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Cablegate: Council of Ministers Issues Regulations to Improve

VZCZCXRO4529
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0507 0530923
ZNR UUUUU ZZH
R 220923Z FEB 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 5842
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS BAGHDAD 000507

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN PGOV IZ
SUBJECT: COUNCIL OF MINISTERS ISSUES REGULATIONS TO IMPROVE
BUDGET EXECUTION

1. (U) According to internal GOI memoranda, the Council of
Ministers (CoM) agreed in a January 27 meeting to a package
of reforms aimed at improving Iraq's capital budget execution
performance. The new regulations stipulate formation of
internal ministerial contracting committees (chaired by the
head of each ministry/agency or designee) to review
contracts. For the ministries of Defense, Interior, Oil,
Trade, Health, Electricity, Industry and Minerals, Water
Resources, and Municipalities and Public Works, the attendant
internal contracting review committees are authorized to
approve contracts worth up to USD 50 million (whereas the
previous ceiling was USD 20 million for Defense, Oil,
Electricity and Trade, and USD 10 million for the others).
Other ministries not listed above may approve contracts worth
up to USD 30 million (up from a previous ceiling of USD 10
million). The governorates are authorized to approve
contracts worth up to USD 10 million (up from USD 5 million).

2. (U) The regulations also stipulate that heads of
ministries and agencies not linked to a ministry may
authorize a designee to approve contracts, but only contracts
whose value do not exceed USD 5 million. For governorates,
the threshold is USD 3 million. For contracts exceeding the
aforementioned thresholds in para 1, the regulations outline
the creation of a new "Central Contracts Committee" (to
replace the former Contracts Committee) chaired by the State
Minister for Council of Representatives Affairs (currently
Dr. Safa al-Safi) and including representatives from the
Ministries of Finance and Planning, Board of Supreme Audit,
and the CoM Secretariat.

3. (U) Stemming from the same January 27 meeting, the CoM
Secretariat also outlined a new procedure intended to

SIPDIS
simplify the process for opening letters of credit L/Cs Under
the new guidelines, L/Cs worth less than USD 2 million will
be transferred from the Trade Bank of Iraq (TBI) to private
banks with reliable correspondent accounts for processing.
According to the instructions, 72 percent of the number of
L/Cs opened in 2007 fell under this criteria and comprised
approximately 7.5 percent of the total value of L/Cs opened
in 2007. Furthermore, L/Cs worth less than USD 2 million will
no longer need to be processed by the Ministry of Finance.
Instead, L/C applications fitting this criteria may be sent
directly to the Central Bank of Iraq for processing provided
that a copy of the contract is sent simultaneously to the
Ministry of Finance for review. A new account (that will be
replenished periodically) for the Ministry of Finance will be
opened at the TBI with a minimum of USD 250 million expressly
for L/Cs valued at under USD 2 million.

4. (U) For L/Cs worth more than USD 2 million, the CoM issued
new procedures intended to streamline processing, including
opening a "help desk" of sorts at the Ministry of Finance and
mandating responses on L/C applications from the Ministry of
Finance within 5 working days, after which approval from the
Ministry of Finance should be assumed. The new procedures as
outlined attempt to reduce the amount of time required to
open L/Cs to no more than two weeks.

-------
Comment
-------

5. (SBU) The efficacy of the proposed reforms will become
apparent as they are implemented. While GOI attempts to
improve budget execution are certainly welcome and should be
encouraged, the underlying problem of an overall lack of
capacity remains. Furthermore, although the L/C reforms state
explicitly that approvals should be assumed if the Ministry
of Finance does not respond within 5 working days, in
practice we have rarely seen such implicit approvals to be
taken at face value.

CROCKER

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