VZCZCXRO1330
RR RUEHCHI RUEHCN RUEHHM
DE RUEHDT #0359/01 3121116
ZNR UUUUU ZZH
R 081116Z NOV 07
FM AMEMBASSY DILI
TO RUEHC/SECSTATE WASHDC 3754
INFO RUEKJCS/SECDEF WASHDC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RHHMUNA/USPACOM HONOLULU HI
RUEHBY/AMEMBASSY CANBERRA 1082
RUEHKO/AMEMBASSY TOKYO 0793
RUEHDT/AMEMBASSY DILI 3156

UNCLAS SECTION 01 OF 03 DILI 000359 
 
SIPDIS 
 
SIPDIS 
 
DOD FOR OSD, PLEASE PASS TO USAID 
 
E.O. 12958: N/A 
TAGS: PREL PGOV TT
SUBJECT: CHALLENGES IMMENSE AS GOVERNMENT PASSES THREE MONTH MARK 
 
 
DILI 00000359  001.2 OF 003 
 
 
Summary 
 
----------- 
 
 
 
¶1. (SBU)  Three months after taking office, Prime Minister 
Gusmao can tally several accomplishments: selecting some 
energetic and skilled ministers, a couple of key legislative 
victories and the proper identification of policy priorities all 
linked to resolving causes or consequences of the 2006 crisis. 
Fretilin appears to be maturing into its role of parliamentary 
opposition, aggressively scrutinizing government programs while 
rebuilding and readying itself for an opportunity to return to 
power.  Major challenges remain for the new government, 
including in the short term the drafting and passage of a 2008 
budget, and taking effective action to resettle the tens of 
thousands of refugees that continue to huddle in wretched camps 
across Dili and elsewhere.  Weak institutions, poor 
administrative capacity, tremendous poverty, a disillusioned 
populace and a fractious leadership riven by personality 
conflicts will hinder the government's ability to spur the 
nation's development.  Our focus remains on assisting 
Timor-Leste - in concert with the UN and other donors - with 
essential elements of reform: implementing property rights, 
professionalizing the military and police, advancing the rule of 
law, prompting economic growth and strengthening the capacity of 
key institutions of this still very vulnerable democracy.  End 
summary. 
 
 
 
Two political uncertainties: a) whither Fretilin? 
 
--------------------------------------------- ------------ 
 
 
 
¶2. (SBU)  Since the parliamentary elections of June and the 
installation of a new government in August 2007, two 
uncertainties have dominated Timor politics: a) how well will 
the ruling coalition perform and b) whither Fretilin?  On the 
latter, concerns of just a couple of months ago that either the 
party or its supporters would continue to take to the streets, 
violently or otherwise, and seriously destabilize the government 
have faded.  Although Fretilin maintains its stance that the 
government is illegal and unconstitutional, it has become an 
active and arguably constructive player in parliament, 
thoroughly scrutinizing the government's recently passed 
transitional 2007 budget.  Negatively, it promises a blanket 
"nay" to all government legislation; positively, its close 
oversight of government programs promises a level of supervision 
and discipline that the previous Fretilin government - to the 
nation's detriment - never had to face. 
 
 
 
¶3. (SBU)  Indeed, some question the party's future relevance. 
Observers informed us that a recent, oft-delayed national party 
retreat was sparsely attended and flat (but not without some 
enthusiasts - press accounts, later confirmed, noted that 
several in attendance urged creating cells to foment 
anti-government activity).  Former supporters fault the party's 
strident claims of governmental illegitimacy, combined with a 
reluctance to mount a proper legal challenge, as incoherent and 
weak.  That said, former PM Alkatiri appears once again to have 
consolidated control over the party, has launched efforts to 
strengthen local affiliates, and both privately and publicly 
asserts his confidence that Fretilin will be back in power 
within two years.  Meanwhile, he waits for the government to 
stumble. 
 
 
 
And b) will the coalition deliver? 
 
--------------------------------------- 
 
 
 
¶4. (SBU)  Whether the government can improve on its 
predecessor's poor record of delivery of essential public 
services, providing security and justice, and enhancing the 
country's economic performance remains to be seen.  Centrifugal 
forces within the four-party ruling coalition, generated by both 
personality and policy, seemingly have lessened with the 
successful passage of the government's program and the 
 
DILI 00000359  002.2 OF 003 
 
 
transitional 2007 budget, but remain dangerous.  (Astonishingly, 
the four party chiefs have not met since the government took 
power in August.)  Ministers now are focused on drafting and 
passing a full 2008 budget.  The news emanating from this 
process is not always pretty: some ministries sought wildly 
ambitious increases in spending, others saw pet (but potentially 
productive infrastructure) projects cut.  Further, in the rush 
to complete a draft budget, the reliance on international 
technical advisors has deepened, undermining efforts to enhance 
the administrative capacity of Timorese ministerial staff, even 
their basic comprehension of the budget process. 
 
 
 
Weak managerial capacity 
 
------------------------------- 
 
 
 
¶5. (SBU)  In theory, once completed, the budget will clarify the 
government's program priorities and, once implemented, increase 
the delivery of public services.  Even with the best budget in 
place, however, government operations will continue to be 
hamstrung by very weak administrative capacity.  The middle 
managers that compiled a record of executing less than 10% of 
the 2006 capital budget are still in place.  Ominously, the 
ongoing shutdowns of the country's electricity company, with 
rolling blackouts averaging more than 12 hours a day in Dili, is 
darkening the government's effort to establish itself as 
competent.  Cognizant of the possible political damage, the PM 
himself responded with publicized visits to the main power 
station and direct appeals to his Indonesian counterpart for 
help with extra engineers and generators. 
 
