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Cablegate: Timor-Leste Leaders React to Mcc Decision

VZCZCXRO6885
PP RUEHCHI RUEHCN RUEHHM
DE RUEHDT #0308/01 3502338
ZNR UUUUU ZZH
P 152338Z DEC 08
FM AMEMBASSY DILI
TO RUEHC/SECSTATE WASHDC PRIORITY 4169
RUEHLMC/MILLENNIUM CHALLENGE CORP PRIORITY
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBY/AMEMBASSY CANBERRA PRIORITY 1239
RUEHKO/AMEMBASSY TOKYO PRIORITY 0913
RHHMUNA/USPACOM HONOLULU HI
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHLI/AMEMBASSY LISBON PRIORITY 1084
RUEHDT/AMEMBASSY DILI 3661

UNCLAS SECTION 01 OF 02 DILI 000308

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: TIMOR-LESTE LEADERS REACT TO MCC DECISION

REF: DILI 281

DILI 00000308 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, the 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

DILI 00000308 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 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
the 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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