VZCZCXRO1751
PP RUEHROV
DE RUEHDS #1850/01 1900536
ZNR UUUUU ZZH
P 080536Z JUL 08 ZDK ZUI HSD 0042
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC PRIORITY 1216
RUEAUSA/DEPT OF HHS WASHINGTON DC
RUEHPH/CDC ATLANTA
INFO RUCNIAD/IGAD COLLECTIVE
RHMFISS/CJTF HOA
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC

UNCLAS SECTION 01 OF 04 ADDIS ABABA 001850 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR F: CCASEY; AF/FO: JSWAN, AF/RSA: LTHOMPSON, AND AF/E: 
JWYSHAM 
USAID FOR AFR: KALMQUIST; AFR/EA: CTHOMPSON AND LKELLEY; OFDA: 
KCHANNELL; FFP: PBERTOLIN 
HHS FOR WSTEIGER 
 
E.O. 12958: N/A 
TAGS: EAID PREL ABUD ET
SUBJECT: TAILORING U.S. ASSISTANCE TO BILATERAL REALITIES 
 
REF: A) ADDIS ABABA 1674 
B) ADDIS ABABA 1672 
C) ADDIS ABABA 1571 
D) ADDIS ABABA 1439 
 
ADDIS ABAB 00001850  001.2 OF 004 
 
 
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SUMMARY 
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¶1. (SBU) Ethiopia is now the second largest recipient of U.S. 
foreign assistance in sub-Saharan Africa.  However, the 
preponderance of this assistance is humanitarian, including food 
aid, the President's Emergency Plan for AIDS Relief (PEPFAR), the 
Child Survival and Health Program Funds (CSH), of which a 
significant share supplements the Government of Ethiopia (GoE) 
budget.  Relatively little assistance, about five percent of the 
total, directly contributes to Ethiopia's internal economic 
stability and sustainable growth.  Assistance designed to promote 
economic stability concentrates on agricultural development -- 
particularly in vulnerable, conflict-prone areas, in order to 
achieve food security -- and on healthcare services.  The 
increasingly difficult operating environment and growing transaction 
costs for non-budgetary foreign aid and, in particular, the proposed 
tight restrictions on non-governmental organization (NGO) 
implementing partners, call for a reassessment of the mix and 
effectiveness of U.S. assistance to Ethiopia in order to support 
U.S. foreign policy objectives.  In support of our objective of 
sustainable growth in Ethiopia, Post recommends a substantial 
increase in assistance for targeted agricultural development, 
continued funding for democracy and governance (despite likely new 
prohibitions), formal negotiated agreements for PEPFAR and emergency 
food aid, and enhanced dialogue with the GoE at the highest levels 
on the need for genuine partnership and accountability.  End 
Summary. 
 
---------------------------------------- 
CHANGING POLITICAL REALITIES IN ETHIOPIA 
---------------------------------------- 
 
¶2. (SBU) Ref A details the new reality resulting from the steady 
progression of GoE actions restricting the activities of opposition 
political parties, media agencies, civil society, and NGOs.  Ref B 
specifically highlights recent legal and administrative actions by 
the GoE that impede NGOs' operations and foreign assistance efforts. 
 Ref C summarizes the challenges in bilateral cooperation with the 
GoE across sectors and agencies. 
 
¶3. (SBU) Per Ref A, recent and proposed actions by the GoE are 
making the delivery and management of U.S. assistance much more 
difficult.  In the last several months, taxation directives, 
internal policies, and the prospect of highly-restrictive NGO 
legislation are dramatically increasing the transaction costs of 
delivering and managing U.S. assistance, and imposing significant 
bureaucratic impediments to the effective administration of such 
assistance.  Sudden and inconsistent application of taxation to some 
U.S. assistance implementers is halting and delaying many programs 
and consumes inordinate amounts of staff time due to lack of clarity 
and low capacity in finance and revenue authorities.  Changing and 
discretionary internal rules on registration of NGOS and contractors 
are causing delay and increased costs in administration and forcing 
Mission staff to hold multiple, often counterproductive, meetings 
with low-level officials.  The prospects of a draconian NGO law, 
recent actions by some agencies to control NGOs, and well-publicized 
statements by senior most officials criticizing NGOs (e.g., "They 
are making money out of our hunger.") are causing uncertainty and 
further impede delivery of both emergency humanitarian and 
development assistance.  Notwithstanding GoE assurances of 
exceptions for U.S. assistance programs, taken together these 
actions reflect a deteriorating environment for U.S. assistance 
generally, and for NGO implementing partners in particular. 
 