 
 
Short term priorities 
 
------------------------ 
 
 
 
¶6. (SBU)  The new government deserves credit for clearly and 
correctly identifying its short term priorities.  These are 
dealing with the IDP camps, the military "petitioners" and the 
fugitive desperado Alfredo Reinado - all three either cause or 
consequence of the 2006 crisis.  Upon taking office, the 
government sought to develop a policy on IDPs quickly and placed 
deputy prime minister Guterres in charge.  Among government 
leaders there is general acceptance that IDP policy must include 
action on property rights, an end to the full provision of food 
rations, a housing program and improved security and policing in 
residential neighborhoods.  To date, however, there's been no 
meaningful action on any of these components.  Meanwhile, some 
of the camps have become increasingly politicized.  The 
nationwide distribution in late October of some 1000 new tents, 
needed due to the approach of the rainy season, led to 
disturbances at one camp midway between Dili and Baucau.  Camp 
leaders claimed the government shortchanged them for political 
reasons, scuffled with Portuguese police and shut down traffic 
on the sole east-west corridor for several hours. 
 
 
 
¶7. (SBU)  Bringing Reinado to justice and putting to rest the 
financial and political claims of the military petitioners also 
will not come easy.  In both cases, the government has opened 
channels of consultation or negotiation, but they have not yet 
borne fruit.  If not handled astutely and resolutely, they could 
generate charges of regional favoritism or impunity, or again 
become serious political flashpoints. 
 
 
 
Structural challenges 
 
------------------------- 
 
 
 
¶8. (SBU)  Beyond the short term problems, Timor-Leste's 
leadership must confront the many unresolved dynamics behind the 
2006 crisis that continue to impede the strengthening of key 
democratic institutions, the realization of social and economic 
development and the ability of the state to function free of a 
UN mandate.  These include a still unreconstructed security 
 
DILI 00000359  003.2 OF 003 
 
 
sector (especially the police); an inadequate justice sector; 
astonishingly poor infrastructure; dangerously high youth 
unemployment; a highly centralized government with poor public 
outreach and feedback mechanisms; and enormous requirements for 
investment in education and human capital.  Timor's population 
remains disaffected and disillusioned, but with high 
expectations that the recently elected president and government 
will deliver on their 2007 campaign promises to hasten justice, 
security and economic development.  Until these underlying 
political and social conditions are resolved, the nation remains 
vulnerable to future punctuations of violence and instability. 
 
 
 
Uncertain security sector reform 
 
---------------------------------------- 
 
 
 
¶9. (SBU) Security sector reform arguably is one of the 
government's most critical tasks given the collapse of, and 
conflict between, the police and military that occurred in 2006. 
 But, there are notes of discord.  In one of our conversations 
with the prime minister, constitutionally responsible for the 
police and military, he downgraded security sector reform as a 
lower tier priority.  Always a man of action, President Ramos 
Horta, although he has no executive authority for this sector, 
took the initiative in August by establishing a team under his 
leadership to develop policy and coordinate with the UN and 
other interested parties.  But, he appointed as head of his 
reform team a former minister of defense who resigned in 
disgrace after the 2006 crisis, and who envisions a leisurely 
ten or 15 year timeline for reform.  Observers believe it's only 
a matter of time before the latent President-PM conflict over 
who has authority for security sector reform bursts into the 
open. 
 
 
 
¶10. (SBU)  Meanwhile, former PM Alkatiri questions the legality 
of ISF operations in Timor, despite having signed the invitation 
to enter the country in 2006.  Some Timorese police commanders 
publicly have scorned UNPOL mentoring (a key component of the 
UN's mandate to build a responsible and professional force) and 
the number of misconduct infractions by UNPOL-screened police 
officers has risen steadily in recent months, including two 
murders.  Plus, more than one government leader has suggested 
privately that UNPOL is constraining, not supporting, the 
reconstruction of the Timor police.  With police behavioral and 
discipline problems again on the rise, this is wishful thinking 
alarming in its implications. 
 
 
 
Our focus 
 
------------ 
 
 
 
(SBU)  Embassy Dili's priorities are to assist Timor-Leste 
strengthen its democratic institutions; provide security and a 
competent, responsive justice system; and use the skills of its 
people and its natural resource wealth to create sustainable 
economic and social development.  Concretely, we are urging 
Timor's leadership to enact full property rights as a step 
towards resolving the IDP problem and improving the investment 
environment.  We are developing a large youth employment program 
centered on strengthening vocational skills.  We are engaged 
vigorously (and gratefully) with PACOM on the possible expansion 
of programs aimed at the professionalization of Timor's military 
and are exploring with the Department of Justice a resumption of 
programs to support the reconstruction of its police. 
Strengthening the administration of justice and spurring 
employment in rural districts are other program priorities. 
With the aim of improving local donor coordination among 
bilateral partners and across UN agencies, we're exploring 
possible security sector trilaterals respectively with Australia 
and Japan, and with Australia and Portugal.  And we're trying to 
lure China into any donor mechanism available. 
KLEMM