VZCZCXRO6614
RR RUEHDT RUEHLMC
DE RUEHDT #0026/01 0280815
ZNR UUUUU ZZH
R 280815Z JAN 09
FM AMEMBASSY DILI
TO RUEHC/SECSTATE WASHDC 4210
RUEHLMC/MILLENNIUM CHALLENGE CORP
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHDT/AMEMBASSY DILI 3714

UNCLAS SECTION 01 OF 02 DILI 000026 
 
SIPDIS 
 
EAP DAS MARCIEL; MCC FOR THRESHOLD PROGRAM UNIT; EEB/IFD/ODF; USAID PDELP/JLANG; 
USTR EBRYAN; TREASURY BPELTON 
 
E.O. 12958: N/A 
TAGS: PREL PGOV MCC ECON EFIN TT
SUBJECT: TIMOR-LESTE FORMALLY REQUESTS MCC THRESHOLD PROGRAM 
 
¶1.  Summary.  Embassy Dili received on January 27, 2009, a 
letter (see below) from Prime Minister Xanana Gusmao to John J. 
Danilovich, CEO of the Millennium Challenge Corporation (MCC). 
The Prime Minister accepts the offer of eligibility under the 
MCC's Threshold Program in response to a Danilovich letter of 
December 20, 2008.   The Prime Minister designates Dr. Joao 
Saldanha as the Timorese government's point of contact for the 
Threshold Program.   Embassy and USAID Mission Dili 
representatives will meet with Dr. Saldanha and his team on 
January 30 to initiate work towards an MCC Threshold Program 
proposal.  Prime Minister Gusmao also asks that the MCC again 
review Timor's eligibility for an MCC Compact at the next 
meeting of its Board of Directors.  End summary. 
 
¶2.  The full text of PM Gusmao letter follows. 
 
Begin text (quoted verbatim). 
 
His Excellency John J. Danilovich 
Chief Executive Officer 
Millennium Challenge Corporation 
January 23, 2009 
 
Ambassador Danilovich: 
 
This is to acknowledge that Timor-Leste government has received 
your letter dated December 20, 2008 regarding Timor-Leste's 
eligibility for Threshold Program.  As you aware, Timor-Leste 
have completed compact submission for MCC in 2008 which was 
comprised of Constraint Analysis, Public Consultations, two 
concept papers (on roads and vocational education) and a mini 
concept paper for Strengthening Institutions to Fight 
Corruption.  A documentation of the new policy reforms was also 
reported to the MCC in 2008. 
 
Although we were disappointed for not being re-selected as 
compact eligible country, we are happy to accept the Threshold 
Program.  For coordination of the Threshold Program and the 
principal liaison with the MCC, Mr. Joao Mariano Saldanha, PHD 
will continue to the government's Point of Contact within the 
Ministry of Finance. 
 
Finally, based on the results of compact development and Policy 
Improvement Plans (PIPs) last year, we would like to propose to 
the MCC Board to reconsider Timor-Leste's eligibility for 
compact in its forthcoming meeting.  However, signing of compact 
assistance is subject to Timor-Leste passing of weak indictors. 
 
Thank you very much and looking forward for another productive 
year of cooperation. 
 
Sincerely, 
 
 /s/ 
 
Xanana Gusmao 
Prime Minister 
Democratic Republic of Timor Leste 
 
End text of letter. 
 
¶3.  Comment.  One concern facing Dr. Saldanha and his colleagues 
is their loss of policy leverage resulting from the MCC decision 
not to renew Timor's Compact eligibility in December 2008.  Last 
year, the Minister of Finance and her MCC team used the "MCC 
effect" - inter alia the promise of a large U.S. investment as 
long as Timorese policy and performance improved - to press and 
badger other ministers and members of parliament to make and 
support policy advancements, from the creation of an 
anti-corruption commission to accepting the principle of 
competitive international bidding for major procurement 
projects.  To recover some leverage and encourage full and 
enthusiastic participation in the development of a Threshold 
proposal, Prime Minister Gusmao included in the last paragraph 
of his letter a request that the MCC Board again review Timor's 
eligibility for Compact status.  As stated in his letter, the 
Prime Minister recognizes that Timor cannot receive compact 
eligibility again until it turns all the necessary indicators 
green.  Accordingly, in conversation with the ambassador, Dr. 
Saldanha asked whether, even as work towards a Threshold Program 
begins, the Board could soon issue a statement that reaffirms 
the principle that Timor can again be eligible for Compact 
status, and once eligibility is again secured, that negotiations 
towards a compact will resume promptly. 
 
¶4.  Both the Embassy and USAID Mission in Dili will quickly 
engage Dr. Saldanha on a Threshold Program proposal.  At this 
point of transition from working with the MCC Compact 
Development team, to supporting the efforts of the MCC Threshold 
 
DILI 00000026  002 OF 002 
 
 
Program unit in Timor-Leste, Embassy Dili would like to 
recognize and thank Vice President John Hewko and his team for 
the tremendous energy, commitment and creativity they brought to 
their work with Timor-Leste.  We were very grateful throughout a 
challenging year for their consistently prompt and constructive 
assistance, wisdom and counsel.  Moreover, the enthusiasm and 
dedication that Darius Nassiry, Richard Day and many others 
brought to their cooperation with the Timorese will have our 
long-lasting admiration.  The labors of the MCC Compact 
Development Team built a great reservoir of confidence, trust 
and a spirit of partnership among the Minister of Finance and 
her MCC squad, and made Timor's difficult decision to support a 
transition to a Threshold Program possible.  End comment. 
KLEMM