US embassy cable - 03SANAA2784

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 002784 
 
SIPDIS 
 
USAID FOR ADMINISTRATOR, ANE/MEA KFREEMAN AND ANE/SPO 
JCARLSON 
 
E.O. 12958: DECL: 11/04/2013 
TAGS: EAID, ECON, PREL, YM, DEMOCRATIC REFORM, ECON/COM 
SUBJECT: USAID NATSIOS EXPLAINS MCA TO PRESIDENT SALEH 
 
 
Classified By: Classified by Ambassador Edmund J. Hull for reasons 1.5 
(b) and (d). 
 
1. (c) Summary: On November 3 USAID Administrator Natsios 
presented Millennium Challenge Account (MCA) criteria to 
President Saleh, and said Yemen could qualify if Yemen 
improved in the "Governing Justly" category.  While initially 
questioning the need for Yemen to make progress on such 
issues as good governance and corruption, Saleh agreed to 
have Post discuss potential reforms with Deputy Prime 
Minister (DPM) and Minister for Planning and International 
Cooperation (MOPIC)  Ahmed Sofan.  Previously, DPM Sofan 
outlined Yemen's development history and  raised the present 
challenges of economic expansion and high population growth 
to Natsios.  Natsios also met with the Minister of Health to 
hear about USAID's health projects and discussed potential 
programs to strengthen local councils with the Governor of 
Aden.  End summary. 
 
2. (c) USAID Administrator Andrew Natsios visited Sanaa 2-4 
November, 2003 and was accompanied by Connie Newman AA/AFR, 
Kate Almquist, Special Assistant for Policy and Joanne 
Giordano, DAA/LPA.   Post's Development team briefed Natsios 
on its development strategy, including activities in health, 
education, agriculture, economic development and democracy 
and governance.  After a brief tour of the Embassy, Natsios, 
Ambassador, USAID Representative (AIDRep), USAID Health 
Specialist and Pol/Econoff (notetaker) flew  to Aden to meet 
with President Saleh, Deputy Prime Minister Sofan, Governor 
of  Aden Yahia al-Shuaibi and Minister of Health Mohammed 
al-Noemi. 
 
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President Saleh Questions MCA Criteria 
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3. (c) After relaying greetings from President Bush and 
Secretary Powell, Natsios told Saleh that President Bush 
 
SIPDIS 
ordered the opening of the Yemen USAID mission to promote the 
bilateral relationship.  Turning to possible areas of 
increased U.S. development assistance, Natsios outlined 
President Bush's Millennium Challenge Account (MCA) 
initiative  Explaining that it was designed to reward a small 
number of countries (12-15), Natsios said the MCA is a new 
concept in development assistance because countries are 
judged in several categories that relate to how well a 
country is governed.  In the MCA categories of "Investing in 
People" and "Economic Growth,"  Natsios said, Yemen does 
well.  However, in the "Governing Justly" category, which 
mainly deals with issues surrounding corruption and 
governance, Yemen falls short.  (Note: Post believes Yemen 
meets the minimum MCA requirement only in the corruption 
indicator of the six  "Governing Justly" criteria.  Any 
action taken by the ROYG to further reduce corruption will 
raise Yemen,s scores in the other five categories.  End 
Note.) 
 
4. (c) Saleh questioned Natsios extensively on the sources of 
information that determine MCA qualification, and said that 
he does not agree with the World Bank opinion of democracy 
and corruption in Yemen.  Adding that "we don't accept the 
idea that there is corruption," Saleh said that everything in 
Yemen happens in "complete transparency" and cited open 
tendering for ROYG contracts and salary increases for judges 
as two of the reforms the ROYG has undertaken.  Criticizing 
the World Bank for sending incorrect information to 
Washington, Saleh said that Yemen is not a Gulf State, "we 
are a poor country and don't have corruption." 
 
