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Cablegate: Iraqi Legislative Case Study: Japanese Oda Loan

VZCZCXRO3524
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #4099/01 3511326
ZNR UUUUU ZZH
R 171326Z DEC 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 4899
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 004099

SIPDIS

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON EAID EFIN PGOV IZ
SUBJECT: IRAQI LEGISLATIVE CASE STUDY: JAPANESE ODA LOAN
RATIFICATION

REF: A. BAGHDAD SBU OI OF 10/24/07

B. BAGHDAD SBU OI OF 10/15/07
C. BAGHDAD CLASSIFIED OI OF 09/20/07
D. BAGHDAD CLASSIFIED OI OF 08/03/07
E. BAGHDAD 2568

1. (SBU) Begin Summary: Approximately one year following
initial agreement, a batch of Iraqi reconstruction assistance
projects financed with Japanese soft-loans has nearly
completed its journey through the Iraqi legislative process.
Currently, ten projects (valued at some USD 2.1 billion) have
been identified and agreed upon by the Government of Japan
(GOJ) and the Government of Iraq (GOI) through an Exchange of
Notes (E/N). The GOJ has encountered a number of obstacles
and experienced great frustration in securing Iraqi
legislative ratification for its Official Development
Assistance (ODA) loans. The Japanese ODA Loan experience
underscores a significant need to further capacity
development within the GOI, in both the executive and
legislative branches. With so much focus on the passage of
key legislation by the Iraqi Council of Representatives
(CoR), reflecting on the GOJ's experience may prove a useful
guide. End Summary.

----------
Background
----------

2. (U) At the Madrid Donors Conference in 2003, the GOJ
pledged USD 5 billion for reconstruction assistance in Iraq,
with USD 1.5 billion in grants and the balance in low
interest or "soft" loans. Since then, the GOJ has been
actively seeking to implement that assistance, and in early
2007 the Japanese and the GOI jointly identified 8 projects
that Japan would fund. The projects include removal of
wreckage from the Port of Umm Qasr as well as an effort to
rehabilitate the electricity sector across Iraq.

3. (SBU) To date, the Japanese have agreed (by E/N) to
finance 10 reconstruction projects with soft loans worth
approximately USD 2.1 billion. The loans carry an interest
rate of 0.75 percent with a repayment period of 40 years
(including a 10-year grace period). Originally, the Council
of Ministers (CoM) sought to include the first tranche of
four loans in the 2007 budget law as well as World Bank IDA
and Iranian loans among others. The CoR rejected the
inclusion of the loans into the budget bill, and insisted
that loan ratifications be considered separately from the
budget.

----------------------------------------
MoF: Azez does it all, but sometimes not
----------------------------------------

4. (SBU) In the intervening period between the 2007 budget
deliberations (which ended in February 2007) and the
reintroduction of the Japanese loans into a separate piece of
legislation, the GOJ and GOI signed a second E/N on 9 April
2007 covering 4 additional projects raising the tally to
eight. The Ministry of Finance carries the responsibility
within the GOI for loan agreements; a significant portion of
this responsibility apparently rests with senior advisor Azez
Hassan Jaffar. Azez would have been charged with preparing
the draft legislation concerning loan ratification.
Ratification of any of the loans was not reintroduced in
legislation until 22 July 2007 in the waning moments prior to
the August recess when the second tranche of loans (E/N
signed 9 April 07) had its first reading.

5. (SBU) Azez is similarly our primary interlocutor on a
number of fiscal policy issues, including sovereign debt
negotiations. Our GOJ contacts have complained that he is
very difficult to reach (often traveling out of country) and,
because of his involvement in so many different issues,
rarely focuses on the Japanese loan issue. The GOJ has
requested our help in identifying an alternate. We are
unaware of anyone who might be able to fill in for Azez and
believe this limitation has been and will continue to affect
the MoF's capacity to deal with a range of competing
priorities.

-----------------------
CoR Puzzled by Projects
-----------------------

6. (U) The Japanese loan legislation that had its first
reading on 22 July 2007 listed only 4 of the 8 projects
(specifically, the second tranche of four projects agreed
with a 9 April 2007 E/N) that had been agreed. The partial
listing engendered confusion in the CoR, the GOI, and the GOJ
(reftel E). The projects detailed in this piece of

BAGHDAD 00004099 002 OF 003


legislation included three reconstruction projects centered
in or around Basra, and the fourth an Iraq-wide electricity
sector reconstruction project. Because the GOJ failed to take
any action early lobbying for passage of their projects, the
legislation became vulnerable to unfair accusations, namely
that the projects disproportionately benefited only Shia in
the south. Still, in spite of some opposition, the CoR voted
29 July to approve the ratification of a tranche of Japanese
loans.

