VZCZCXRO7328
PP RUEHCHI RUEHNH RUEHPB
DE RUEHDT #0161/01 1000344
ZNR UUUUU ZZH
P 100344Z APR 06
FM AMEMBASSY DILI
TO RUEHC/SECSTATE WASHDC PRIORITY 2391
INFO RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHLI/AMEMBASSY LISBON PRIORITY 0317
RUEHBY/AMEMBASSY CANBERRA PRIORITY 0390
RUEHWL/AMEMBASSY WELLINGTON PRIORITY 0261
RUEHLO/AMEMBASSY LONDON PRIORITY 0176
RUCNDT/USMISSION USUN NEW YORK PRIORITY 0329
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHDT/AMEMBASSY DILI 1711

UNCLAS SECTION 01 OF 03 DILI 000161 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EAP/MTS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV KDEM TT
SUBJECT: PRIME MINISTER'S AND PRESIDENT'S SPEECHES EMPHASIZE ECONOMIC 
GROWTH, ELECTIONS 
 
REF: A) DILI 35, B) DILI 21, C) DILI 101, D) DILI 134 
 
DILI 00000161  001.2 OF 003 
 
 
¶1. Summary: Prime Minister Mari Alkatiri and President Xanana 
Gusmao on April 4 addressed the annual Timor-Leste Development 
Partners Meeting.  Alkatiri used the forum to announce a new 
approach to economic growth and poverty reduction.  He stated 
that the "fight against poverty must be seen by all as a 
national cause" and presented an aggressive public investment 
strategy aimed at raising the annual economic growth rate from 
the current 2.3 percent to seven percent.  According to 
Alkatiri, this strategy is reflected in the Government's 
proposed Fiscal Year 2006/2007 budget, which at $230 million 
will be approximately $100 million more than the 2005/2006 
total.  (Note: The fiscal year runs from July 1 to June 30. End 
note.) President Gusmao, in a speech that followed Alkatiri's, 
touched on a broader range of topics.  Of particular note were 
his comments regarding the investment strategy described by 
Alkatiri, which he praised while cautioning against the 
potential for corruption, and the concerns he expressed about 
the upcoming elections, particularly with respect to the need 
for a powerful and independent oversight mechanism and for 
public consultation and debate on the Electoral Law.  End 
summary. 
 
New economic growth strategy emphasizes government 
"investment" with international contractors 
--------------------------------------------- ----- 
 
¶2. In a speech titled "Decision Time", delivered at the opening 
session of the annual Timor-Leste Development Partners Meeting, 
Prime Minister Alkatiri presented a new strategy for achieving 
accelerated economic growth, stating that, "the fight against 
poverty must be seen by all as a national cause."  Alkatiri 
began by defending the Government's record of development 
achieved to date, citing improved statistics in a number of 
areas.  However, he then stated that maintenance of the current 
rate of economic growth, especially given the population growth 
rate, is unacceptable as it will essentially guarantee the 
continuation of extreme poverty.  In order to actually alleviate 
poverty, he argued, it will be necessary to achieve an economic 
growth rate of seven percent a year.  "[W]e now stand at a 
crossroads: on one side we have the sustained strong economic 
growth as a driving force to take us away from poverty; on the 
other, we have the maintenance of the current growth 
levels~should annual economic growth remain at 2.3%, it will 
lead to the increase of the number of poor people in 
Timor-Leste." 
 
¶3. To achieve the target of seven percent annual economic 
growth, Alkatiri stated, "we have no choice but to try to turn 
the State into the engine, the locomotive of the Timorese 
economy."  The Government's budget proposal for FY2006/2007 
therefore includes a 75 percent increase in public investment to 
over $82 million, most of which is targeted for infrastructure 
projects (schools, roads, electricity, etc.)  Noting that the 
Timorese private sector does not yet have the capacity to absorb 
the volume of work that this budget allocation represents, he 
said that the Government will therefore "open the doors, by way 
of international public tenders, to foreign investors who wish 
to operate here."  However, he emphasized that the procurement 
conditions will be designed to ensure that a large proportion of 
the jobs created by the investment go to Timorese and that the 
Timorese private sector is developed in the process.  To this 
end, he stated, the Government's construction contracts with 
foreign companies will require that 50 percent of the workforce 
be Timorese and that large projects have a minimum of 30 percent 
of the value subcontracted to Timorese companies. 
 
¶4. In connection with the public investment plan, Alkatiri also 
briefly mentioned the Millennium Challenge Account (MCA) as a 
potential source for "consolidating the effort being made by the 
State Budget," reporting that the Government hopes to negotiate 
a $350 million MCA Compact. 
 
