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Viewing cable 09SANAA716, ROYG CLAIMS IT IS COMMITTED TO REFORM, REMOVING

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Reference ID Created Released Classification Origin
09SANAA716 2009-04-21 10:13 2011-08-24 01:00 UNCLASSIFIED Embassy Sanaa
VZCZCXRO4932
RR RUEHDE RUEHDH RUEHDIR
DE RUEHYN #0716/01 1111013
ZNR UUUUU ZZH
R 211013Z APR 09
FM AMEMBASSY SANAA
TO RUEHC/SECSTATE WASHDC 1697
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEHC/DEPT OF LABOR WASHDC
UNCLAS SECTION 01 OF 02 SANAA 000716 
 
SIPDIS 
 
NEA/ARP FOR ANDREW MACDONALD, 
USAID FOR CHRISTOPHER KISCO 
 
E.O. 12958: N/A 
TAGS: AID EAGR EAID ECON EFIN ETRD GCC PREL YM
SUBJECT: ROYG CLAIMS IT IS COMMITTED TO REFORM, REMOVING 
FUEL SUBSIDIES 
 
REF: 08 SANAA 256 
 
1.  SUMMARY: In a departure from the recent past, the ROYG 
has demonstrated a new commitment to economic reform by 
revealing plans to remove diesel subsidies and extending 
civil-service reform to the military and security services. 
The reform agenda is being considered at the highest levels 
of the ROYG, including the cabinet and the prime minister. 
Emerging in the aftermath of the third Post-Consultative 
Group (CG) meeting, the ROYG's new reform posture appears to 
be a direct result of united donor dissatisfaction. 
Continued donor coordination and pressure on the ROYG appears 
to be the main hope for pushing economic reform in Yemen. 
END SUMMARY. 
 
FINALLY: THE ROYG WILLING TO REFORM? 
------------------------------------ 
 
2.  Despite being either unwilling or unable to remove fuel 
subsidies in recent years, the ROYG appears newly determined 
to move toward economic reform by eliminating diesel 
subsidies.  According to Deputy Prime Minister for Economic 
Affairs and Minister of Planning and International 
Cooperation Abdulkarim al-Arhabi, a plan with President 
Saleh's full support was submitted to the cabinet for debate 
on April 7.  The plan involves three scenarios to remove fuel 
subsidies, each having different effects upon inflation and 
the poverty level.  On April 13, Prime Minister Ali Mohammed 
Mujawar also reaffirmed the ROYG's commitment to reform, 
echoing Arhabi's words about ROYG plans to remove diesel 
subsidies and citing ROYG plans to extend civil-service 
reform to the military and security services.  Press reports 
in the government media on April 18 indicated that a ROYG 
effort to issue biometric IDs to civil-service employees had 
identified 60,000 people earning two or more salaries and 
28,000 retirees still drawing salaries. 
 
3.  Mujawar told a small group of representatives of key 
donor countries and institutions that, by the end of the 
month, he expects a ROYG decision on removing diesel 
subsidies.  The latest reform effort also takes into 
consideration the negative impact of this decision.  The ROYG 
plans to institute compensatory income support to the poorest 
segments of society along with an accompanying public 
awareness campaign.  Familiar with the debate about removing 
diesel subsidies, Mujawar expressed concern about the 
inflationary impact and the public reaction.  (NOTE: In 2005, 
an attempt to abolish diesel subsidies led to riots.  END 
NOTE.)  Mujawar indicated that the YR 240 billion in savings 
would be diverted to the Social Welfare Fund (SWF). 
 
DONOR PRESSURE AS THE DRIVING FORCE 
----------------------------------- 
 
4.  ROYG movement toward removing fuel subsidies emerged in 
response to intense donor pressure prior to, during, and 
following the 3rd Post-Consultative Group (CG) meeting held 
in Sanaa on April 5.  Western donors have consistently 
criticized the lack of progress in Yemen, particularly in the 
implementation of projects and coordination with the donor 
community.  The April 5 meeting was one of the first 
instances when donors spoke to the ROYG publicly with a 
united voice.  They urged the ROYG to use the Mid-Term Review 
process as an opportunity to identify priority reforms in the 
short-term and to take action.  Arab donors are also showing 
greater interest in coordination with Western counterparts. 
Director General of External Economic Relations of the Gulf 
Cooperation Council (GCC) Dr. Abdel Aziz Abu Hamad Aluwaisheg 
said the GCC is interested in more regional cooperation.  He 
said that the GCC has much to learn from Western donors in 
terms of sustainable development.  (NOTE: GCC ambassadors 
resident in Sanaa play a direct role in supervising aid to 
Yemen and are an important but currently underutilized 
network for coordination with the greater donor community. 
One reason for this is their lack of participation in the 
established donor coordination process.  END NOTE.) 
 
COMMENT 
------- 
 
5.  Debating the removal of subsidies in the cabinet and at 
the prime ministerial level is promising, but it is only the 
first step.  The plan will be publicly unpopular, potentially 
destabilizing, and strongly resisted by other segments of the 
ROYG that benefit from the current system.  Removing diesel 
subsidies is one part of a larger reform process, which must 
involve concrete action on reforms and greater coordination 
with the donor community.  END COMMENT. 
 
SANAA 00000716  002 OF 002 
 
 
SECHE