7. (SBU) In our conversations with various CoR members and
other GOI officials (refs A-D), the CoR exhibited a poor
understanding for the mechanism the GOJ used for identifying
projects. Many expressed concern that the projects were not
equitably distributed, but, when we reminded them that the
projects had been selected at a time when predominantly Sunni
areas, like Anbar, were not particularly stable, they
recognized the wisdom behind why no projects were located in
Sunni-dominated areas. We also stressed to our Iraqi
interlocutors that the CoR should not unduly delay passage of
the loans because the international donor community might
balk at providing additional assistance given the GOJ's
frustrations with its ODA loan ratification, which likewise
registered.

-----------------------------
PC Ratification Not Automatic
-----------------------------

8. (U) Although the Iraqi Constitution (Article 138, para 5)
defines the rules governing Presidency Council (PC) approval
of legislation passed by the CoR -- specifically that if the
PC takes no action on legislation within ten days from the
date of delivery to the PC, it should be considered approved
-- the Japanese loan experience illustrates it may be that in
practice, no legislation will be promulgated without explicit
PC approval, regardless of the time involved. For instance,
the ratification bill approved by the CoR on 29 July 2007
should have been considered passed according to a strict
interpretation of the aforementioned constitutional article.
However, according to CoR documentation, the PC vetoed the
legislation 13 September 2007, a period of time much longer
than that constitutionally permitted. Due to a lack of
transparency in the transmission of documentation, the PC is
able to manipulate the delivery date of documents, thus
providing an umbrella to rebut any claims that it has
exceeded the time allotted for consideration of legislation.
When it comes to the legislative process, we have learned
time and again that nothing, not even the timely delivery of
documents from one IZ location (CoR) to another (PC
Secretariat), can be taken for granted.

SIPDIS

--------------------------
Equitable Distribution Key
--------------------------

9. (U) The implied reason for the PC veto (responsibility for
which belongs to VP Tareq al-Hashimi) lies in the
interpretation of yet another article of the Iraqi
Constitution. Article 106 mandates the establishment of a
public commission, among whose responsibilities include,
"(the verification of) the fair distribution of
...international loans." Our conversations with CoR members,
particularly those affiliated with the Sunni al-Tawafuq
Front, indicate that their interpretation of the above
article is such that international loan financed-projects
that they consider not equitably distributed are
unconstitutional. We may expect further delays on similar
loan ratification bills (the Italians have pledged a sizable
amount of loan assistance to the agricultural sector) due to
a provision within the 2008 draft budget bill, which calls
for the equitable distribution of international loans to
provinces according to population (with the KRG due to
receive 17 percent), with the exception of "strategic"
projects.

--------------
Engage Hashimi
--------------

10. (SBU) The CoR overruled the first PC veto on four
Japanese loan-financed projects 17 November 2007, nearly two
months after the PC vetoed it. The Japanese might have been
able to dissuade VP Hashimi from issuing a veto in the first
place had they lobbied him earlier in the legislative
process. In fact, Ambassador Crocker garnered a pledge from
VP Hashimi during a 25 October meeting that Hashimi would no
longer hold up passage of the Japanese loan legislation.
Regarding the separate tranche of four projects, the CoR
approved the legislation 24 September 2007, with PC approval
on 4 November 2007. The final two projects of the 10 that

BAGHDAD 00004099 003 OF 003


have been agreed had their first reading in the CoR on 29
November 2007.

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

11. (SBU) The Japanese experience reaffirms the necessity to
further GOI capacity building efforts, particularly in the
CoR. With the benefit of hindsight, several of the pitfalls
the Japanese encountered might have been avoided; however,
navigating GOI parliamentary procedure is a relatively new
experience for all involved. In our conversations with the
Japanese, they have expressed disappointment that the process
has consumed much valuable time, but have expressed genuine
gratitude for our assistance in lobbying for the passage of
their loan ratification. In the future, early identification
and lobbying of all potential stakeholders will be crucial to
ensuring speedy, ultimate passage of any important piece of
legislation. At each and every stage of the process,
regardless of how minor it may seem, the potential to derail
any bill exists. End Comment.

CROCKER

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