RIYADH MEETING TO CHALLENGE BOTH GCC AND YEMEN

C O N F I D E N T I A L SANAA 000380

SIPDIS

NEA/ARP FOR ANDREW MACDONALD
USAID FOR CHRIS KISCO

E.O. 12958: DECL: 01/22/2020
TAGS: AID EAGR EAID ECON EFIN ETRD GCC PREL PGOV
PTER, YM
SUBJECT: RIYADH MEETING TO CHALLENGE BOTH GCC AND YEMEN

REF: A. SANAA 318

B. SANAA 131

C. SANAA 107

Classified By: Ambassador Stephen A. Seche for reasons 1.4(b) and (d).


1. (C) The upcoming GCC Secretariat meeting focused on Yemen
presents opportunities, but also challenges in instituting
aid effectiveness ) both on the part of donor countries and
Yemen itself. A willingness on the part of GCC member
countries to pledge funding for Yemen, the poorest country in
the Middle East, has been impeded by a difficulty to disburse
funds since 2006. Yemen, for its part, suffers not only from
a lack of funding, but also from limited absorptive capacity.
With expectations in Yemen running high about the potential
outcomes of the Riyadh meeting, the spotlight will be on both
Gulf countries and Sana'a, each equally challenged to clear
the bottlenecks in disbursing and receiving aid.

FUNDING THE MCKINSEY PLAN, EXTREMIST REHABILITATION CENTER
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2. (C) Going into the Riyadh meeting, we may wish to
encourage the GCC to focus on a few initiatives that could
have a medium- to long-term impact. Riyadh participants
could support a McKinsey plan to help implement three of the
Top Ten Economic Reform priorities: sending Yemeni workers to
GCC countries to increase remittance levels, eliminating
inefficiency and corruption in the power sector, and
modernizing the port city of Aden (REF C). The ROYG is
seeking USD 3.5 million, having already committed to fund a
large portion of the McKinsey plan, namely USD 5 million of
the required USD 8.5 million. In addition, GCC support for
an extremist rehabilitation center would symbolize regional
commitment to counter-radicalization efforts in Yemen as part
of a long-term investment in its neighbor's stability.

SENDING YEMENI WORKERS TO GCC MARKETS
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3. (C) In the near term, GCC commitment to accepting greater
amounts of Yemeni laborers into the Gulf markets would ease
the social pressures resulting from 35-40% unemployment, as
well as help Yemen economically, by allowing Yemenis to send
home remittances to family members. Although it features
prominently in the ROYG's own Top 10 Economic Reform program,
labor mobility has not gained traction with neighboring
governments due to lingering political sensitivities and more
recently, security concerns surrounding the issue. (Comment:
GCC member countries may argue the labor issue in the context
of skilled versus unskilled labor, and may press for
vocational training to forestall the need to accept Yemeni
workers in the short-term. End Comment.)

CHALLENGES FOR YEMEN
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4. (C) For its part, the ROYG needs to articulate a
strategic vision for the international donor community.
Having debuted the Top Ten Economic Reform priorities in
August 2009, the ROYG has done little to implement the
program and even less to involve the donor community in its
execution. The implementation of a few of the Top Ten
priorities, such as taking steps to solve water and
electricity shortages, would send positive signals of the
ROYG's concern to areas of instability in under-governed and
under-served regions.


5. (C) Formally seeking an IMF adjustment program, Yemen
will be tested on its commitment and ability to implement
reforms, which will almost certainly include reducing the
size of the civil service, removing diesel and other
subsidies, and implementing a General Sales Tax. While these
reforms are not new ideas, they have thus far proven
politically and logistically difficult to implement. As
conditions of an IMF program, they may carry more weight and
be more palatable to the Cabinet (and to President Saleh). A
successful IMF program will also signal to donors the
sincerity and seriousness of Yemeni reform efforts and the
ROYG's willingness to implement reforms when necessary.

COMMENT
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6. (C) The most prominent challenge for the GCC will be to
solve problems with Gulf-led aid flows, moving from pledging
support to committing to projects, and eventually, to
disbursing funds. At the same time, facing larger amounts of
funding, the ROYG will be challenged to implement creative
solutions to its own problems of internal security,
corruption, and absorptive capacity. Western donors can help
by providing the GCC with lessons learned from their own aid
programs, and encouraging the Gulf states to adapt
appropriate new mechanisms of aid delivery. END COMMENT.
SECHE