US embassy cable - 05MANILA2278

C O N F I D E N T I A L SECTION 01 OF 04 MANILA 002278 
 
SIPDIS 
 
STATE FOR NEA/NGA AND EAP/PMBS 
STATE ALSO FOR S/CT, DS/T/ATA, AND INL/AAE 
DOJ FOR OPDAT, ICITAP, OIA, AND NIC 
NSC FOR GREEN 
DOD/ISA/AP FOR BG ALLEN 
 
E.O. 12958: DECL: 05/18/2015 
TAGS: PREL, PTER, MARR, MASS, MCAP, ECON, ETRD, EFIN, KISL, 
OVIP (ZOELLICK, ROBERT), KIPR, EAIR, EAID, SA, RP 
SUBJECT: THE DEPUTY SECRETARY'S MAY 5, 2005 MEETING WITH 
PHILIPPINE CABINET OFFICIALS 
 
REF: A. MANILA 1748 
     B. MANILA 1961 
     C. MANILA 2042 
     D. MANILA 5502 
 
Classified By: Political Officer Paul O'Friel 
for reasons 1.4.(b) and (d) 
 
1.  (U) May 5, 2005; 9:00 a.m.; Manila, the Philippines. 
 
2.  (C) SUMMARY. Anti-terrorism legislation will be on top of 
the Arroyo Administration's agenda once the Philippine 
Congress passes a value added tax.  GRP officials told Deputy 
Secretary Zoellick they hope to rally support around an 
 
SIPDIS 
Administration bill, and believe they have enough votes to 
pass legislation.  The GRP is optimistic about prospects for 
peace with the Moro Islamic Liberation Front (MILF), with 
some predicting an agreement before year's end.  Divisions 
within the MILF may cause the organization to splinter once 
an accord is signed, with more radical elements continuing 
the fight.  Defense Secretary Cruz vowed to the Deputy 
Secretary that if this happens, the Armed Forces of the 
 
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Philippines would go after all those who do not support 
peace.  Philippine National Security Advisor Gonzales worried 
about the impact of Wahabi proselytization in the 
Philippines, but admitted that the presence of one million 
Filipino workers in Saudi Arabia puts the GRP in a difficult 
position.  The Philippine government is committed to pursuing 
reform of the Philippine National Police, similar to the 
comprehensive effort now underway in the Armed Forces of the 
Philippines.  Economic prospects appear to be looking up, 
with the passage of a "sin" tax, aggressive efforts to 
increase revenues, a more serious campaign against 
corruption, and an improved investment picture.  The 
Philippines hopes to have completed revisions to its 
Millennium Challenge Account submission in time for the 
upcoming meeting between the Secretary and Foreign Secretary 
Romulo.  END SUMMARY. 
 
COUNTERTERRORISM OVERVIEW 
------------------------- 
 
3.  (C) Executive Secretary Ermita opened the meeting with 
senior members of President Arroyo's cabinet by asking 
Philippine National Security Council (NSC) staff to provide 
the Deputy Secretary an overview of GRP counterterrorism 
efforts.  Having faced insurgency and terrorism since the 
1960's, the Philippines was now confronted with the danger of 
Islamist extremism.  As rival visions of Islam struggled for 
dominance in the Muslim world, Jihadists were keen to export 
their ideology, and threatened to turn the Philippines into a 
proxy battlefield.  To cope with this and other threats, the 
Philippines had established in March 2004 the Anti-Terrorism 
Task Force (ATTF).  Grouping some 46 agencies, the ATTF 
allowed the GRP to marshal and target scarce resources in the 
anti-terrorism fight.  As of May 2005, the ATTF claimed to 
have captured or killed 115 terrorists, including 20 Jemaah 
Islamiyah (JI) operatives. 
 
4.  (C) International support had proven key to this effort. 
US, British, and Japanese training had improved capabilities, 
but the GRP remained concerned about the changing nature of 
the threat.  Terrorists were developing expertise in bomb 
making and the use of chemical agents, and vehicle-borne 
explosives were growing dangers. 
 
5.  (C) Thanking Executive Secretary Ermita for this 
overview, the Deputy Secretary stated he had come at the 
beginning of the second Bush Administration to consult with 
the Philippines and other close partners in the region on 
economic, political, and security issues.  Agreeing that the 
fight against terrorism was a long-term struggle, Zoellick 
noted that while significant progress had been achieved, it 
was important to keep up the momentum.  He asked Ermita for 
an update on several issues: 
-  Anti-terrorism legislation; 
-  Peace negotiations with the Moro Islamic Liberation Front 
(MILF); 
-  A possible mediating role for the US Institute of Peace 
(USIP) in the negotiations; 
-  Defense reform; and, 
-  Comprehensive police reform. 
 
