US embassy cable - 05SANAA328

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000328 
 
SIPDIS 
 
E.O. 12958: DECL: 02/14/2015 
TAGS: EFIN, EINV, KMCA, KMPI, PGOV, YM, KBIO, DOMESTIC POLITICS 
SUBJECT: POWERFUL FINANCE MINISTER AL-SALAMI ON THE 
CHOPPING BLOCK? 
 
Classified By: Ambassador Thomas C. Krajeski for reasons 1.5 b and d. 
 
1.  (C) Summary.  Time may be up for Finance Minister 
al-Salami.  Rumors are spreading throughout Sanaa that 
President Saleh will remove the Minister from office in an 
upcoming cabinet shuffle.  A number of small but significant 
political losses for Salami appear to give teeth to this 
rumor.  Salami, who has long been unpopular with the general 
public, has recently become the target of personal attacks 
from the press and other ROYG officials.  Reform minded ROYG 
officials, including Hafiz al-Mo'ayed at the Agricultural 
Bank, seem willing to take him on, perhaps because they sense 
Salami no longer has the support of President Saleh.  There 
have been prior rumors of a cabinet shuffle that have not 
come to fruition, and many ROYG officials have been counted 
out, only to be rehabilitated.  Nevertheless, there are 
significant indicators that Salami's power base, which rests 
on his control of the ROYG purse strings, has become too 
large for President Saleh's taste.  End Summary. 
 
--------------------------------- 
Saleh's Support for Salami Waning 
--------------------------------- 
 
2.  (C) Minister of Finance Alawi Saleh al-Salami has 
dominated the ROYG through control of its purse strings for 
nearly two decades.  He has held the positions of Finance 
Minister or Central Bank of Yemen (CBY) Governor since 1986, 
and has had the added title of Deputy Prime Minister since 
2001.  In recent days, however, Salami has suffered some 
political setbacks, and rumors abound that he will soon be 
removed from office, with most predictions pointing to a 
cabinet reshuffle this spring. 
 
3.  (C) In early February, President Saleh reached into the 
MOF and demoted Salami's chief of staff and right-hand-man, 
Saleh Sha'aban.  According to former MP Saadaldeen Talib, 
Sha'aban now retains only the formal title of Deputy Minister 
for Planning, however, no such planning office exists on the 
MOF's organizational chart.  When Salami recently tried to 
remove some top officials in the Customs Authority, Saleh 
prevented him from doing so.  President Saleh also recently 
removed Mohammed Atieg (al-Salami), Salami's live-in 
son-in-law.  Atieg who headed IT projects at the MOF and CBY 
was renowned for demanding large personal commissions from 
bidders on IT projects.  At MOF, Atieg was responsible for 
the Accounting Financial Management Information System 
(AFMIS), a donor-funded project to bring transparency to the 
budgeting process.  AFMIS has been plagued by delays and cost 
overruns, and IMF and World Bank officials complain of 
corruption and mismanagement. 
 
4.  (C)  The opposition and independent press has begun 
publishing increasingly bold articles about corruption at the 
Finance Ministry.  On December 27 "al-Shumo'a" featured a 
picture of Salami and MOF colleagues on the back page and 
cited "financial and administrative corruption."  The 
recently demoted Sha'aban is reported to have arranged a 
number of large-scale corrupt transactions while under 
Salami's protection. 
 
-------------------------------- 
Reformer Mo'ayed a New Favorite? 
-------------------------------- 
 
5.  (C) Salami is locked in another high-profile power 
struggle with Agricultural Bank Chairman Hafiz al-Mo'ayed. 
Salami removed Mo'ayed as head of the Customs Authority, 
where he was know as a reformer.  Salami placed Mo'ayed at 
the failing Agricultural Bank.  However, instead of sinking 
with the bank, Mo'ayed has managed to improve the bank's 
fortunes.  According to the local press, the ROYG recently 
increased the bank's capital, allowing it to expand its 
business from narrow agricultural investments to broader 
development loans.  The bank was renamed the Rural 
Development Bank, and given increased independence from the 
MOF. 
 
