VZCZCXYZ0003
RR RUEHWEB

DE RUEHAE #0847/01 2860917
ZNR UUUUU ZZH
R 130917Z OCT 06
FM AMEMBASSY ASMARA
TO SECSTATE WASHDC 8485

UNCLAS ASMARA 000847 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR AF/EPS: JANET POTASH 
DEPT ALSO FOR AF/E 
PLEASE PASS TO USTR FOR CONNIE HAMILTON 
 
E.O. 12958:  N/A 
TAGS: AGOA ECON ETRD ER
SUBJECT:  ERITREA: AGOA RESPONSE 
 
REF:  STATE 163056 
 
¶1. (SBU) Post point of contact: Pol/Econ Officer Holly Holzer, Tel: 
291-1-12-00-04, Fax: 291-1-12-75-84, email: holzerhc@state.gov 
 
¶2. (SBU) Post's response is keyed to outline provided by AF/EPS. 
 
Begin text: 
 
Country Background Summary:  Eritrea's economic policy continues to 
be built on a "no peace, no war" philosophy.  The Government of the 
State of Eritrea (GSE) justifies its iron grip on the economy, as 
well as its restrictions on political freedoms, on the basis of 
national security needs.  The GSE contends that the unresolved 
border dispute with Ethiopia continues to present a core threat to 
Eritrea's sovereignty; the GSE purports that upon demarcation of the 
border, the country will embrace democracy, a market economy and 
free trade.  The GSE's current approach has severely crippled 
Eritrea's economy leaving Eritrea with high trade deficits, 
extremely limited foreign reserves, and a growing debt to be 
serviced.  With a population estimated at 4.4 million, Eritrea's 
estimated Gross Domestic Product in 2005 was $954 million and the 
estimated 2004 Gross National Income per capita was $180.  Eritrea 
remains one of the poorest and least developed countries in the 
world, ranking 161st out of 177 countries in the 2005 UN Human 
Development report.  While the Constitution calls for three 
functioning branches of government - legislative, executive and 
judicial - and for democratic freedoms, these have not been 
implemented. 
 
¶I.  Market-based Economy: 
 
¶A. Major Strengths Identified: 
 
- The investment code proclaimed in 1994 states that Eritrean law 
will offer a supportive environment for private businesses, both 
foreign and domestic. 
- The GSE has expressed a commitment for private entities to 
establish, acquire, own and dispose of most business enterprises and 
asserts that property interests are protected and enforced. 
 
¶B. Major Issues/Problems Identified: 
 
- In practice these laws are not followed and the GSE regularly 
implements policies and practices contrary to free-market 
principles. 
- In January 2005, the GSE stopped the free import of goods into 
Eritrea.  Private businesses must request special permits from the 
GSE in order to import goods into the country.  The permits 
regularly are denied. 
- While no official barriers for export to the U.S. exist, 
government practices, restrictions on imports and limits on foreign 
exchange have virtually eliminated all trade with the U.S. 
- The GSE has a history of expropriating profitable businesses and 
property, those of its own citizens and of foreigners. 
- In late 2004, the GSE shut down all mining operations in the 
country at great financial loss to the foreign mining companies 
investing in Eritrea.  In 2005, they lifted the ban with verbal 
promises to the mining companies it would not occur again. 
- The GSE controls the transfer of hard currency into and out of 
Eritrea. The restrictions on foreign currency prevent companies from 
exporting to the U.S., or outside Eritrea. 
- The ruling and sole political party, in conjunction with the 
government and the military, dominate all sectors of the economy, 
control the market and can fix prices as desired.  All major 
industries and large businesses are owned by the political party, 
the government or the military. 
- Nearly 350,000 Eritreans, both men and women, under the age of 40 
remain conscripted in national service and an estimated 250,000 men 
and women remain in military service, with compulsory military 
training for all high school graduates.  Conscriptees are given no 
definite end date to their service; some citizens have been in 
compulsory service for over 10 years. 
- While the GSE did eliminate the dual exchange rate, the fixed 
exchange rate of 15 nakfa per 1 USD is overvalued, presently the 
black market exchange rate is 50% lower at 22 nakfa per 1 USD. 
- The primary focus of the Central Bank is not monetary policy but 
the financing of government operations. 
- The GSE does not publish or make public economic data. 
 
II. Political Reforms/Rule of Law/Anti-Corruption: 
 
¶A. Major Strengths Identified: 
 
- The GSE professes to support the rule of law and an independent 
judiciary. 
- There are stringent legal measures against corruption. Giving or 
receive bribes is a criminal act. 
 
 
¶B. Major Issues/Problems Identified: 
 
- The GSE established by proclamation a separate judicial system, 
the special courts, to operate in conjunction with the existing 
independent judiciary. Administered by the military, the special 
courts are overseen by the Office of the President, operate in 
parallel with the existing judiciary system and do not always follow 
the rule of law. 
- The Constitution approved in 1997 has yet to be implemented and 
National Assembly elections have not been held. 
- A multi-party democratic system does not exist. 
- Individuals arbitrarily arrested by the police are often held for 
extended periods of time without due process, and often are never 
formally charged with a crime. 
- GSE operations are not transparent and government officials often 
make decisions not based on written policy or regulations. 
- Individuals report having to pay small fees or bribes in order to 
obtain government services, especially in relationship to 
immigration. 
 
III. Poverty Reduction: 
 
¶A. Major Strengths Identified: 
 
- The GSE actively promotes programs in health, education and 
development with a commitment to reducing poverty. 
- They cooperate with UN agencies and have received support for the 
health and education projects from the World Bank and the EC. 
- Eritrea has a low HIV infection rate (3%) and has positive health 
trends. 
- The GSE is committed to self-reliance and the government expresses 
a commitment to equitable development. 
- The GSE has a stated policy of moving toward food security. 
 
