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P R 091100Z OCT 08
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RHHMHAA/COMPACFLT PEARL HARBOR HI
RHHMUNA/HQ USPACOM HONOLULU HI
RHMFISS/JOINT STAFF WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP
RUEHKO/AMEMBASSY TOKYO 0893
RUEHBJ/AMEMBASSY BEIJING 0088
RHMFISS/USDAO CANBERRA ACT AS
RUEHDT/AMEMBASSY DILI 3595

C O N F I D E N T I A L SECTION 01 OF 02 DILI 000262 
 
SIPDIS 
 
MCC FOR VP HEWKO, EAP/MTS 
 
E.O. 12958: DECL:  10/9/2018 
TAGS: ECON MARR MASS EAID MCC TT PREL OTRA PGOV MCAP
SUBJECT: PM GUSMAO ON ECONOMIC POLICY AND SECURITY SECTOR REFORM 
 
CLASSIFIED BY: Major Ron Sargent, US Defense Representative, US 
Embassy, Dili, East Timor, Department of Defense. 
REASON: 1.4 (b), (d) 
 
 
 
CLASSIFIED BY: Major Ron Sargent, US Defense Representative, US 
Embassy, Dili, East Timor, Department of Defense. 
REASON: 1.4 (b), (d) 
 
 
 
¶1.  (C)  Summary.  In an extended meeting with the Ambassador on 
October 8, PM Gusmao shared the economic policy woes his 
government has faced in 2008 and prescriptions for 2009, his 
plan to appoint a very senior Timorese politician as a second 
Vice Prime Minister in charge of improving government services, 
and his intention to become more active in his duties as the 
Minister of Defense and Security.  He also offered views on 
Portugal's role in Timor, the story behind the purchase of two 
Chinese patrol boats earlier in the year, and his desire to 
reform the Timor-Leste security sector.  Regarding the police 
and the military, he said he needed time to develop his 
priorities (through the end of 2008), and expressed hope for 
U.S. support once implementation begins in 2009.  In particular, 
he welcomed the possibility of a U.S. organized or facilitated 
donor conference in the area of maritime security perhaps in the 
March 2009 timeframe.  End summary. 
 
 
 
¶2.  (C)  Prime Minister Xanana Gusmao met with the Ambassador 
and ODC Chief on October 8 to discuss the recently concluded 
National Security Policy Development Workshop, hosted by the 
Asia Pacific Center for Security Studies (APCSS) in Honolulu on 
September 8-12.  Gusmao expressed his appreciation for American 
cooperation, mentioned his government was in the process of 
providing a report on the outcomes, and said that he would 
consult with his security sector leadership regarding next steps 
- particularly with regard to future United States support. 
Additionally, Gusmao noted that he would like to conduct a 
maritime security donor conference in either February or March 
2009, and welcomes U.S. assistance in putting such an event 
together.  When the Ambassador mentioned that both U.S. Pacific 
Fleet and U.S. Marine Forces Pacific would be conducting 
assessments in mid-November 2008, the PM said these would be 
well-timed and helpful in assisting his government determine how 
to move forward on donor coordination.  These comments are 
consistent with remarks made to the Ambassador in a separate 
meeting with Secretary of State for Defense Julio Tomas Pinto on 
October 7 during which Pinto said "we (Timorese) simply do not 
know how to conduct a donor conference, and U.S. assistance in 
this regard would be appreciated."  During a visit to Dili on 
July 14-16, 2008, the Commander, U.S. Pacific Fleet, Admiral 
Robert Willard also discussed with Pinto the potential benefits 
of a donor conference to the coordinated development of Timor's 
maritime security capabilities.  Willard offered that the U.S. 
could assist in organizing such an undertaking. 
 
