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Viewing cable 08DILI308, TIMOR-LESTE LEADERS REACT TO MCC DECISION

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Reference ID Created Released Classification Origin
08DILI308 2008-12-15 23:38 2011-08-25 00:00 UNCLASSIFIED Embassy Dili
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