¶B. Major Issues/Problems Identified: 
 
- Limited resources and capacity constrain the GSE's ability. 
- Institutional capacity to implement development programs is weak. 
 
- In a country that consistently faces food shortages, the GSE 
inexplicably in July 2005 requested that USAID, Eritrea's largest 
bilateral development partner, cease operations. 
- In Spring 2006, the GSE abrogated nearly all food aid programs in 
the country in order to implement a cash-for-work program.  To date, 
post has seen no evidence of a viable cash-for-work program. 
International donors did not agree to this diversion from agreements 
already in place that specified food aid was to be distributed 
freely.  The GSE refused to negotiate this decision with donors and 
impounded over 80,000 metric tons of food aid in spring 2005.  How 
the appropriated food has been distributed or monetized remains 
unknown. 
- The Government has, through policy and by directive, reduced the 
number of NGOs from over 40 in 2004 to only 11 in 2006, most of 
which were engaged in poverty reduction programs. Remaining NGOs are 
subject to strict guidelines, including limiting the number of 
expatriate staff and restrictions on travel outside of Asmara.  NGOs 
also cite difficulties with importation of capital equipment and 
program supplies; NGOs no longer have duty exemptions and are taxed 
at commercial rates.  A number of NGOs have also reported 
significant delays in project implementation due to obstacles in 
obtaining memoranda of understandings with technical ministries. 
- The conscription of a majority of the labor market into the 
military and national service has had a deleterious effect on the 
economy, particularly in the agricultural sector, by removing a 
participating member of the household (often the head of household) 
from being able to support the family either through labor or 
through income. 
 
IV. Worker's Rights/Child Labor/Human Rights: 
 
¶A. Major Strengths Identified: 
 
- In principle there are no government restrictions on the formation 
of unions and forced or compulsory labor, including by children, 
under the Constitution is prohibited. 
- The labor law states that no one under the age of 14 may work and 
that employees under the age of 18 may not work more than 7 hours 
per day. 
- Child labor is not known to be problem. 
- Workers are permitted to remove themselves from dangerous 
worksites without retaliation. 
- Eritrea has ratified seven of the eight fundamental ILO 
Conventions. 
- The GSE does make efforts to address the victimization of sex 
workers, including of children, and to assist orphaned children. 
- While female genital mutilation remains widespread, the GSE does 
have an active program aimed at eliminating this practice. 
 
¶B. Major Issues/Problems Identified: 
 
- Eritrea's human rights record worsened during the reporting 
period. 
- The GSE continues to detain two Eritrean U.S. Embassy employees 
who were arrested without charge in October 2001.  The families of 
both employees do not have access to them; the employees' physical 
location is unknown. 
- In September 2001, the GSE arrested without charge 11 prominent 
political figures who called for political reform.  The GSE claims 
they were arrested for national security reasons and not for their 
political views.  They continue to be held incommunicado and the GSE 
refuses to provide information, will not allow family to visit them, 
and has not provided them with due process. 
- In September 2001, the government closed the entire independent 
press and arrested without charge journalists, editors, and 
publishers. Five years later, the press remains closed. 
- Freedom of assembly, association and speech is restricted. 
- Basic freedoms are severely restricted and individuals are often 
arrested under the guise of "national security" and detained at 
length without charges being filed. 
- Citizens do not have the right to change their government. 
Individuals who criticize the government are arrested and detained. 
 
- Eritrea has not ratified ILO 182 on the Worst Forms of Child 
Labor. 
- The government mandates national or military service for all men 
ages 18 - 40 and all women 18-27 who do not have children.   Those 
in national service are assigned to work in government jobs or for 
businesses owned by the government or sole political party at 
significantly reduced wages.  The government has even assigned these 
workers to foreign (non-U.S.) companies operating in Eritrea. 
- The penal code prohibits torture, however, physical and mental 
torture is used by security forces. 
- In 2004 and again in 2005, the U.S. designated Eritrea as a 
Country of Particular Concern for violations of religious freedoms. 
 
- Members of non-registered religious groups are often arrested and 
held without charge. 
- Human rights organizations are not permitted in the country. 
- The GSE restricts the travel of all foreigners, including 
diplomats, UN employees and tourists in the country. 
 
¶V. International Terrorism/U.S. National Security: 
 
Major Strengths Identified: 
 
- Eritrea has long claimed to be a supporter of the U.S. efforts to 
secure U.S. National Security. 
 
Major Issues/Problems Identified: 
 
- Bilateral relations between the U.S. and Eritrea have deteriorated 
over the past year. 
- No active exchange of information exists between Eritrea and the 
U.S. nor does Eritrea participate in any U.S.- sponsored training 
and has denied flight clearance requests for U.S. personnel involved 
in regional counter-terrorism programs. 
- The GSE states that upon demarcation of the border with Ethiopia, 
the relationship with the U.S. will normalize, with the implication 
that they will support U.S. counter-terrorism programs in the Horn, 
if and when, this occurs. 
- In the past, the GSE has offered logistical support and use of 
airfield and port facilities to U.S. forces in the Global War on 
Terrorism.  Yet, to date the GSE continues to restrict flight 
clearances and this support has not materialized. 
- In public speeches and official press releases in 2005, the GSE 
has downplayed U.S. concerns about terrorism in the Horn of Africa. 
In speeches made at Eritrean national holidays in May 2006, 
President Isaias pointedly made reference to the "terrorism fantasy" 
of the U.S. in the Horn. 
End Text. 
 
McIntyre