 
 
¶3.  (C)  Gusmao indicated that he has been greatly frustrated by 
his government's lack of capacity during the course of 2008, 
especially its still low rates of budget execution, but that he 
had learned a great deal from the experience.  He said that 
during an AMP retreat he is hosting next weekend, he will 
announce the elevation of PSD leader and Member of Parliament 
Mario Carrascalao as a second Vice Prime Minister.  Carrascalao 
would focus on the government's ability to execute the budget, 
improve its fiscal discipline, enhance government operations, 
and oversee capital development and infrastructure projects. 
Gusmao was pointed in his criticism of his ministers and 
secretaries of state in charge of the police, justice, and 
especially infrastructure in failing to execute their 
appropriations.  He is planning measures to punish ministries 
with poor records of budget execution and reward those that have 
performed well.  A key future focus will be infrastructure, and 
the PM emphasized his determination to realize significant 
progress in 2009 in road construction and extending the power 
distribution network.  To ensure quality of implementation, he 
said that Timor must outsource engineering and project 
management.  He also bemoaned a parallel weak capacity among 
Timor's private sector firms to implement and complete projects. 
 
DILI 00000262  002 OF 002 
 
 
 
 
 
 
¶4.  (C)  Gusmao said that giving Carrascalao these economic 
responsibilities would enable him - the PM - to focus more on 
being the Minister of Defense and Security (a portfolio he 
holds, but acknowledges he has not committed much time to except 
in responding to the events following the February 11 
assassination attempts) and hasten steps needed to reform 
Timor-Leste's security institutions.  Gusmao also expressed 
concern about the inability of his government to adequately 
liaise and coordinate with President Jose Ramos-Horta's Security 
Sector Reform and Development team, headed up by ex-Defense 
Minister Roque Rodrigues.  He expressed confidence that once he 
is able to focus more on security sector matters, he would take 
on the task of reforming the police and military as top 
priorities. 
 
 
 
¶5.  (C)  The PM noted that reform of the National Police (PNTL), 
would be an especially daunting task due to the institution's 
considerable weaknesses.  He cited the recent experience of 
Minister of Justice Lucia Lobato, who organized training on 
Timor's constitution and law for the PNTL, and discovered that 
85% of serving officers lack even a basic understanding of the 
country's laws.  He described the current police commander as a 
"weak leader", discussed the problems associated with the 
selection of a possible successor, that this process was being 
was made more difficult by lingering East-West ethnic tensions 
within the force, and ongoing "political manipulation" of key 
members of the police.  Gusmao also said that President 
Ramos-Horta favors assigning someone from outside PNTL's ranks 
to the post - something the PM clearly indicated he is not in 
favor of. 
 
 
 
¶6.  (C)  In a remarkable aside on Portugal's involvement in 
Timor-Leste's security sector, Gusmao said Lisbon was "neither 
an obstacle to support from other countries, nor fundamental to 
Timor-Leste", and acknowledged that his nation needed to look 
more closely towards neighboring countries and the United States 
as the key points of reference for Timor's strategic 
orientation.  He added that while he holds the revolving 
presidency of a post within the Community of Portuguese 
Language-speaking Countries (CPLP), he had difficulties 
remembering the name of the post and exclaimed that he was glad 
he only had to hold it for a year. 
 
 
 
¶7.  (C)  Gusmao closed by shedding light on the machinations at 
play in his government's recent decision to purchase two 
Shanghai-class patrol boats from China.  He said that this 
procurement had actually been initiated during the government of 
ex-PM Mari Alkatiri, and that Gusmao only went forward with it 
after he had been presented with clear evidence regarding the 
activities of fishing boats operating illegally in Timorese 
waters in February 2008.  He characterized FRETILIN's public 
criticism of the boat purchase as hypocritical in light of the 
fact that they had initiated contact with the Chinese - probably 
in 2006 - on this particular procurement.  Interestingly, Gusmao 
went on to say that Member of Parliament and ex-Minister of 
State Administration Ana Pessoa Pinto had confided to him on 
August 28 that the only reason FRETILIN's leadership was upset 
was because of Gusmao's decision to select FRETILIN founding 
member, Abilio Araujo, to serve as the broker for the deal. 
Previously, Araujo served as FRETILIN's representative to 
Portugal during the Indonesian occupation, but was expelled from 
the party in 1994 because of a dispute with Alkatiri. 
KLEMM