Cablegate: Scenesetter for Assistant Secretary Hill's Visit

DE RUEHML #3064/01 2020944
P 210944Z JUL 06





E.O. 12958: N/A

1. (SBU) SUMMARY: Chris, the entire US Mission welcomes you
back to the Philippines! We have been busy emphasizing our
partnership in this historic year; upcoming Codels will be a
next stage as will President Arroyo's September trip to
Hawaii. Your visit focuses on outreach in two key areas --
to the military and to the economic sector, as well a meeting
with President Arroyo. She is in a stronger political
position than at any time over the past year, although
scandals continue to circle and concerns grow about the
credibility of the May 2007 elections. Our military
relations remain strong. Philippine Defense Reform moves
forward, as does the new Security Engagement Board. Police
reform is also underway. Our assistance program is making a
real difference in reducing poverty and promoting sustainable
development, especially in Mindanao and the Sulu Archipelago.
The U.S. remains the Philippines' most important economic
partner. While the economy continues to grow by a
respectable 5%, increased foreign investment coupled with
continued economic reforms are needed to achieve stronger
economic growth rates and ultimately reduce poverty. The
recently approved $21 million Millennium Challenge Account
Threshold Program will help contribute to this goal. End


2. (SBU) President Arroyo survived last fall's impeachment
effort and the abortive coup attempt in February that led to
the week-long State of National Emergency. She now faces
another impeachment effort in Congress, but few expect
success. The President's July 24 State of the Nation address
will lay out her priorities for the coming year, likely
concentrating on her plan for creation of four
"supra-regions" as an apparent first step to a kind of
federalism, key legislation to pass (including the
counterterrorism bill and legislation to restore tax
incentives at Clark) and aspects of her economic reform plan.
She may revive Constitutional change proposals.

3. (SBU) Extrajudicial killings -- of leftists, journalists,
judges, lawyers, and suspected drug dealers -- continue at
perhaps record levels. Creation of a new "Task Force Usig"
within the Philippine National Police has done little to stem
this trend or to reassure the public that the GRP is serious
about bringing these culprits to justice.

4. (SBU) President Arroyo continues to press ahead with key
priorities of her substantive agenda, which include:
-- combating corruption and plugging revenue leaks (programs
that the Millennium Challenge Threshold Country program to be
signed July 24 will assist);
-- pursuing peace talks with the Moro Islamic Liberation
Front (MILF);
-- maintaining progress on Philippine Defense Reform (PDR);
-- instituting a transformational program for the Philippine
National Police (which we will assist with the deployment of
a Senior Law Enforcement Adviser in August provided by ICITAP
and funded by INL);
-- pursuing poverty reduction, which we assist with our
multi-faceted and robust USAID program, primarily in Muslim
Mindanao and the Sulu Archipelago;
-- continuing to make Mindanao and Sulu inhospitable for the
Jemaah Islamayah and Abu Sayyaf Group, and working on
civil/humanitarian programs (often in conjunction with
JSOTF-P) to reward communities that have made the choice away
from terrorism;
-- making a renewed push to "eliminate" the New People's
Army with a combination of new military and legal offensives,
as well as a newly funded "hearts and minds" program;
-- pursuing economic and fiscal reform initiatives that will
continue to reduce the budget deficit and improve tax
-- electoral reform (it is not clear how sincere the
electoral reform effort is over the long term, but it is
essential to greater stability).


5. (SBU) The GRP deposited $17.53 million into a Foreign
Military Sales holding account in 2004 for Philippine Defense
Reform (PDR). There are now 11 US Subject Matter Experts on
the ground, and the Filipinos intend to add two more in the
near future to help reform the inspector general's office and
develop strategic planning. In addition to long term
institutional changes, the multi-year Capability Upgrade
Program will upgrade and modernize 72 Philippine Army and 12

MANILA 00003064 002 OF 004

Philippine Marine Corps battalions over the next six years.
The Battalion of Excellence concept focuses on personnel and
logistics programs while also introducing new personnel
policies, new equipment, and better training capabilities as
part of Philippine Defense Reform.

6. (SBU) The Armed Forces of the Philippines is beginning to
see the positive effects of the Maintenance Mobility Program.
Three C-130's are now operational and a fourth is awaiting
depot maintenance. Several efforts are coming together that
will eventually bring a total of 46 UH-1H helicopters to the
Philippines. The AFP purchased 20 reconditioned Hueys from
Singapore, all of which have now been delivered. An
additional six Excess Defense Article UH-1Hs purchased with
national funds are undergoing refurbishment at the DynCorp
facility in Panama City, Florida, and are expected to arrive
this August 2006. The first 10 of 20 UH-1Hs promised by
President Bush during President Arroyo's May 2003 State Visit
to Washington are also undergoing refurbishment at the same

7. (SBU) The bilateral Security Engagement Board (SEB) held
its inaugural meeting on April 21 and for the first time put
US-RP joint counterterrorism efforts within a formal
structure. Modeled after the existing Mutual Defense Board,
the SEB is designed specifically to deal with non-traditional
security issues, notably counterterrorism, maritime security,
disaster relief, and counter-narcotics. This watershed
agreement sets the framework for the GRP-proposed "Kapit
Bisig" (Shoulder-to-Shoulder) counterterrorism activities
focused on civil affairs, capability upgrades, operations,
and specific scenarios for cooperation.

