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Cablegate: Tailoring U.S. Assistance to Bilateral Realities

VZCZCXRO1751
PP RUEHROV
DE RUEHDS #1850/01 1900536
ZNR UUUUU ZZH
P 080536Z JUL 08 ZDK ZUI HSD 0042
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC PRIORITY 1216
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHPH/CDC ATLANTA
INFO RUCNIAD/IGAD COLLECTIVE
RHMFISS/CJTF HOA
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 04 ADDIS ABABA 001850

SENSITIVE
SIPDIS

DEPARTMENT FOR F: CCASEY; AF/FO: JSWAN, AF/RSA: LTHOMPSON, AND AF/E:
JWYSHAM
USAID FOR AFR: KALMQUIST; AFR/EA: CTHOMPSON AND LKELLEY; OFDA:
KCHANNELL; FFP: PBERTOLIN
HHS FOR WSTEIGER

E.O. 12958: N/A
TAGS: EAID PREL ABUD ET
SUBJECT: TAILORING U.S. ASSISTANCE TO BILATERAL REALITIES

REF: A) ADDIS ABABA 1674
B) ADDIS ABABA 1672
C) ADDIS ABABA 1571
D) ADDIS ABABA 1439

ADDIS ABAB 00001850 001.2 OF 004


-------
SUMMARY
-------

1. (SBU) Ethiopia is now the second largest recipient of U.S.
foreign assistance in sub-Saharan Africa. However, the
preponderance of this assistance is humanitarian, including food
aid, the President's Emergency Plan for AIDS Relief (PEPFAR), the
Child Survival and Health Program Funds (CSH), of which a
significant share supplements the Government of Ethiopia (GoE)
budget. Relatively little assistance, about five percent of the
total, directly contributes to Ethiopia's internal economic
stability and sustainable growth. Assistance designed to promote
economic stability concentrates on agricultural development --
particularly in vulnerable, conflict-prone areas, in order to
achieve food security -- and on healthcare services. The
increasingly difficult operating environment and growing transaction
costs for non-budgetary foreign aid and, in particular, the proposed
tight restrictions on non-governmental organization (NGO)
implementing partners, call for a reassessment of the mix and
effectiveness of U.S. assistance to Ethiopia in order to support
U.S. foreign policy objectives. In support of our objective of
sustainable growth in Ethiopia, Post recommends a substantial
increase in assistance for targeted agricultural development,
continued funding for democracy and governance (despite likely new
prohibitions), formal negotiated agreements for PEPFAR and emergency
food aid, and enhanced dialogue with the GoE at the highest levels
on the need for genuine partnership and accountability. End
Summary.

----------------------------------------
CHANGING POLITICAL REALITIES IN ETHIOPIA
----------------------------------------

2. (SBU) Ref A details the new reality resulting from the steady
progression of GoE actions restricting the activities of opposition
political parties, media agencies, civil society, and NGOs. Ref B
specifically highlights recent legal and administrative actions by
the GoE that impede NGOs' operations and foreign assistance efforts.
Ref C summarizes the challenges in bilateral cooperation with the
GoE across sectors and agencies.

3. (SBU) Per Ref A, recent and proposed actions by the GoE are
making the delivery and management of U.S. assistance much more
difficult. In the last several months, taxation directives,
internal policies, and the prospect of highly-restrictive NGO
legislation are dramatically increasing the transaction costs of
delivering and managing U.S. assistance, and imposing significant
bureaucratic impediments to the effective administration of such
assistance. Sudden and inconsistent application of taxation to some
U.S. assistance implementers is halting and delaying many programs
and consumes inordinate amounts of staff time due to lack of clarity
and low capacity in finance and revenue authorities. Changing and
discretionary internal rules on registration of NGOS and contractors
are causing delay and increased costs in administration and forcing
Mission staff to hold multiple, often counterproductive, meetings
with low-level officials. The prospects of a draconian NGO law,
recent actions by some agencies to control NGOs, and well-publicized
statements by senior most officials criticizing NGOs (e.g., "They
are making money out of our hunger.") are causing uncertainty and
further impede delivery of both emergency humanitarian and
development assistance. Notwithstanding GoE assurances of
exceptions for U.S. assistance programs, taken together these
actions reflect a deteriorating environment for U.S. assistance
generally, and for NGO implementing partners in particular.

