ETHIOPIA: FY10 PROHIBITION ON ASSISTANCE AND

UNCLAS SECTION 01 OF 02 ADDIS ABABA 000083 SENSITIVE SIPDIS DEPARTMENT FOR EEB/IFD/OMA - BSAUNDERS AND JWINKLER AND EEB/CBA - DWINSTEAD USAID FOR AFR/EA HELLYER AND DALTON DEPT PASS TO USTR FOR PATRICK COLEMAN, CECILIA KLEIN, AND BARBARA GRYNIEWWICZ DEPT OF COMMERCE WASHDC FOR ITA MARIA RIVERO DEPT OF TREASURY WASHDC FOR REBECCA KLEIN E.O. 12958: N/A TAGS: EAID ECON EFIN PREL ET SUBJECT: ETHIOPIA: FY10 PROHIBITION ON ASSISTANCE AND BUDGET TRANSPARENCY REF: A. STATE 1923 ¶B. 09 ADDIS ABABA 2497 ¶C. 09 ADDIS ABABA 2556 ADDIS ABAB 00000083 001.2 OF 002 ¶1. (U) This cable is a Ref A response cable regarding questions on Ethiopia's fiscal transparency and USG FY2010 assistance. ¶2. (SBU) Ethiopia's central government is slated to received USG assistance through the Department of State, Foreign Operations, and Related Programs Appropriations Act in fiscal year 2010; however, the majority of USG assistance is not channeled through the central government. Directed USG assistance to the central government includes USAID funded technical assistance to the Ministry of Trade and Industry to support Ethiopia's accession to the World Trade Organization (WTO),ongoing capacity building programs aimed at improving the operations of Parliament and the National Election Board, and a Supreme Court program that is working to bolster judicial independence. In addition, International Military Education and Training (IMET) and Foreign Military Financing (FMF) funds will provide U.S. military course instructors for the Ethiopian Defense Command and Staff College and enable the Ethiopian military to maintain its vital role in counter terrorism and international peacekeeping operations. ¶3. (SBU) Ethiopia's budget information is regularly published and disseminated at the direction of the government. The budget and its income/expenditure details are available in the public government gazette (Federal Negarit Gazeta) and on the Ministry of Finance and Economic Development's website (www.mofed.gov.et/index.php? option=com content&view=article&id=25&itemid=33). Ethiopia does not, however, have specific laws or regulations governing the public disclosure of revenues and expenditures in national budgets. There are no independent auditors of government budget data, so information is taken at face value. International economists generally focus their criticism on the number of extra-budgetary items that are omitted from the national budget. Notably, the national budget does not include the over 100 state-owned enterprises (SoEs) or the over 70 "endowment" companies owned by the ruling political party. The omitted SoEs include large entities such as Ethiopian Airlines, Ethiopian Telecommunications Corporation (ETC),Ethiopian Shipping Lines (ESL),and Ethiopian Electric Power Corporation (EEPCo). ¶4. (SBU) In the past year, there have not been any events that affected Ethiopia's budget transparency and the Government of Ethiopia (GoE) has not made any steps towards improving its fiscal transparency. ADDIS ABAB 00000083 002.2 OF 002 In response to post's October 2009 demarche, State Minister of Finance and Economic Development Mekonnen Manyazewal maintained that he does not have access to the SoEs' books either, but has full confidence in the boards of directors who operate those enterprises (Ref B). He argued that the USG should reconsider if full transparency is the best policy in all business contexts. Ministry of Foreign Affairs Acting Director General for Europe and Americas echoed the GoE concern about revealing sensitive proprietary information of certain SoEs. In October 2009, the International Monetary Fund (IMF) confirmed to post that despite IMF pressure the Ethiopian Government refuses to budge on opening up the books of the SoEs and its requests often invoke strong negative reactions from GoE officials (Ref C). The IMF unwillingly relies on GoE data because there are no other reliable figures and is concerned about Ethiopia's increasing public debt. ¶5. (SBU) In mid-2009, post outlined a strategy to promote improved budget transparency. This strategy included two parts: (1) apply diplomatic pressure on GoE officials underscoring the budget transparency requirements mandated by Congress and how it ties into eligibility to receive USG assistance; (2) leverage U.S. votes on IMF and World Bank projects/programs to obtain access to the financial records of SoEs. Regarding part one of the strategy, post has continually delivered the message to GoE officials regarding Ethiopia's need to comply with USG fiscal transparency guidelines; however, this message has fallen on deaf ears and only seems to aggravate relations. In terms of part two of the strategy, post is not aware of any relevant IMF or World Bank projects/programs that the U.S. could have leveraged its vote on in the second half of 2009. Looking forward to 2010, post would recommend focusing USG efforts on part two of the strategy, since part one has not produced the desired results and the GoE believes donors will not pull out of a highly-impoverished country such as Ethiopia. YATES