BILLION DOLLAR ARMS DEAL DENIED

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000432 SIPDIS DEPT FOR NEA/ARP:AMACDONALD AND INR TREASURY FOR SAMANTHA VINOGRAD OSD FOR BRIAN GLENN E.O. 12958: DECL: 03/07/2019 TAGS: PREL PGOV PARM ETRD EFIN RU YM SUBJECT: BILLION DOLLAR ARMS DEAL DENIED Classified By: Ambassador Stephen A. Seche, for reasons 1.4(b) and (d) Summary -------------- ¶1. (C) Yemen's Deputy Prime Minister (DPM) for Economic Affairs and the Russian Ambassador to Sana'a both strongly denied press reports of a USD 1 billion arms sale negotiated during the February visit of President Saleh to Moscow. According to the DPM, the ROYG sought forgiveness of Yemen's USD 1.2 billion debt to RUSSIA in exchange for a roughly equivalent amount in arms purchases, but did not achieve its goal. Throughout the process, the DPM said he and others tried to inject a voice of fiscal moderation but still were forced to accept a transaction approaching USD 100 million. End Summary Wildly Inaccurate Press Reports -------------- ¶2. (C) Press reports of a deal between the ROYG and the Russian government to purchase over USD 1 billion in weapons including MiG-29 and MiG-35 fighter jets and T-72 tanks are wildly inaccurate, according to Yemeni Deputy Prime Minister for Economic Affairs Abdulkarim al-Arhabi. Arhabi, who is also Minister of Planning and International Cooperation, denied the reports, which originally appeared in Yemen's official news agency and were repeated in an interview with Saleh in the Russian media. In a March 9 meeting with the Ambassador, Arhabi said that the total value of the deal, which included APCs, other vehicles, and training, was USD 95 million. ¶3. (C) Russian Ambassador Vladimir Trofimov told the Ambassador on March 8 that the deal consists of 400 trucks and 100 APCs and was a cash sale. He said that Saleh came to Moscow with a long shopping list, including MiG-29s, but that Russia is unable to provide them at this time and likely will be unable to do so for at least 10 years. Its production line is already fully committed to sales to India, Indonesia and others. Trofimov pointed out that the Yemen Air Force already has 30 MiGs but only 9 pilots (including two Iraqis) to fly them. Yemen also already owes the corporation that builds MiG aircraft money from previous sales, and the company, a private entity, is unwilling to extend the country more credit. ¶4. (C) Trafimov pointed out that this sale comes in the context of Russia's traditional relationship with Yemen as a military supplier, a relationship that he said is not going to change. Yemen's armed forces overwhelmingly use Soviet and Russian weapons and ammunition. 45 Yemeni officers are trained in Russian military institutes each year and 51,000 Yemenis are graduates of Russian universities and academies. An Optimistic Plan -------------- ¶5. (C) The claims of a USD 1 billion deal probably arose from a plan hatched by the ROYG in advance of the trip. Arhabi chaired a ROYG committee that reviewed the need for the arms deal. He said there was a "big fight" between the MOD, which presented a long list of requirements, and those, like him, who argued that Yemen could only afford "absolute basic needs," and who further insisted that there should be "no fresh money whatsoever" used, whatever the purchase turned out to be. In this discussion, Arhabi and others sharing his view argued that a country whose economy is in serious trouble and that is dependent on significant foreign assistance could not afford to spend large sums of money on weapons. From this discussion emerged the plan, modeled on the Libyan and Algerian experiences, to get Moscow to waive the USD 1.26 billion in debt in exchange for a commitment by Sana'a to purchase arms over the next 7-8 years. This led to a committee of ROYG officials from the MFA, Central Bank of Yemen, and Ministry of Planning and International Cooperation to go to Moscow to try and negotiate the terms for this arrangement, but it failed. ¶6. (C) Arhabi told the Ambassador that a joint committee will be formed to continue these negotiations. An optimistic Deputy Minister of Finance Jalal Yaqoub told Econoff on March 8 that RUSSIA would "soon" agree to forgive Yemen,s USD 1 billion bilateral debt gradually, over a period of ten years, in exchange for arms purchases that would also total USD 1 SANAA 00000432 002 OF 002 billion over the same period. Comment -------------- ¶7. (C) Arhabi described "relentless MOD pressure" for massive arms purchases needed to face Yemen's internal conflicts. His victory was a limited one, as the USD 95 million commitment made in Moscow will severely strain the ROYG's budget at a time when all ministries are being ordered to cut expenditures by 50 percent. SECHE