-------------------------
BAD CHANGES AT A BAD TIME
-------------------------

4. (SBU) Ironically, this deterioration comes at a time when the GoE
can least afford it financially or economically. According to the
IMF and other analysts, the GoE faces one of its most challenging
years ever (Ref D). While the GoE is tightening credit expansion
and public expenditure to combat inflation, the economy has to

ADDIS ABAB 00001850 002.2 OF 004


absorb a one billion dollar oil shock, large increases in food
prices, and the effects of the global economic slowdown. The IMF
has urged the PM and Finance Minister to seek major investments and
assistance which would bring in foreign exchange and help ameliorate
the balance of payments situation. In a recent GoE-donor meeting to
review the GoE's poverty alleviation strategy (PASDEP) the Minister
of Finance urged donors to "scale up" aid to help cover the one and
half billion dollar financing gap in the out years of the strategy
(through, of course, more budgetary support rather than NGO
programs). Yet, at the same time the GoE, both willfully and due to
confusion and lack of capacity, is making operations for assistance
providers increasingly onerous and costly. The IMF even subtly
cautioned the leadership on taking actions which could put at risk
any aid flows, including those from NGOs. However, the leadership
appears to be taking actions to the contrary.

-----------------------------------
PRIORITIZING AID FOR MAXIMUM EFFECT
-----------------------------------

5. (SBU) Given this situation, Post asks what are the best, highest
priority uses of U.S. assistance and how can it most effectively be
delivered? Should there be as much funding and, hence, emphasis on
PEPFAR as our largest single U.S. program in light of both
Ethiopia's relatively low infection rate and dramatic development
needs? While there is a humanitarian imperative to continue
emergency food aid -- the largest portion of U.S. assistance, this
year and in many years past -- are we doing enough or obliging the
GoE to do more to promote sustainable development (i.e. in the
agricultural sector) in these most vulnerable areas of the country?
Should we continue to provide assistance, which serves effectively
as indirect budget support for the GoE or supports the GoE's own
statist economic approach? What should be the criteria for
continuing assistance in various sectors and what should we
rightfully expect from the GoE as a good-faith partner? Has U.S.
reliability in providing humanitarian relief assistance to Ethiopia
established a precedent of moral hazard in which the GoE is not
forced to alter its restrictive and statist economic policies
because it knows the U.S. will mitigate the effects of their
failures? In light of Post's sense of the answers to these
questions, now may be the time for a more fundamental interagency
review of our bilateral assistance portfolio toward Ethiopia to
consider a shift to maximize the sustainability of our assistance
and the utility of our foreign assistance toward achieving our
foreign policy objectives.

--------------------------------------------- ----------
PLENTY FOR DISEASE AND HUNGER - WHAT ABOUT DEVELOPMENT?
--------------------------------------------- ----------

6. (SBU) Two programs make up the largest portion of U.S. Assistance
to Ethiopia: PEPFAR, at USD 340 million this year, and PL-480 Title
II emergency food aid, which could reach as much as USD 450 million
this year. While a large portion of PEPFAR provides for technical
assistance and training, a significant portion, USD 60-70 million,
indirectly supports the GoE's budget through health systems
strengthening and facilities construction. Of the PL-480 title II
allocations, approximately USD 150 million in food aid through NGOs
directly supports the GoE's multi-donor Productive Safety Net
Program (PSNP), which provides food and cash to build "productive"
assets, primarily rural works, in most vulnerable areas. While this
program generally uses food aid wisely to build assets (and thus
resilience) in the most vulnerable communities, it lacks adequate
support in agricultural development credit, technologies, and
expertise to accelerate development.

7. (SBU) Other emergency PL-480 food aid is usually delivered based
on a U.S. assessment rather than on inevitably late and
under-estimated GoE appeals. PEPFAR and food aid are political and
humanitarian mandates which will not change. However, despite their
size and importance, neither of these huge programs (with the
exception of the PSNP component) is negotiated with any formal
agreements with the GoE spelling out responsibilities and
expectations. The largest portion of U.S. assistance to Ethiopia
has no clear mutual understanding of responsibility and
accountability.

8. (SBU) Two other substantial portions of U.S. assistance are
USAID's training and grant programs with the Ministries of Health
and Education. These programs are negotiated to support closely GoE

ADDIS ABAB 00001850 003.2 OF 004


priorities in the two sectors while meeting
congressionally-earmarked or USAID priorities, such as reproductive
health, girl's education, etc. In view of our full agreement with,
and support of, the GoE's ambitious reforms in primary health care
and basic education, these programs provide critical non-budgetary
inputs to improve the quality and timely implementation of these
reforms, while fulfilling congressional mandates. In view of
Ethiopia's rapid population growth, both girls' education and
reproductive health programs could be viewed as strategic.

