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Cablegate: Iraq - 2010 Budget Issues: Initial View From The

VZCZCXYZ0010
PP RUEHWEB

DE RUEHGB #3049/01 3231019
ZNR UUUUU ZZH
P 191019Z NOV 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 5501
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS BAGHDAD 003049

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON IZ
SUBJECT: IRAQ - 2010 BUDGET ISSUES: INITIAL VIEW FROM THE
COR

REF: BAGHDAD 3028

1. (SBU) Summary: On November 16, the Chairman of the Council
of Representatives' (CoR) Finance Committee discussed issues
in the draft 2010 budget with Emboffs. She confirmed the
Committee is trying to get final CoR passage of the budget
before mid-December so it can be signed by the Presidency
Council and published in the Gazette by the end of the year.
Contrary to the Committee's preliminary report, she stressed
that the Finance Committee agrees that the Ministry of
Finance (MoF) should be authorized in the budget law to
borrow from the International Monetary Fund (IMF) and World
Bank if necessary to cover a financial gap. The passage
suggesting that this authority be deleted was inserted by a
consultant as the report was rushed to the CoR for its second
reading. She would like to use the Committee's report on the
legislation to inform CoR members of the conditions under
which the MoF would borrow and the policy measures required
under these programs. While the KRG share of budgeted
expenditures will remain at 17 percent, she suspects that
certain KRG-related issues in the proposed budget are likely
to spark debate. The Chair recognizes the need for the CoR to
pass the 2010 budget in early December so the GOI will have a
new budget in 2010 rather than operating on a continuing
resolution. As the second reading was concluded on November
17, the next step will be the final vote. End Summary

2010 Budget and IMF

2. (SBU) Emboffs and the local World Bank manager of the
Public Finance Management project met with the Chair of the
Finance Committee, Ms. Ala'a A. Alsadon, to gain her views on
potential issues with respect to the 2010 proposed budge. She
immediately raised the commentary in the Committee's
preliminary report to the CoR proposing deleting the
provision that would authorize the MoF to borrow from the IMF
and World Bank. She claimed that the provision had been
inserted by a consultant as the report was rushed to the
floor for the CoR's second reading of the budget. The
Committee does not agree with the language and it will not be
included in the Committee's final report. Ms. Ala'a said that
she had discussed the issue with the Finance Minister and the
Deputy Governor of the Central Bank and that the Committee
would retain the original language as submitted by the MoF to
authorize the borrowing. The Minister assured her that the
MoF would borrow only if needed to finance the programmed
2010 budget deficit.

3. (SBU) Ms. Ala'a reported that some CoR members were
concerned about possible conditions for the loans that could
adversely affect the Iraqi people, such as terminating the
public distribution system (PDS). The World Bank rep assured
her that measures envisaged with respect to the PDS were not
different from the Committee's own objectives, e.g. a
political statement about the need for the PDS to be more
targeted to meet the needs of the truly poor. The World Bank
rep suggested that she obtain the list of policy measures
from the MoF, noting that the measures are set but would not
be considered final until the loan agreement is signed with
GOI authorities. The Chair said that her idea is to include
the policy measures and the conditions under which the MoF
would borrow from the Bank and the Fund in the Committee's
final report. This, she thought, would assuage concerns of
some of the parliamentarians.

KRG in the Budget

4. (SBU) Ms. Ala'a confirmed that the proposed 2010 budget
provides for 17 percent of expenditures to be transferred to
the KRG, net of national expenses, as last year. The 2010
Qthe KRG, net of national expenses, as last year. The 2010
proposed budget contains some provisions that are likely to
draw the attention of the Kurdish CoR members. For example,
the budget proposes that the Minister of Finance be permitted
to deduct the cost of damages caused by a region or province
as a result of not delivering crude oil to the Ministry if
Oil for export or domestic consumption. In addition, the MoF
includes the cost of the Bakhman dam in KRG's expenditures
even though the dam will benefit the entire country, not just
the Kurdish areas. According to Ms. Ala'a, the first measure
is already being studied in another context and should not be
included in the budget. With respect to dam costs, she
believes those should be included as a national expenditures,
not KRG expenditure. (Comment: Her strategy seems to be to
avoid these controversial issues in the CoR as they could
delay the final vote on the budget.)

Timing

5. (SBU) The Chair still has the goal of having the budget
published in the Official Gazette by the end of the year. She
is disappointed that the relevant CoR committees have not yet

met with the ministries for which they have oversight and
sent reports to the Finance Committee. Nonetheless, the CoR
concluded the second reading of the budget on November 17.
The upcoming Eid holiday will delay work on the budget until
early December. Ms. Ala'a recognizes that passage of the
proposed budget would need to take place in the first two
weeks of December since by mid-month CoR members will drift
away to begin campaigning. Passing the proposed 2010 budget
would allow the GOI to increase expenditures in areas
important to the people of Iraq. Operating on the basis of a
continuing resolution would mean using 2009's lower
expenditures and priorities.

6. (SBU) Getting the final vote on the budget by mid-December
will be a close call. The Finance Committee recognizes the
need to pass the legislation. The Chair senses a 'positive'
atmosphere in the CoR about the budget, particularly since
they are considering on schedule. If the budget is passed by
the CoR, signed by the Presidency Council, and published in
the Official Gazette so it becomes law by the end of the
year, it would mark the first time this GOI had passed a
budget before the beginning of a new fiscal year.
HILL

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