¶5. Alkatiri also addressed "regional asymmetries" in wealth 
distribution, that is the gap between incomes and quality of 
life in the capital versus the mostly rural rest of the country. 
 Noting that "poverty in Timor-Leste is clearly a rural 
'illness'" he stated that, "a substantial part of the projects 
we intend to execute during the coming years will be directed to 
the interior districts."  The emphasis of these projects, he 
said, will be to create stronger regional capitals or "poles of 
attraction" so that people will be able to sell their products 
within their regions rather than by travelling all the way to 
Dili.  To this end he emphasized the importance of local 
 
DILI 00000161  002.2 OF 003 
 
 
governance structures and also stated that the Government plans 
to establish a Rural Credit Bank to expand access to credit in 
rural areas. 
 
¶6. Alkatiri also touched on several hot-button political issues. 
 He noted that recognition and compensation for veterans remain 
a top priority and that the Government stands ready to implement 
the new Veterans' Law as soon as it is promulgated.  He also 
commented on the recent dismissal of nearly 600 striking members 
of the armed forces (FDTL) saying that in the decision to 
dismiss the soldiers "the principles of legality and discipline 
prevailed" but that "this does not mean that no attempts will be 
made to correct the alleged root causes".  Alkatiri also touched 
on the Penal Code and the criticism it has received for its 
criminal defamation provisions (see Ref A), commenting that "The 
last few months were also besmirched by an intense campaign to 
discredit our Penal Code, subtly transforming it into a mere 
defamation law." 
 
President emphasizes election oversight structures 
--------------------------------------------- ----- 
 
¶7. In his speech following the Prime Minister's remarks, 
President Gusmao touched on a broad range of topics, including 
the need for continued UN assistance after UNOTIL departs in 
May, the 2007 elections, veterans issues, the Commission for 
Reception, Truth and Reconciliation (CAVR) report, the 
Government investment program announced by Alkatiri, and the 
dismissal of 591 soldiers from the FDTL.  The President 
responded positively to the new Government investment program 
announced in Alkatiri's speech.  However, he called attention to 
the need to ensure access to information for both investors and 
the public in the process, stating that procurement "must be 
structured in a way that provides transparency and public 
scrutiny". 
 
¶8. Regarding the national elections required by the Constitution 
in or before May 2007, the President took this high profile 
opportunity to reiterate concerns that he has previously 
expressed regarding the Government's approach to election 
planning to date.  Specifically, he emphasized the need for a 
National Election Commission (CNE) "with appropriate 
competencies, operating in total independence and with the 
necessary funds to efficiently oversee and cover the process." 
He also stressed that the Electoral Law must be developed 
through a process of intensive consultation and debate to 
"ensure a truly democratic process".  (Note: During last year's 
local elections, the CNE received very limited resources to 
carry out its oversight work.  As regards the Electoral Law, it 
is so far being drafted by the Government with no public 
consultation. See Refs B, C and D.  End note.) 
 
¶9. Reaction from international participants toward the Prime 
Minister's new economic strategy was generally positive. 
Several international participants also expressed agreement with 
the President's concerns about the national elections. 
Particularly noteworthy were the frank remarks of the 
representative of the European Union, who expressed the view of 
many international participants in the conference when he asked 
that Prime Minister Alkatiri "please not be defensive" about 
suggestions for ensuring the fairness and openness of the 
election process. 
 
¶10. On behalf of the United States delegation, Ambassador Rees 
said that the United States shares the Government's concerns 
about poverty in East Timor and welcomes the Government's 
renewed commitment to strategies designed to reduce poverty. 
Ambassador Rees congratulated East Timor on its selection as an 
MCA eligible country and noted that addressing obstacles to 
poverty alleviation is the central goal of the MCA process.  He 
added that U.S. democracy and governance programs in East Timor 
will be focused primarily on the elections, including activities 
to enhance the capabilities not only of government institutions 
but also of non-government actors including independent news 
media.  Ambassador Rees added that U.S. assistance for the 
elections would be directed not only to the 
Government-controlled electoral administration but also to the 
independent oversight commission, and that it would be designed 
to promote not only technical capabilities but also "the policy 
environment that will ensure a fully free and fair election." 
 
¶11. Comment:  The Prime Minister's new economic program got a 
far more enthusiastic reception from the conference participants 
than it subsequently got from Timorese observers, who generally 
 
DILI 00000161  003.2 OF 003 
 
 
dismissed it as "an election year speech for an election year 
budget."  Whatever the motivations behind the proposed dramatic 
increase in government spending on programs to help the poor and 
build East Timor's infrastructure, the country will be fortunate 
indeed if these measures are the only ones the Government takes 
in an effort to increase its advantage in the elections.  As 
President Gusmao and the EU representative suggested, however, 
the Government may well have some far more problematic 
election-year ideas up its sleeve.  End Comment. 
REES