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Cablegate: International Compact with Iraq: Oct 31 Pg Meeting Stresses

VZCZCXRO6410
OO RUEHBC RUEHDA RUEHDE RUEHDIR RUEHIHL RUEHKUK
DE RUEHKU #4309/01 3051431
ZNR UUUUU ZZH
O 011431Z NOV 06
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7415
INFO RUCNRAQ/IRAQ COLLECTIVE IMMEDIATE
RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE

UNCLAS SECTION 01 OF 03 KUWAIT 004309

SIPDIS

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SENSITIVE

E.O. 12958: N/A
TAGS: PGOV PREL EAID ECON EFIN ETRD EINV IZ KU

SUBJECT: INTERNATIONAL COMPACT WITH IRAQ: OCT 31 PG MEETING STRESSES
PRIORITIZATION, NEXT STEPS

1. (SBU) SUMMARY. At the Oct. 31 meeting of the Preparatory Group
(PG) for the International Compact with Iraq (ICI), the PG achieved
broad consensus that the current iteration was satisfactory, and
that critical next steps include reaching out to a broader range of
countries for participation in the Compact process, and finalizing
commitments with the aim of signing the ICI at the ministerial level
within a month to six weeks. Some PG members also raised defining
priority areas and the implementation process. Ranking members of
the Iraqi Council of Representatives expressed their support for the
ICI. D/S Robert Kimmitt outlined planned USG commitments to the ICI
and engaged Iraqi officials bilaterally on a range of issues
including inflation, donor commitments, and Compact next steps. END
SUMMARY.

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PG Meeting: Draft Accepted, Next Steps
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2. (SBU) At the Oct. 31 meeting of the Preparatory Group for the
International Compact with Iraq at the Kuwaiti Fund in Kuwait, the
PG achieved broad consensus that the current iteration was
satisfactory, and that, except for minor corrections, reopening the
text to major revisions would be counter-productive. Participating
were delegations from the EU, EC, Italy, Germany, Spain, France,
Japan, Korea, US, UK, World Bank, IMF, UN, Saudi Arabia, UAE,
Islamic Development Bank, and a range of GOI officials, including
DPM Barham Salih, Minister of Planning Ali Baban, and Central Bank
Governer Sinan Shabibi. Kuwait's Foreign Minister, Sheikh Mohammad
al-Sabah, opened the session by emphasizing the need for the GOI to
demonstrate leadership in the process, identify investment needs and
an implementation mechanism, and reach out to donor countries to
explain the ICI. Throughout the day, several themes were discussed
among PG members. These are:

3. (SBU) Political/Security Context: The Japanese and Korean
delegations further suggested including political/security
benchmarks in the Joint Monitoring Matrix (JMM), although other
delegations failed to support this suggestion, given the consensus
that the draft Compact should not be re-opened for major revision.
There was broad support for the notion that an improved security
situation was fundamental for the success of the Compact.

4. (SBU) Outreach: Many delegations, including the EC, UK, EU, and
World Bank, articulated the need to move the focus of the PG away
from additional textual iterations of the Compact documents, and
toward widening the circle of participation in the Compact process.
DPM Salih, in closing remarks, confirmed this consensus, and he and
UNDP assistant administrator Ad Melkert proposed a meeting at UNNY
to include the group of countries from the Sept. 18 meeting to gain
the widest possible participation. Some participants, including UN
DepSecGen Mark Malloch Brown, participating via DVC, emphasized the
need to encourage smaller donors to engage in the Compact process.
Brown and DPM Salih also stated the UN and GOI will undertake a
"roadshow" with select PG members in the coming months, to visit
capitals of potential donors and articulate the importance of their
full participation in the Compact process. Salih added a call for
PG members' assistance in encouraging engagement by potential donor
countries with which they may have influence, while stressing that
visible GOI leadership in the effort is essential.

4. (SBU) Implementation: The World Bank, Canada, EU, and the EC
agreed on the need for the PG to define before the final PG meeting
the ICI implementation mechanism. The EU also stressed the need for
the implementation effort to be GOI-led.

5. (SBU) Prioritization/Sequencing: In light of the Compact draft
having taken on substantial length during the drafting process, the
EU, UK, EC and World Bank delegations emphasized the need to
identify priorities and a plan for sequencing the many goals
outlined in the Compact document, particularly in the JMM. This
call was echoed by Deputy Prime Minister Barham Salih and Minister
for Planning Ali Baban, with Salih promising to undertake this
effort in consultation with the World Bank and UN in the next few
weeks. Such prioritization, particularly if clearly articulated in
the JMM, could play a useful role in refining the focus of the
Compact document on key areas for Iraq's economic development. As a
part of the prioritization effort, the World Bank, the UN and other
delegations stressed the need to identify "quick wins" that could
provide short-term gains in the period immediately following the
Compact signing.