ANTI-TERRORISM LEGISLATION IN THE WORKS 
--------------------------------------- 
 
6. (C) Ermita said the Arroyo Administration was determined 
to pass an anti-terrorism bill once Congress had completed 
action on a value added tax.  The DND and the Philippine NSC 
had agreed on draft legislation and were now coordinating 
with key House and Senate staff to rally support behind it. 
National Defense Secretary Cruz, who is leading the fight, 
stated he believed the Arroyo Administration would have 
enough votes on the floor to pass the bill when it came to a 
vote.  Cruz noted the Administration's bill was a compilation 
of UN proposals for effective anti-terrorism legislation that 
included a "sprinkling" of elements from the UK's Prevention 
of Terrorism Act.  Cruz dismissed challenges from the left, 
saying the prospective law would strike a good balance 
between preserving rights and giving the state the legal 
weapons it needed to fight terrorism. 
 
DEALING WITH THE MILF 
--------------------- 
 
7.  (C) Ermita said he was optimistic his government would 
sign an agreement with the MILF before the end of 2005.  The 
resumption of formal talks in Kuala Lumpur under the auspices 
of the Malaysian government had succeeded in tackling the 
difficult issue of "ancestral domain."  The GRP, Ermita said, 
was keeping tabs on MILF support for the JI.  While the MILF 
as an organization had disassociated itself from terrorism, 
renegade commanders persisted in providing sanctuary to the 
JI and ASG.  The threat of designation by the United States 
as a foreign terrorist organization appeared to have had an 
impact on the thinking of the MILF leadership, Ermita noted. 
 
8.  (C) Defense Secretary Cruz stated that during the latest 
round of talks in Kuala Lumpur MILF negotiators appeared to 
have set aside their previous insistence on an Islamic 
republic, and seemed ready to work within the framework of 
the existing Indigenous Peoples Rights Act, which would allow 
the Bangsamoro people to exploit natural resources located in 
the Autonomous Region in Muslim Mindanao (ref A).  Cruz said 
it was critical for the Bangsamoro people to believe they 
could legitimately elect political leaders who reflected the 
popular will.  Granting them political power and economic 
rights offered the best hope for a long-term solution. 
 
9.  (C) Ermita observed that MILF Chairman Murad had 
constantly pressed him on how and when development assistance 
could be funneled to Moro communities through the Bangsamoro 
Development Agency (BDA).  USAID and the USG had been very 
helpful in providing assistance to Moro National Liberation 
Front (MNLF) areas following the signing of the 1996 peace 
accords, Ermita stated, and this formula could be replicated 
with the MILF once a peace accord is signed. 
 
10.  (C) Cruz said he believed Murad could bring the majority 
of the MILF with him in a peace accord, but a minority might 
splinter off and continue to fight.  If this happens, the AFP 
will go after them, Cruz vowed.  National Security Advisor 
Gonzales pointed out two trends existed within the MILF -- 
the secular, represented by Chairman Murad, and the 
religious.  Hashim Salamat had started the process of 
"Islamization" within the organization.  "This is a tendency 
that needs to be checked," Gonzales said, calling the process 
worrying.  Apparently less confident about the prospects for 
an agreement in the near-term, Gonzales said, "What counts is 
the cease-fire; what we sign is not as important as the 
peace." 
 
11.  (C) Ambassador Ricciardone noted the Embassy and USAID 
were in direct contact with the BDA and the MILF regarding 
development assistance, and stood ready to provide help to 
MILF areas free from terrorism.  However, elements of the 
MILF continued to allow the JI and ASG to seek shelter in 
their areas.  It made sense to identify these groups or 
individuals and list them under the UN 1287 process.  Given 
Malaysian sensitivities, perhaps the GRP could sound them out 
first on this point, and get them "to help lead the charge," 
the Ambassador suggested.  The Deputy Secretary stressed our 
intent to be helpful. 
THE SAUDI QUESTION 
------------------ 
 
12.  (C) Noting National Security Advisor Gonzales' concern 
about the possible negative influence of the Wahabi sect in 
the Philippines, Ambassador Ricciardone said he had spoken 
with Saudi Ambassador Mohammed Wali about this problem. 
Recent evidence seemed to suggest that Saudi nationals were 
moving money into the Philippines and passing it to JI 
operatives.  Mayor Sema of Cotobato City appeared to be 
implicated in this traffic, which had recently caused USAID 
to suspend a major road construction project in his town (ref 
B).  The United States was concerned that suspected Saudi 
terrorism financiers had been allowed to leave the 
Philippines, as had happened in three recent cases (ref C). 
While Ambassador Wali had given assurances that these 
individuals were taken into custody once they returned to 
Saudi Arabia, we are uncertain whether this was true. 
Gonzales agreed on the need to address this issue, adding 
that the Philippines also wanted to screen Muslim 
missionaries.  However, the presence of one million 
Philippine workers in Saudi Arabia put the GRP in a difficult 
position. 
 