------------------------- 
BAD CHANGES AT A BAD TIME 
------------------------- 
 
¶4. (SBU) Ironically, this deterioration comes at a time when the GoE 
can least afford it financially or economically.  According to the 
IMF and other analysts, the GoE faces one of its most challenging 
years ever (Ref D).  While the GoE is tightening credit expansion 
and public expenditure to combat inflation, the economy has to 
 
ADDIS ABAB 00001850  002.2 OF 004 
 
 
absorb a one billion dollar oil shock, large increases in food 
prices, and the effects of the global economic slowdown.  The IMF 
has urged the PM and Finance Minister to seek major investments and 
assistance which would bring in foreign exchange and help ameliorate 
the balance of payments situation.  In a recent GoE-donor meeting to 
review the GoE's poverty alleviation strategy (PASDEP) the Minister 
of Finance urged donors to "scale up" aid to help cover the one and 
half billion dollar financing gap in the out years of the strategy 
(through, of course, more budgetary support rather than NGO 
programs).  Yet, at the same time the GoE, both willfully and due to 
confusion and lack of capacity, is making operations for assistance 
providers increasingly onerous and costly.  The IMF even subtly 
cautioned the leadership on taking actions which could put at risk 
any aid flows, including those from NGOs.  However, the leadership 
appears to be taking actions to the contrary. 
 
----------------------------------- 
PRIORITIZING AID FOR MAXIMUM EFFECT 
----------------------------------- 
 
¶5. (SBU) Given this situation, Post asks what are the best, highest 
priority uses of U.S. assistance and how can it most effectively be 
delivered?  Should there be as much funding and, hence, emphasis on 
PEPFAR as our largest single U.S. program in light of both 
Ethiopia's relatively low infection rate and dramatic development 
needs?  While there is a humanitarian imperative to continue 
emergency food aid -- the largest portion of U.S. assistance, this 
year and in many years past -- are we doing enough or obliging the 
GoE to do more to promote sustainable development (i.e. in the 
agricultural sector) in these most vulnerable areas of the country? 
Should we continue to provide assistance, which serves effectively 
as indirect budget support for the GoE or supports the GoE's own 
statist economic approach?  What should be the criteria for 
continuing assistance in various sectors and what should we 
rightfully expect from the GoE as a good-faith partner?  Has U.S. 
reliability in providing humanitarian relief assistance to Ethiopia 
established a precedent of moral hazard in which the GoE is not 
forced to alter its restrictive and statist economic policies 
because it knows the U.S. will mitigate the effects of their 
failures?  In light of Post's sense of the answers to these 
questions, now may be the time for a more fundamental interagency 
review of our bilateral assistance portfolio toward Ethiopia to 
consider a shift to maximize the sustainability of our assistance 
and the utility of our foreign assistance toward achieving our 
foreign policy objectives. 
 
--------------------------------------------- ---------- 
PLENTY FOR DISEASE AND HUNGER - WHAT ABOUT DEVELOPMENT? 
--------------------------------------------- ---------- 
 
¶6. (SBU) Two programs make up the largest portion of U.S. Assistance 
to Ethiopia:  PEPFAR, at USD 340 million this year, and PL-480 Title 
II emergency food aid, which could reach as much as USD 450 million 
this year.  While a large portion of PEPFAR provides for technical 
assistance and training, a significant portion, USD 60-70 million, 
indirectly supports the GoE's budget through health systems 
strengthening and facilities construction.  Of the PL-480 title II 
allocations, approximately USD 150 million in food aid through NGOs 
directly supports the GoE's multi-donor Productive Safety Net 
Program (PSNP), which provides food and cash to build "productive" 
assets, primarily rural works, in most vulnerable areas.  While this 
program generally uses food aid wisely to build assets (and thus 
resilience) in the most vulnerable communities, it lacks adequate 
support in agricultural development credit, technologies, and 
expertise to accelerate development. 
 
¶7. (SBU) Other emergency PL-480 food aid is usually delivered based 
on a U.S. assessment rather than on inevitably late and 
under-estimated GoE appeals.  PEPFAR and food aid are political and 
humanitarian mandates which will not change.  However, despite their 
size and importance, neither of these huge programs (with the 
exception of the PSNP component) is negotiated with any formal 
agreements with the GoE spelling out responsibilities and 
expectations.  The largest portion of U.S. assistance to Ethiopia 
has no clear mutual understanding of responsibility and 
accountability. 
 
¶8. (SBU) Two other substantial portions of U.S. assistance are 
USAID's training and grant programs with the Ministries of Health 
and Education.  These programs are negotiated to support closely GoE 
 
ADDIS ABAB 00001850  003.2 OF 004 
 
 
priorities in the two sectors while meeting 
congressionally-earmarked or USAID priorities, such as reproductive 
health, girl's education, etc.  In view of our full agreement with, 
and support of, the GoE's ambitious reforms in primary health care 
and basic education, these programs provide critical non-budgetary 
inputs to improve the quality and timely implementation of these 
reforms, while fulfilling congressional mandates.  In view of 
Ethiopia's rapid population growth, both girls' education and 
reproductive health programs could be viewed as strategic. 
 