8. (SBU) The outgoing Armed Forces of the Philippines Chief
of Staff has just approved initial stages of courts martial
against about 40 officers and 100 enlisted men allegedly
involved in the February coup attempt.


9. (SBU) The case of four US Marines accused of the November
2005 rape of a Filipina continues to move its way through the
Philippine court system. The GRP has recognized the US right
to custody of the four servicemen, who remain under the
supervision of JUSMAG and III Marine Expeditionary Force
representatives on the grounds of the US Embassy. The
prosecution has now almost finished its case, with the
defense due to make its arguments next. We do not expect a
verdict before sentence. We remain committed to ensuring the
safety and morale of our Marines and continue to raise the
importance of a fair and speedy trial with President Arroyo
and her Cabinet.


10. (SBU) We are the Philippines' largest grant aid donor,
with about $70 million in bilateral economic assistance in
2006. With the Millennium Challenge Corporation's (MCC)
recent June approval of financing for $21 million over a
two-year period for a Threshold Program, this relationship is
growing even stronger. The formal agreement will be signed
on July 26 and aims to improve revenue administration and
anti-corruption efforts in key GRP agencies including the
Bureau of Internal Revenue, the Bureau of Customs, and the
Department of Finance. If the Philippines can demonstrate
the political will to strengthen the rule-of-law and
successfully fight corruption, we could see more domestic and
foreign investment as well as more jobs and growth.

11. (SBU) The U.S. also remains the Philippines' largest
overall trading partner (including both goods and services
combined), with over $16 billion in two-way merchandise
trade. Japan falls slightly behind us. Trade with China,
though only about $6 billion in 2005, grew by about 60% over
the last year. Major U.S. exports are electronics,
machinery, and agriculture. We are also the largest foreign
investor with over $6 billion in assets in a broad range of
manufacturing and service industries, including banking,
insurance, consumer goods, electronics, autos, and

12. (SBU) Over the last year, the Philippines has made
substantial progress in advancing its economic reform agenda.
It reduced its budget deficit from about 4% of GDP to about
2%. Improvements in intellectual property rights protection
led USTR to move the Philippines from the Special 301

MANILA 00003064 003 OF 004

Priority Watch List to the Watch List. The mining industry
is being opened to foreign investment and lapses in certain
tax incentives for foreign investors are being addressed.

13. (SBU) In comparison to other countries in the region,
the Philippine public and private sector investment levels
remain low. This condition inhibits the economy's ability to
sustain growth rates at a level necessary to begin reducing
poverty. The current GDP growth of about 5% is respectable,
but, with a population growth rate of 2.3%, the impact on per
capita income remains elusive.


14. (SBU) USAID/Philippines manages a $900 million
assistance portfolio with an average operating annual budget
of between $65 and $85 million. Nearly 60% of this
assistance goes to conflict-affected areas of Mindanao.
USAID programs focus on transparency and anti-corruption,
public health, improved management of natural resources,
education, and strengthening the peace process in Mindanao by
reintegrating former combatants into the economy, improving
basic infrastructure, promoting economic growth, and
strengthening local government unit service delivery. USAID
is preparing for an increased assistance package to Mindanao
in the event that the GRP and the Moro Islamic Front reach a
comprehensive peace agreement. USAID is also supporting
Philippine electoral reform initiatives and Avian Influenza
and disaster preparedness.

15. (SBU) Our Peace Corps program is the second oldest and
the current large program remains close to the heart of
Filipinos. Our agricultural assistance has played a key role
in developing agricultural research, improving farm to market
capabilities and enhancing trade capacity.


16. (SBU) In your meetings with President Arroyo, Secretary
Teves, and Secretary Favila, and in your public messages, I
suggest you stress the following:

-- The U.S.-Philippine partnership is strong and growing as
we celebrate 60 years of friendship as well as the 100th year
of Philippine emigration to the U.S.
-- Likely U.S. Congressional visitors in August will
reinforce these important ties, as will President Arroyo's
expected participation in a September commemorative event in
-- Our shared history is not as important as our shared
future, based on common values, goals, and interests;
-- We look forward to working with you on the US-ASEAN
Enhanced Partnership initiative as you chair ASEAN over the
next year;

-- Your reform programs for security forces are making great
progress, including in reinforcing the respect for civilian
-- Our assistance programs will continue to be robust and to
focus on Mindanao and the Sulu Archipelago, and we are
prepared to seek additional funding in the event of an
MILF/GRP peace accord;
-- The new Millennium Challenge Threshold Country program is
an excellent opportunity for the Philippines to make real
headway on corruption and revenue enhancement;
-- Your economic reform programs are important steps to
improving the investment climate and encouraging general
economic development;

-- Appreciate the progress on intellectual property rights
but we must continue to work on this issue, especially
regarding pharmaceuticals and the entertainment industry
-- Delighted to see so many US investors here. Important to
work together to solve individual trade problems so that
investors continue to look favorably on the Philippines;

-- Welcome your support for electoral reform to strengthen
people's confidence in the institutions of democracy;
-- Extrajudicial killings undermine confidence in your
Government's commitment to justice and ability to provide
security to its citizens, as well as damage investor

MANILA 00003064 004 OF 004

confidence in the RP as a safe place to do business.
Creation of a new task force is a good first step, but it is
essential to bring the culprits to justice.

Visit Embassy Manila's Classified website: cfm

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