Cablegate: Mcc Eligibility: The Case for Timor-Leste

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P 150910Z DEC 08
FM AMCONSUL CHENGDU
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLI/AMEMBASSY LISBON PRIORITY 0001
RUEHCN/AMCONSUL CHENGDU 3693

UNCLAS SECTION 01 OF 02 CHENGDU 000286

SIPDIS

EAP DAS MARCIEL; MCC VP HEWKO; EEB/IFD/ODF; USAID PDELP/JLANG;
USTR EBRYAN; TREASURY BPELTON

E.O. 12958: N/A
TAGS: PREL PGOV MCC ECON EFIN TT
SUBJECT: MCC ELIGIBILITY: THE CASE FOR TIMOR-LESTE

REF: DILI 281

CHENGDU 00000286 001.2 OF 002

1. On December 12, the Ambassador briefed Finance Minister
Pires, Foreign Minister da Costa, Vice Prime Minister Guterres,
Acting Speaker of Parliament Guterres, the head of Timor's MCC
team, and President Jose Ramos Horta on the MCC Board's decision
to not reselect Timor-Leste as Compact eligible and to offer
Timor instead a Threshold Program. Among the government
leaders, the reaction was subdued. They conveyed clear
disappointment with the outcome, particularly given the hard
work the government made in the past year to maintain
eligibility. The finance minister pointedly noted with
discouragement the board's decision to select the Philippines,
although it too failed the corruption indicator. All were
bewildered with the intent and meaning of a threshold program.
Once we explained the purpose of a threshold program, and the
investment it would represent, they welcomed the continued
commitment by the U.S. in Timor's development. Indeed, the head
of Timor's MCC-team quickly identified anti-corruption,
land/property rights, project management capacity building
(i.e., government effectiveness), and girls' primary education
as possible targets of a threshold program. Both he and the
finance minister inquired how quickly a threshold program could
begin.

2. President Ramos Horta's reaction was sharply negative. Long
a skeptic of the MCC, he again blasted the Compact process as
overly bureaucratic and complex, and unresponsive to
Timor-Leste's needs. The U.S., he opined, should be
straightforwardly generous in its assistance, especially to
fragile states such as Timor-Leste, and not require that they
reach some sort of policy perfection before delivering aid. He
stated it was shocking that the MCC should deny compact
eligibility after the meticulous and strong compliance of the
Gusmao government over the past year with all of the MCC's
compact development requirements. A veteran of MCC's engagement
in Timor over the past four years, the president regretted the
repeated and "wasted" investments in personnel and financial
resources the country has made in trying to secure MCC
eligibility. The decision represents a lack of genuine U.S.
commitment to the development of Timor-Leste, said Ramos Horta.
As such, he told the Ambassador that he would recommend to the
Prime Minister that the offer of a threshold program be
rejected.

3. Additionally, the President said he would propose to the
government that it reverse Timor's agreement on Article 98,
reconsider the bilateral SOFA, and review its policy of strong
support of U.S. positions on human rights in the UN and other
fora. He stated flatly that he would not now consider
recognizing Kosovo in response to U.S. advice.

4. We have not yet been able to speak to the Prime Minister,
the crucial actor in any decision to engage on a threshold
program. He has been briefed on the MCC decision and we have
been told by several that he welcomes the continued engagement
and commitment by the U.S. that a threshold program would
represent. We expect that we will have a chance to speak with
the PM during the course of the coming week, and likely no later
than when we deliver the formal letter from MCC's CEO on the
Board's decision. We will continue to brief and solicit
feedback from other political leaders, including the opposition,
and report as appropriate.

5. We anticipate further negative fallout once the opposition
becomes aware of the decision not to reselect. Fretilin, the
leading opposition party, has been actively using the corruption
issue and, in its view, Timor-Leste's unlikely prospects for MCC
eligibility to criticize the government for many months. For
example, it opposed funding a special MCC team within the
finance ministry to prepare Timor's bid for a compact, stating
that the money will be wasted as Timor will not be found
eligible due to the government's record on fighting corruption.
In a recent public statement, the party's secretary general,
Mari Alkatiri, predicted the MCC Board would not reselect Timor,
and the party is likely to use the Board's decision to again
criticize the Gusmao government, perhaps loudly. This, in turn,
may complicate a determination by the government to accept a
Threshold Program.

6. Comment. We anticipated the President's irritation with the
MCC board's decision, although not its intensity. We suppose he
will now add the MCC to his list of examples of U.S. "failures"
to acknowledge Timor-Leste's record of supporting U.S.
initiatives in international organizations, such as the UN. It

CHENGDU 00000286 002.2 OF 002

will also reinforce his view that U.S. assistance has been
halting and skewed to efforts such as supporting the development
of institutions, such as Timorese political parties ("a luxury
in Timor," said Horta), instead of targeted at effectively
raising the incomes of Timor's rural poor. We can rebut this
view, and will do so. At this point, we do not expect the
government to take his advice regarding the Threshold Program,
but will need to track this closely. Similarly, we believe any
reversal of Timor's stance on Article 98, or a reconsideration
of the SOFA, to be highly unlikely. What may be more difficult
to counter will be his expressed intent to take a different
approach to questions such as recognition of Kosovo. The recent
effort to gain Timor's support for a UN resolution on Iran
demonstrated that Ramos Horta's active approval was crucial.

7. The promise of an MCC compact provided the U.S. with great
potential influence on Timor's development. The public
consultations required by the MCC and held in the past months
throughout Timor-Leste raised awareness among the Timorese
public not only of the critical importance of fighting
corruption, but also of the prospect of a major investment by
the U.S. in Timor's future. The decision to offer a threshold
program instead will be seen by many Timorese, and not only the
President, as signifying a relative decline in our commitment to
Timor's development. The concomitant slippage in our potential
influence occurs in the context of a general reduction in the
sway Timor's development partners enjoy over the government's
decision-making given the maneuverability provided by country's
modest oil wealth. We nevertheless will engage the government
on an early acceptance of a Threshold Program, both to help
prepare Timor to someday again become Compact eligible, and as a
means of retaining influence toward the improvement of the
government's policy and performance. End comment.
KLEMM

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