¶9. (SBU) U.S. support for economic growth is very modest on an 
absolute scale, but especially when compared to food aid and social 
services.  It consists of a range of USAID programs in agricultural 
policy implementation (land rights, support to safety net, 
agricultural marketing), export promotion (including horticulture, 
leather, meat, credit guarantees, assistance in benefiting from the 
African Growth and Opportunity Act (AGOA), and supporting Ethiopia's 
World Trade Organization (WTO) accession), and improving 
livestock/pastoral systems.  All these programs involve the GoE at 
the advisory level, and some strengthen regulatory agencies; 
however, most work directly with private sector producers and 
service providers.  These are our leanest and our most 
cost-effective assistance programs, with substantiated impacts and 
improvements in productivity, primarily in commercial agriculture, 
which are likely to support sustained economic growth. 
 
¶10. (SBU) The success of these targeted programs for agriculture and 
the dire need for agricultural development in vulnerable, 
conflict-prone areas -- and the high cost in food aid without it -- 
argue for a substantial, but targeted expansion of such programs. 
(NOTE: USAID started such an expansion with a large addition of 
"famine funds" in FY05-06; however, the limit of two years to use 
these funds did not enable the sustained effort necessary for 
widespread impact.)  Agricultural development is the only way to 
improve food security in, and to stabilize, vulnerable, 
conflict-prone areas.  Making a more significant and sustained 
effort in agricultural development in the areas at the "tipping 
point" between subsistence and starvation and stability and conflict 
will serve U.S. objectives well.  It will bring greater internal 
stability to the most conflict-prone areas of Ethiopia, while saving 
the U.S. the great expense of regular, huge, and increasingly costly 
shipments of food aid and other emergency assistance. 
 
------------------------------ 
DEVELOPMENT WITHOUT DEMOCRACY? 
------------------------------ 
 
¶11. (SBU) Finally, U.S. assistance to promote democratization in 
Ethiopia, notwithstanding a large earmark in FY06, has never been 
substantial; it rose from a few million dollars to almost USD 10 
million, then dropped back to USD 4 million in FY08.  Nevertheless, 
with recent modest funding, Post is leading the discourse in several 
GoE-donor fora and has developed a range of USAID programs in 
strategic areas of local conflict mitigation, broadened political 
dialogue, judicial strengthening, and human rights capacity 
building, which could have significant impact.  However, the 
prohibitions in the proposed NGO law, if passed, would effectively 
preclude continuation of these nascent programs, forcing 
considerable reduction of democracy and governance (DG) programming 
opportunities.  While DG programming is clearly necessary in the 
run-up to the 2010 elections, there appears little if any scope for 
the effective use of increased funding in this area at this time. 
 
-------------------------------------- 
NEEDED: PARTNERSHIP AND ACCOUNTABILITY 
-------------------------------------- 
 
¶12. (SBU) Operationally, senior State and USAID officers at Post 
will have to devote greater level-of-effort with senior and working 
level officials to negotiate with, and hold accountable, the GoE for 
our assistance programs.  We must make crystal clear that we cannot 
continue programs in which the GoE is not a fully cooperating 
partner that ensures an enabling environment, and responsibly 
resolves bureaucratic impediments, especially for NGO implementing 
partners, in a timely manner.  We must use existing agreements and 
negotiate new agreements to ensure that expectations and 
responsibilities are agreed upon for all programs.  Certainly, both 
PEPRAR and emergency food aid (beyond the PSNP) - the largest 
amounts of U.S. assistance and programs, in which NGOs' 
participation is a sine qua non - must include prior agreements 
 
ADDIS ABAB 00001850  004.2 OF 004 
 
 
which specify expectations and responsibilities. 
 
---------- 
CONCLUSION 
---------- 
 
¶13. (SBU) U.S. assistance to Ethiopia can be more supportive of U.S. 
foreign policy objectives of building regional stability and 
safeguarding against external threats.  Post recommends: 
 
a) An increased and unified "full court press" of dialogue with the 
full participation of Washington and hold the GoE accountable for 
ensuring an enabling environment for donor partner assistance and 
facilitating assistance programs; 
 
b) A substantial increase in assistance for agricultural development 
targeting the most vulnerable, conflict-prone, and food aid 
dependent areas; 
 
c) Introduction of formal agreements for PEPFAR, emergency food aid, 
and any new assistance programs across the board, particularly those 
involving NGOs; 
 
d) Maintenance of current levels of assistance to implement health 
and education reforms, especially girls' education and family 
planning, as well as for DG. 
 
YAMAMOTO