DEFENSE REFORM 
-------------- 
 
13.  (C) On defense reform, Cruz said his goal was to upgrade 
the capabilities of the Armed Forces of the Philippines (AFP) 
in order to allow it to defeat the internal security threats 
facing the country within six to ten years.  The program to 
do so consisted of four thrusts. 
 
- Philippine Defense Reform (PDR), which was focused on 
systematic structural change, was the largest component. 
 
- The Capabilities Upgrade Program (CUP) aimed at modernizing 
the AFP's equipment. 
 
- A political settlement with the MILF would free up 
resources, which would allow the AFP to defeat the Communist 
insurgency. 
 
- With the help of its allies, the GRP would continue to 
upgrade its capabilities to target the JI and ASG. 
 
 
REFORMING THE 
PHILIPPINE POLICE ALSO A PRIORITY 
--------------------------------- 
 
14. (C) Ermita said his government hoped to pursue a similar 
type of strategic reform effort with the Philippine National 
Police (PNP), which having once been part of the AFP shared 
many similar problems.  Also engaged in the fight against 
terrorism, as well as grappling with the challenges of 
criminality, transnational crime, and narcotics, the PNP 
needed a lot of assistance as it struggled to remake itself 
in a comprehensive effort.  The Deputy Secretary said while 
there were limits on US resources, he would follow up to see 
what could be done. 
 
TRADE AND INVESTMENT ISSUES 
--------------------------- 
 
15.  (C) Finance Secretary Purisima provided a quick overview 
of the economy.  The Philippines was clearly in a difficult 
situation, with about 90-percent of government tax revenue 
going to debt service.  To deal with this challenge, the 
Arroyo Administration was focused on a series of key 
objectives: reforming the tax structure; improving tax 
efficiency; tightening budget controls; and, privatization. 
The newly passed "sin" tax looked like it would generate 
considerable revenues, Purisima predicted.  Aggressive 
prosecution of tax cheats would continue until habitual 
evaders changed their mindset, as would the crack down on 
smuggling and fight against graft and corruption.  Purisima 
claimed spending controls had already lowered the budget 
deficit, but admitted that squeezing the budget could squeeze 
growth.  Responding to the Deputy Secretary's question on 
whether the Philippines would revise its Millennium Challenge 
Account submission, Purisima said, "We hope to have something 
in time for the Romulo-Rice meeting." 
 
16.  (C) Trade Secretary Santos added investment had grown 
last year, with sustained interest by Japan, Taiwan, and 
China.  The mining sector offered strong potential.  Santos 
said he regretted the Philippines remained on the Special 301 
Priority Watch List, but was hoping that the mid-cycle review 
would prove positive.  The Deputy Secretary noted optical 
media pirating issues remained a problem for the Philippines, 
and would have to be resolved.  He added Philippine 
government policies on air cargo rights and other questions 
built up over time, creating a negative image.   Resolving 
some of these issues would resonate positively in the global 
business community. 
 
17.  (U) Participants: 
 
U.S. 
Deputy Secretary Robert Zoellick 
Ambassador Francis Ricciardone 
Deputy Assistant Secretary Marie Huhtala 
D Executive Assistant Ross Wilson 
Deputy Chief of Mission Joseph Mussomeli 
Political Counselor Scott Bellard 
JUSMAG Chief Colonel Mathias Velasco 
Christian Castro, D Special Assistant for EAP 
Christine Davies, D Special Assistant for Public Affairs 
Adam Ereli, Public Affairs 
Paul O'Friel (Notetaker) 
 
GRP 
Executive Secretary Eduardo Ermita 
Secretary of National Defense Avelino Cruz 
 
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National Security Advisor Norberto Gonzales 
Secretary of Finance Cesar Purisima 
 
SIPDIS 
Secretary of Trade and Industry Juan Santos 
 
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Acting Secretary of Foreign Affairs Edsel Custodio 
BG (ret.) Cesar Garcia, Director General, National 
Intelligence Coordinating Agency 
LTG (ret.) Victor Mayo, Deputy Director General, National 
Security Council 
Assistant Secretary for American Affairs Ariel Abadilla 
 
18.  (U) D Staff has reviewed this telegram. 
 
Visit Embassy Manila's Classified website: 
http://www.state.sgov.gov/p/eap/manila/index. cfm 
MUSSOMELI