularly in
vulnerable, conflict-prone areas, in order to achieve food
security -- and on healthcare services. The increasingly
difficult operating environment and growing transaction costs
for non-budgetary foreign aid and, in particular, the
proposed tight restrictions on non-governmental organization
(NGO) implementing partners, call for a reassessment of the
mix and effectiveness of U.S. assistance to Ethiopia in order
to support U.S. foreign policy objectives. In support of our
objective of sustainable growth in Ethiopia, Post recommends
a substantial increase in assistance for targeted
agricultural development, continued funding for democracy and
governance (despite likely new prohibitions),formal
negotiated agreements for PEPFAR and emergency food aid, and
enhanced dialogue with the GoE at the highest levels on the
need for genuine partnership and accountability.


14. (SBU) U.S. assistance to Ethiopia can be more supportive
of U.S.foreign policy objectives of building regional
stability and safeguarding against external threats. Post
recommends:

a) An increased and unified "full court press" of dialogue
with the full participation of Washington and hold the GoE
accountable for ensuring an enabling environment for donor
partner assistance and facilitating assistance programs;

b) A substantial increase in assistance for agricultural
development targeting the most vulnerable, conflict-prone,

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and food aid-dependent areas;

c) Introduction of formal agreements for PEPFAR, emergency
food aid, and any new assistance programs across the board,
particularly those involving NGOs;

d) Maintenance of current levels of assistance to implement
health and education reforms, especially girls' education and
family planning, as well as for DG.

Eritrea, Somalia, and Sudan from the Ethiopian Perspective
-------------- --------------


15. (C) Meles appears content to allow the status quo with
Eritrea continue with no resolution of the border impasse,
and he would not welcome any new attempt by the UNSC to
engage on this issue. For Meles, the Algiers Agreements and
the EEBC decision are "dead," having expired when President
Isaias ejected UN peacekeepers from Eritrea in 2008. He is
disappointed that the UNSC did not take action against Asmara
over its unprecedented expulsion of the UN peacekeeping
force. Meles has repeatedly told U.S. officials that the
issue can be revisited when there is a new government in
Asmara, possibly under a new mechanism to demarcate the
border. He believes that he "can wait Isaias out," and that
sooner or later, the Eritrean people will rise up and depose
Isaias.


16. (S/NF) Meles believes that the international community
is not doing enough to support the fledgling Somalia
Transitional Federal Government (TFG). Meles is highly
supportive of a UN peacekeeping mission for Somalia, and he
believes that Washington waited too long to support such a
mission. Although Meles has little faith that the TFG under
President Sheikh Sharif will succeed, Meles is cautiously
supporting the TFG and trying to avoid directly undermining
the government. Ethiopian troops completely withdrew from
Somalia in February 2009, but the Ethiopian government is
providing intelligence and military support to Somali groups
committed to fighting al-Shabaab including the TFG, the
Rahanweyn Resistance Army (RRA),and Al Sunnah Wal Jamah
(ASWJ).


17. (C) Meles Zenawi views stability in Sudan to be
critical for Ethiopia's national security, and he fears that
the side-effects from renewed civil war in Sudan will spill
into Ethiopia as a result of a collapse of the CPA. Meles
would prefer that Sudan remained unified because he believes
that an independent South Sudan would quickly become another
central African state failure. At the same time, more
instability in Sudan increases the degree to which Sudan can
serve as a sanctuary for Eritrean-supported anti-Ethiopian
insurgents who already use poorly patrolled Sudanese
territory to infiltrate into Ethiopia. Access to Port Sudan
and Sudanese petroleum products makes the North a key
economic partner for landlocked Ethiopia. Meles is opposed
to the ICC indictment against President Bashir.
YAMAMOTO