6.  (C)  Many believe that Mo'ayad's rise has infuriated 
Salami, who accused him of embezzling 400 million Yemeni 
Riyals (2.1 million dollars) from the Yemeni Soccer 
Federation.  (Note:  Mo'ayad served as Vice Chairman in the 
Federation with Mohammed Abdulleh al-Qadi, a notoriously 
incompetent relative of the President.  Qadi was head of the 
government-owned Yemen Drug Company--now bankrupt, and is 
currently an MP.  The Federation's accounts are closed, and 
there is no clear record of what happened to the funds. End 
Note).  Some ROYG insiders, however, now believe the 
President is backing Mo'ayad, who is related to him by 
marriage, and there are rumors that he will be the next head 
of the CBY.  On February 13, a confident Mo'ayad told a USAID 
officer, "I will win" against Salami.  There are additional 
rumors that Saleh may pick Mo'ayad to head the CBY, which at 
present is largely directed by the powerful Minister of 
Finance. 
7.  (C) According to an official at the Ministry of Civil 
Service, Salami enraged the President with a recent budget 
proposal.  MOF planned to increase the civil service by a 
total of 4500 positions, 2500 of which were to be created in 
the MOF.  Many of these jobs were slotted for Salami's family 
members and allies.  (Note:  Salami's personal corruption is 
common knowledge in Yemen.  His house alone is worth millions 
of dollars.  End note.) 
 
------------------------- 
End of an Era at Finance? 
------------------------- 
 
8.  (C) The MOF wields tremendous power over other 
ministries, as well as regional and local government, through 
direct appointments and allocation (or non-allocation) of 
funds.  Under Salami, the MOF has become increasingly bold. 
MOF official Ibrahim al-Nahari shared that the Minister seeks 
to swallow up some key functions of other ministries, 
including insurance and trade.  According to Omar Bazara, 
Assistant Sub-Governor at the CBY, the MOF pressures the CBY 
to handle government payroll in place of commercials banks, 
and it is widely assumed that Salami maintains a loyal cadre 
at MOF who pocket false or double paychecks.  Mo'ayad says he 
has been fighting to process teachers' paychecks through the 
Agricultural Bank to free up money for investment, but Salami 
has refused.  Salami is also suspected of falsifying ROYG 
budget data for international consumption by delaying payment 
to ministries and government contracts.  This improves the 
ROYG's balance sheets on paper, but has a negative ripple 
effect on Yemen's investment climate. 
 
9.  (C) Many reformers in Yemen view Salami as a nexus of 
corruption and the obstacle to economic reform.  Lamis 
al-Iryani, Communications Director for the Social Fund For 
Development (a quasi-governmental development body created by 
the World Bank), said that her office recently completed a 
modernization program at the Ministry of Social Affairs.  The 
MSA recorded all welfare recipients on a database, thereby 
avoiding "ghost cases" and other forms of petty corruption. 
When the SFD attempted to expand these accountability 
measures to include external audits, transparent budgeting, 
and processing of employee payroll through a commercial bank, 
the Salami-appointed SFD Financial Manager blocked these 
additional reforms.  MOF appointees have raised similar 
obstacles to decentralization efforts, refusing to transfer 
funds to locally elected councils and thwarting local 
initiatives. 
 
 
10.  (C) Comment.  Salami began as one of the few Yemeni 
technocrats to build his career from within the government, 
rather than depending on tribal ties.  He gained credibility 
with the IMF and World Bank in the late 90's for implementing 
policies of fiscal restraint.  During the years of financial 
reform that followed Yemen's civil war, he managed to 
stabilize the currency and control government spending. 
Rumors about cabinet reshuffles are common and should be 
taken with a grain of salt, but Saleh's recent moves may 
indicate that Salami's star is fading.  The Yemeni public is 
becoming tired of large-scale corruption at the MOF, 
Parliament is demanding reforms, and the President appears 
ready to crack down on Salami's mini-empire of patronage and 
nepotism. 
 
11.  (C) Comment continued.  The depth and permanence of this 
Saleh-Salami spat is uncertain.  Salami may have grown too 
powerful for Saleh's taste, and may have made the mistake of 
cutting the President out of a lucrative deal.  Saleh may 
find Salami a convenient scapegoat and consider sacrificing 
him to appease growing donor dissatisfaction with MOF, 
particularly the World Bank.  One source said that Salami,s 
fate depends on the outcome of Bank President Wolfensohn,s 
February 13 - 17 visit to Sanaa.  No matter what Saleh's 
motives, Salami's departure would be a welcome opportunity 
for those working to expand economic reforms.  Salami,s MOF 
is widely viewed as an impediment to donor efforts to support 
decentralization, fight corruption and encourage investment. 
Of course, if Saleh were to dismiss Salami only to replace 
him with a relative or tribal loyalist, the result could be 
more of the same.  There is momentum building for change and 
Saleh, in replacing Salami, would have an opportunity to 
weigh in on the side of reform. 
Krajeski