6. (SBU) IRFFI: Canada, in their capacity as IRFFI chair, stressed
the need for a "recalibration" of the organization to strengthen
their points of contact with the ICI, and ensure IRFFI supports the
priorities of the GOI, the World Bank, and the UN. They stressed,
however, the need to do so without changing the legal underpinnings
of the organization. Many delegations noted that IRFFI remains an
effective tool for providing a framework for donor contributions,

KUWAIT 00004309 002 OF 003


including in the context of the Compact.

7. (SBU) Mutual Commitments: Commitments for donor support
articulated at the meeting include the following: EU: negotiating a
trade treaty the GOI, debt relief under Paris Club terms, technical
assistance, financial assistance though grants, community assistance
programs, dialogues on energy and political issues, and bilateral
assistance programs by EU member nations; Japan: financial
contributions, though grants and soft loans (including $3.5 billion
currently being implemented), debt relief, technical assistance,
IRFFI contributions, infrastructure development in the energy
sector, programs for basic human needs, governance and security;
Korea: on-going programs for capacity building, education,
vocational training, health, energy and electricity, debt
forgiveness under Paris Club terms (totaling $2.8 billion), new
funding this year under the ICI for $40 million, and programs for
2008 are currently under discussion; Italy: interventions in all
categories in paragraph 6.3 of the Compact draft, especially
security-related technical assistance, training in a range of
sectors, notably in antiquities, soft loans, and programs in
infrastructure development; Islamic Development Bank: reaffirmation
of previous agreements, particularly a $500 million package, of
which $245 million are for energy and essential services projects
and $50 million in free loans; Saudi Arabia: ID 200 million in
grants for education. The UK outlined general areas for targeted
support, including economic management, the energy sector and
support for reconciliation. The EC delegation indicated general
areas for support would include capacity-building, non-monetized
support such as the EU trade agreement. Germany, France and Spain
did not discuss commitments.

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D/S Kimmitt Comments and USG Commitments
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8. (SBU) In opening remarks, D/S Kimmitt, heading the USG
delegation, stressed a need for clarification of priority actions in
the immediate term. He emphasized that the Iraqis have done all
that has been asked of them in the Compact process so far in
detailing reform commitments, and that now is the time for
commitments from the international partners that will enable Iraq to
meet its goals. He also underscored the importance of the political
signal a successful ICI process will send.

9. (SBU) In remarks on Compact implementation and ways forward, D/S
Kimmitt outlined five keys areas of additional planned and on-going
US support: 1) full debt forgiveness, 2) technical assistance, 3)
investment promotion activities, including OPIC and other programs,
4) development assistance, and 5) security assistance, including a
request for billions of dollars for support for Iraq's security
forces, which would not only enhance security but would also free up
funds for other uses. Kimmitt pledged that more detail on these
commitments would be presented at the ministerial meeting, which
Secretary Rice would attend. He pointed out the financing gap

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between Iraq's investment needs and the internal and external
resources available to it, and noted that IRFFI provides experience
and infrastructure in helping facilitate donor commitments, and
urged the IFIs, especially those based in the Gulf region, to play
an active role. He also stressed the importance of improving the
GOI's budget execution.

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COR Participation
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10. (SBU) Two committee chairmen at the Iraqi Council of
Representatives participating in the PG meeting, expressing support
for the Compact process. Shaykh Humam Hamoudi, Chairman of the
Foreign Relations Committee, applauded the draft of the ICI, and
adding that the GOI will follow up to adopt the Compact and turn the
pledges in the ICI into actual programs on the ground. He also
stressed the value of the Compact process in bringing donor
countries such as Iran into the process, and that political and
security reform must happen in parallel with the economic reforms
outlined in the ICI. Haider al-Abadi, Chairman of the Economic
Committee, stated that the COR has committed itself to national
development, and applauded the ICI as a mechanism for working toward
that goal. He pointed to the draft Investment Law as a
demonstration of the COR's commitment to economic reform and an open
economy. He noted, however, that the COR faces a challenging
schedule of legislative priorities, and that the body is "learning
as we go."

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Additional GOI Comments
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11. (SBU) In his remarks to the PG, Ali Baban, Minister of Planning

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and Development Cooperation (MOPDC), Baban highlighted Iraq's
efforts to prioritize and organize itself to handle the challenges
presented by the Compact. He said that broadly speaking the
guidelines of his agency were to align Iraq' budgets and development
efforts with the National Development Strategy, Iraq's "grand plan"
for achieving its "national vision." The immediate challenge is to
plan for how best to invest the planned-for 70% increase in Iraq's
2007 capital budget. His priorities for deciding where the funds
should go relate to pressing needs to address unemployment and
underemployment, as well as problems for the environment and desires
to encourage the private sector, focused on three sectors:
agriculture, industry and banking. He also stressed the difficult
political and security situation in Iraq and that beginning to show
progress on the economic front will be part of the solution.

Deputy Secretary Kimmitt cleared this cable.


LEBARON

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