9. (SBU) U.S. support for economic growth is very modest on an
absolute scale, but especially when compared to food aid and social
services. It consists of a range of USAID programs in agricultural
policy implementation (land rights, support to safety net,
agricultural marketing), export promotion (including horticulture,
leather, meat, credit guarantees, assistance in benefiting from the
African Growth and Opportunity Act (AGOA), and supporting Ethiopia's
World Trade Organization (WTO) accession), and improving
livestock/pastoral systems. All these programs involve the GoE at
the advisory level, and some strengthen regulatory agencies;
however, most work directly with private sector producers and
service providers. These are our leanest and our most
cost-effective assistance programs, with substantiated impacts and
improvements in productivity, primarily in commercial agriculture,
which are likely to support sustained economic growth.

10. (SBU) The success of these targeted programs for agriculture and
the dire need for agricultural development in vulnerable,
conflict-prone areas -- and the high cost in food aid without it --
argue for a substantial, but targeted expansion of such programs.
(NOTE: USAID started such an expansion with a large addition of
"famine funds" in FY05-06; however, the limit of two years to use
these funds did not enable the sustained effort necessary for
widespread impact.) Agricultural development is the only way to
improve food security in, and to stabilize, vulnerable,
conflict-prone areas. Making a more significant and sustained
effort in agricultural development in the areas at the "tipping
point" between subsistence and starvation and stability and conflict
will serve U.S. objectives well. It will bring greater internal
stability to the most conflict-prone areas of Ethiopia, while saving
the U.S. the great expense of regular, huge, and increasingly costly
shipments of food aid and other emergency assistance.

------------------------------
DEVELOPMENT WITHOUT DEMOCRACY?
------------------------------

11. (SBU) Finally, U.S. assistance to promote democratization in
Ethiopia, notwithstanding a large earmark in FY06, has never been
substantial; it rose from a few million dollars to almost USD 10
million, then dropped back to USD 4 million in FY08. Nevertheless,
with recent modest funding, Post is leading the discourse in several
GoE-donor fora and has developed a range of USAID programs in
strategic areas of local conflict mitigation, broadened political
dialogue, judicial strengthening, and human rights capacity
building, which could have significant impact. However, the
prohibitions in the proposed NGO law, if passed, would effectively
preclude continuation of these nascent programs, forcing
considerable reduction of democracy and governance (DG) programming
opportunities. While DG programming is clearly necessary in the
run-up to the 2010 elections, there appears little if any scope for
the effective use of increased funding in this area at this time.

--------------------------------------
NEEDED: PARTNERSHIP AND ACCOUNTABILITY
--------------------------------------

12. (SBU) Operationally, senior State and USAID officers at Post
will have to devote greater level-of-effort with senior and working
level officials to negotiate with, and hold accountable, the GoE for
our assistance programs. We must make crystal clear that we cannot
continue programs in which the GoE is not a fully cooperating
partner that ensures an enabling environment, and responsibly
resolves bureaucratic impediments, especially for NGO implementing
partners, in a timely manner. We must use existing agreements and
negotiate new agreements to ensure that expectations and
responsibilities are agreed upon for all programs. Certainly, both
PEPRAR and emergency food aid (beyond the PSNP) - the largest
amounts of U.S. assistance and programs, in which NGOs'
participation is a sine qua non - must include prior agreements

ADDIS ABAB 00001850 004.2 OF 004


which specify expectations and responsibilities.

----------
CONCLUSION
----------

13. (SBU) U.S. assistance to Ethiopia can be more supportive of U.S.
foreign policy objectives of building regional stability and
safeguarding against external threats. Post recommends:

a) An increased and unified "full court press" of dialogue with the
full participation of Washington and hold the GoE accountable for
ensuring an enabling environment for donor partner assistance and
facilitating assistance programs;

b) A substantial increase in assistance for agricultural development
targeting the most vulnerable, conflict-prone, and food aid
dependent areas;

c) Introduction of formal agreements for PEPFAR, emergency food aid,
and any new assistance programs across the board, particularly those
involving NGOs;

d) Maintenance of current levels of assistance to implement health
and education reforms, especially girls' education and family
planning, as well as for DG.

YAMAMOTO

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