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Saleh: CT Cooperation Should Count for Something 
--------------------------------------------- --- 
 
5. (c) Highlighting the ROYG's counterterrorism cooperation 
with the U.S., Saleh complained that the value of USG 
assistance does not match the political cost of supporting 
the U.S. and argued that more assistance should be given to 
Yemen.  Natsios replied that MCA qualification is distinct 
from other forms of USG assistance, such as the type Yemen 
already receives.  MCA, Natsios explained, is intended for 
countries with a proven record of reform and serves as an 
incentive for countries to make politically difficult 
decisions. 
 
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Saleh: Stay Away From the Diesel Subsidy 
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6. (c) Yemen may be considered for MCA, Natsios said, because 
President Saleh and his Ministers have shown that they can 
make tough reforms and that Yemen is close to qualifying. 
Otherwise, Natsios said, we would not be discussing MCA 
qualification.  Blaming his earlier questioning of MCA 
criteria on the effects of his Ramadan fast, Saleh closed the 
meeting by saying that Post could speak with DPM Sofan about 
necessary reforms as long as the diesel subsidy is not 
discussed.  Claiming that there would be "revolution in the 
streets" if the ROYG heeded the World Bank and IMF 
recommendation to cut subsidies, Saleh said reducing the 
diesel subsidy is not politically feasible.  (Background: 
The IMF and World Bank have been encouraging the ROYG to 
reduce the diesel and gas subsidy which costs the ROYG 3% of 
its GDP.  The subsidy is widely believed to do little to help 
farmers reduce costs, but supplies a large smuggling 
business.  Riots occurred when subsidies were reduced on food 
and gas in 1997; however, in 2001 when the diesel subsidy was 
last reduced there was little visible protest because the 
ROYG announced a concomitant pay increase for civil servants. 
 End background.) 
 
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DPM Sofan and Governor of Aden 
------------------------------ 
 
7. (c) Earlier, DPM Sofan described Yemen's development 
history to Natsios, and identified Yemen's 3.5% population 
growth rate and slow economic growth as issues of immediate 
concern.  While commenting that Yemen still had a long away 
to go in democracy and governance areas, Sofan touted recent 
improvement in the good governance category of the World 
Bank's Country Policy and Institutional Assessments (CPIA). 
Natsios praised Yemen's development progress, but added that 
MCA qualification could lead to even more development 
assistance if Yemen improved in such areas as corruption and 
transparency.  When Aden Governor al-Shaubi joined the 
meeting, Natsios and the Ambassador raised the possibility of 
USG assistance to Aden local councils as a way to support 
ROYG decentralization initiatives. 
 
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Health: Key Sector in Development Strategy 
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8. (c) Natsios and Minister of Public Health and Population, 
Dr. Mohammed al-Noemi, agreed on the importance of a lower 
population growth rate if the ROYG is to meet its economic 
development goals, including basic education for all, reduced 
mortality and improved employment opportunities.   (Comment: 
At the current 3.5% growth rate the population will double to 
40 million in twenty years, just about the time that the 
World Bank estimates that Yemen,s proven oil reserves will 
be depleted.  End Comment.)   Natsios told the Minister that 
improved health is a key goal of the USG development program 
in Yemen and that the USG looks forward to assisting the 
Minister in implementing health reforms. 
 
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Comment: MCA Incentive for Democratic Reform 
--------------------------------------------- 
 
9. (c) Comment: While initially questioning Yemen's 
provisional "Governing Justly" scores that may not qualify 
Yemen for MCA in the first year, Saleh seemed to come around 
to Natsios' argument that the amount of money available for 
MCA qualifying countries may be worth democracy and 
governance reforms.  Post has engaged with ROYG interlocutors 
at every level describing what is known about MCA criteria 
and where Yemen needs to show improvement. Natsios' pitch may 
give incentive to President Saleh to heed the growing donor 
push in Yemen for more progress in the areas of democracy and 
governance.  End Comment. 
 
10. (u) Mr. Natsios cleared this cable. 
MISENHEIMER