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Cablegate: Afghanistan - Pressures On Food Prices Increase In

VZCZCXRO5384
PP RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #0056 0051149
ZNR UUUUU ZZH
P 051149Z JAN 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 2258
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0581
RUEHZG/NATO EU COLLECTIVE
RUEAIIA/CIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/OSD WASHINGTON DC
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS KABUL 000056

SIPDIS

SIPDIS

DEPT FOR EB/IFD/ODF, SCA/FO, AND SCA/A
DEPT PASS AID/ANE
DEPT PASS OPIC FOR MOSBACHER AND ZAHNISER
TREASURY FOR MNUGENT, BDAHL, AND SSEGAL
NSC FOR JWOOD
OSD FOR SHIVERS

E.O. 12958: N/A
TAGS: EAID EFIN PREL AF
SUBJECT: AFGHANISTAN - PRESSURES ON FOOD PRICES INCREASE IN
NOVEMBER

REF: A. A) 07 KABUL 4007

B. B) 07 ISLAMABAD 5256

SUMMARY

1. (SBU) Increasing food prices have been a concern since
the summer, but the situation deteriorated in November. In
December, Pakistan, the major source of imported wheat for
Afghanistan, formally imposed a 35% duty on wheat exports,
after a November in which the Afghans perceived sporadic
Pakistani attempts to hinder wheat exports. This tariff
increase may further complicate the December inflation
picture in Afghanistan, as well as in the coming months.

FOOD PRICES CONTINUE TO RISE

2. (U) The latest Consumer Price Index (CPI) figures from
Afghanistan,s Central Bank (Da Afghanistan Bank) show that
end-of-period, year-on-year overall CPI rose 15% between
November 2006 and November 2007. The price of food
increased 23.2% and bread and cereals, a staple in the
Afghan diet, increased 37% in the same period. These
figures are based upon prices in Kabul.

3. (U) This is a deterioration of an already difficult
situation for most Afghans. As the Ramadan and Eid events
concluded, food prices had declined slightly from 15.8% in
September 2007 to 14.9% in October 2007, compared to the
same periods in 2006.

POLITICAL PRESSURE TO RESPOND

4. (U) In response to high prices, the Finance Minister
announced on Jan. 2 a temporary lifting of import duties on
wheat and flour and a reduction in cooking oil duty from
3.5% to 2.5%. According to a Ministry of Finance source,
President Karzai made this decision.

4. (SBU) The increasing pressure in the Cabinet and
Parliament to respond to high food prices has resulted in
some senior officials unhelpfully advocating for a move
away from the free market approach. Specifically, some
Cabinet members are advocating for the revival of state-
owned enterprises, including one to distribute food at
subsidized fixed prices. The Finance Minister has argued
to both Cabinet and Parliament,s Economic Committee against
movement away from open market economic principles, and he
is likely to face continued pressure once Parliament
reconvenes in late January. In a recent meeting,
Ambassador Wood and the Finance Minister discussed food
prices and Ambassador Wood emphasized the critical
importance of the free market in Afghanistan.

COMMENT

5. (U) Post will continue to closely follow the price
increase figures, and any IROA policy responses. The
December CPI figures are expected after January 10.
WOOD

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