Cablegate: Coordinator for Assistance Transition Meets With

DE RUEHGB #2994/01 3171355
R 131355Z NOV 09



E.O. 12958: N/A

1. (SBU) Summary: On November 5, Coordinator for Assistance
Transition Patricia Haslach, EMIN, Finatt, and Brigadier
General Stephen Lanza met Minister of Finance Baqir Jabr Al
Zubaidi to discuss follow up to the Dialogue on Economic
Cooperation (DEC) and the U.S.-Iraq Business and Investment
Conference as well as the discussions between the
International Monetary Fund (IMF) and the Government of Iraq
(GoI) on a Stand-By Arrangement (SBA). Haslach also asked
about talks with the World Bank on Development Policy Loans
(DPLs); the 2010 GoI budget; the International Compact with
Iraq (ICI); debt relief negotiations with China; the Iraq
Financial Management Information System (IFMIS); exemption
from customs duties for U.S. humanitarian assistance; and
budgeting for employment of the Sons of Iraq. End summary.

Follow up to DEC and USIBIC

2. (U) At a November 5 meeting, Haslach thanked Minister Jabr
for his participation and leadership of the Iraqi delegation
at the DEC. She reported that all USG participants were
pleased at the substantive engagement on issues. "It was a
real dialogue," she said, and underscored the importance of
following up with the Strategic Framework Agreement (SFA)
working groups. Haslach handed the Minister a copy of Under
Secretary Hormats' DEC letter to Jabr, stressing we were
interested in the Minister's reaction to our proposed path

IMF Stand-By Arrangement and World Bank DPL Discussions
--------------------------------------------- ----------

3. (SBU) Jabr described negotiations with the IMF on the SBA
program as near completion. He had informed the IMF that the
GOI agreed with a USD 73 per barrel threshold oil price,
above which the GoI would not draw on the SBA. Contrary to
earlier indications, Jabr stated that he did not require
approval from the Prime Minister on the threshold oil price.
The Minister recalled that the Fund had requested the budget
be cut by USD 1.5 billion. This was not possible, he
explained, as the budget already had been sent to the Council
of Representatives (CoR), and the IMF has subsequently backed
away from its request. He also noted that the size of the SBA
had declined from USD 4.5 billion to 3.8 billion based on
earlier discussions with the Fund. He noted that passing the
2010 budget and reaching agreement with the World Bank on the
DPLs were the final issues that the GoI must resolve.

4. (SBU) Haslach asked about the World Bank's willingness to
extend a DPL. Jabr stated that the Bank was willing to lend
USD 500 million, but the GOI was hoping for more. He
recounted the Prime Minister's visit with World Bank
President Robert Zoellick in Washington at which Zoellick
professed that the Bank was strapped for funds. Increased
lending to the GOI would require an increase in the Bank's
capital, a topic Zoellick suggested the PM take up with the
Treasury Secretary. Jabr repeated earlier requests for
bilateral U.S. budget support and for help making Iraq's case
before the World Bank. Finatt noted that, at this point, it
appeared unlikely that the World Bank would extend a DPL over
$500 million. The World Bank will send a team to Baghdad in
mid-November to work out the details of the DPL.

2010 Budget

5. (SBU) Jabr was pleased that the first reading of the draft
2010 budget has passed the CoR and noted that the atmosphere
for passage of the budget was "favorable." Last week, he was
summoned to the CoR Finance Committee expecting to discuss
the 2010 budget but, was "grilled" for three hours on the
2009 budget instead. He said he will return to the CoR
Q2009 budget instead. He said he will return to the CoR
Finance Committee to discuss the 2010 budget soon.

International Compact with Iraq

6. (SBU) Regarding the ICI meeting on November 7, Jabr stated
that the Prime Minister does not support the notion of a
"compact," and would prefer a term that reflects the "new
partnership." Haslach agreed and noted that the USG is
prepared to work together with strong GOI leadership and with
the international community on a new relationship between
donors and the GOI. Jabr provided a copy of his ICI speech,
which reviewed GOI accomplishments over the last year and a

Debt Negotiations with China

7. (SBU) Jabr reported that Dr. Azez Jaffar, his Special

BAGHDAD 00002994 002 OF 002

Advisor, was in China to finalize a debt reduction agreement.
Azez indicated that the Chinese have demanded interest
payments to cover the period since the debt reduction MOU was
first signed in July 2007 and that the 20 percent in
remaining debt should be repaid in 5 years. Jabr had
instructed Azez not to agree since this was contrary to Paris
Club rules, but still hoped the Chinese would finalize the
deal. (Note: Subsequently, Post learned that the Chinese had
agreed to a deal consistent with Paris Club terms. Azez
initialed on behalf of the GOI, but the final agreement will
be signed by the Finance Minister.)


8. (U) Haslach expressed understanding of past problems of
the IFMIS database system but stressed that the USG wants to
help the GOI fix it. Haslach proposed that a team from the
IFMIS vendor, Freebalance, come to Baghdad to work on the
system. Finatt noted that the visit of the Freebalance team
should be arranged at a time when the General Director of the
Budget Department could give them her undivided attention,
probably after work on the 2010 budget is completed. The
Minister agreed.

Customs Duties Exemption for Humanitarian Assistance
--------------------------------------------- -------

9. (SBU) Haslach recounted continuing problems with
USG-funded goods being delayed in customs that should be
accorded duty-free treatment. She asked the Minister to
impress upon the Director General (DG) of Customs the need to
conclude a memorandum of understanding (MOU) to exempt these
goods from customs duties. She noted that the DG of Customs
has not taken action since May when Prime Minister Maliki had
instructed the MOF to exempt these goods from duties in
accordance with the U.S.-Iraq Assistance Agreement. Jabr
reported that he had pushed the DG of Customs on this issue
the previous day. Finatt recalled the history of
developments, with the Minister directing an MOU be crafted
to implement the PM's directive on a shipment-by-shipment
basis, with the USG certifying shipments that should be
accorded duty-free treatment. Haslach provided a copy of a
draft MOU that would achieve this objective. (Note: The MOF
is expected to sign the MOU this week. End note).

Sons of Iraq

10. (SBU) General Lanza noted that some Sons of Iraq had not
been fully transitioned into ministries this year and
emphasized the importance of budgeting for their employment.
Jabr responded that he believed the 2010 budget provided
sufficient funds for the Sons of Iraq. He recalled that the
2009 supplemental budget was to provide extra funds to the
Ministry of Interior (MoI), if needed, to pay the Sons of
Iraq this year. If the MoI needed extra funds this year, the
Minister said he would advance them the necessary monies from
the 2010 budget.

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