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Cablegate: Report On Hormats-Mahdi Meeting in Washington -

VZCZCXYZ0013
PP RUEHWEB

DE RUEHC #5831 0211235
ZNR UUUUU ZZH
P 211228Z JAN 10
FM SECSTATE WASHDC
TO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0000
INFO RUEHDO/AMEMBASSY DOHA PRIORITY 0000
RUEHMK/AMEMBASSY MANAMA PRIORITY 0000
RUEHRH/AMEMBASSY RIYADH PRIORITY 0000

UNCLAS STATE 005831

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EPET PREL PGOV EINV ECIN EAID EBEXP BTIO IZ
QA, SA, BA
SUBJECT: REPORT ON HORMATS-MAHDI MEETING IN WASHINGTON -
13 JAN 2010

REF: BAGHDAD 00036

1. (SBU) Summary: On January 13, 2010 Under Secretary for
Economic, Energy and Agricultural Affairs, Robert Hormats and
Iraqi Vice President Adel Abd' Al-Mahdi addressed several
major economic challenges faced by Iraq. Al-Mahdi said that
he is ready to see the debt issues with Gulf Arab neighbors
settled, and hopes this can be achieved without having to
delve into broader political issues. He expects the 2010
Budget to be adopted "very soon ... within days." He agreed
that Iraq's poor ranking on the World Bank's "Ease of Doing
Business Scale" reflects needs to reform and update Iraq
business and investment laws, regulations and practices.
While not fully informed about the issue of Iraq demands to
amend already initialed oil development contracts, Mahdi
acknowledged how such actions would erode investor confidence
(oil and non-oil), but feels that greater involvement of U.S.
oil companies in Iraqi oil development is needed and would
send a good message. He identified building mutual
confidence, also, as the key to resolving the differences
between the central government in Baghdad and the Kurdish
Regional Government (KRG) over the Hydrocarbons Law. Taking
a long-term view, Mahdi especially wants to involve Iraq's
citizenry broadly in the economic development process through
exemplary "pilot projects" (public or private) and expanded
efforts for training and education. Responding to a
suggestion that Iraq might be a good place to establish new
Qualified Industrial Zones (QIZs), U/S Hormats explained that
the whole topic of QIZs has become politically contentious in
the U.S., reflecting desires to see greater job creation at
home, and concerns over foreign labor and environmental
practices. End Summary.

2. (SBU) During their hour long meeting, U/S Hormats and
Iraqi VP Adel Abd' Al-Mahdi discussed several of the major
economic challenges facing Iraq. Without prompting from U/S
Hormats, VP Al-Mahdi raised the issue of debt reduction
noting that it continues to weigh on Iraq, and referring to
the fact that the debts of the prior regime to Iraq's Gulf
Arab neighbors are still unresolved. Al-Mahdi said Iraq
seeks good relations with all its neighbors and should be
viewed as a "bridge" between the Arab nations to its south
and west, and the Turks and Iranians to the north and east.
It would be wrong, he said, to see Iraq as being on the Arab
"front line" against Iran. While giving no specifics, he
said he is consulting with Qatar and Bahrain. He also
mentioned a letter he recently sent appealing to the Saudi
King for an end to harmful rhetoric and the establishment of
good neighborly relations.

Economic Reform
---------------

3. (SBU) Recalling that Iraq had once been the bread basket
of the Middle East, but now is a net food importer, U/S
Hormats encouraged the GOI to undertake necessary economic
and regulatory reforms. He pointed to the World Bank's
ranking of Iraq at 152 of the 181 countries on its "Ease of
Doing Business" scale. He said all sectors of the economy
would benefit from reform, and job creation would accelerate
if the GOI makes concerted and persistent efforts to improve
its investment climate through such measures as establishing
a one-stop-shop for foreign and domestic investors, and by
joining the international arbitration conventions.

4. (SBU) Hormats also noted that concluding the Stand-by
Arrangement with the IMF depends on the passage of the 2010
Budget, and that this needs to happen soon - at least one
month before the national elections on March 7. Al-Mahdi
responded that, "the budget will be passed by the Council of
Representatives in the next few days." He had "good
discussions" with the World Bank (WB) earlier in the day, but
noted that of the $500 million in International Development
Assistance (IDA) that the WB granted Iraq in 2004, only about
$200 million has actually been disbursed. He admitted that
Iraq's legal and regulatory framework has impeded
disbursements, and said he has been working to address these
issues since 2004-05, when he was Minister of Finance. He
said that improving conditions for investment should be a
"top priority" for the new government.

Investment
----------

5. (SBU) VP Al-Mahdi said he would look into the details
related to recent oil development contract revisions, adding
that greater participation by American oil companies in
Iraq's oil development would send a confidence building
message. He said Iraq wants to have petroleum development
relationships with all parts of the world, including the
United States -- not just China, Russia and a few others. He
wondered why ExxonMobil was the only American company to make
a bid.

6. (SBU) Hormats explained that many factors enter into the
investment decision calculations that oil companies make.
Each has its own global market outlook, technical
requirements, and business needs. Given another opportunity,
some might reconsider and participate. Both for oil and
non-oil investment, the best things Iraq can do are pass the
Hydrocarbons Law, avoid actions that confuse or discourage
investors, and make the reforms needed to improve the overall
investment climate.

7. (SBU) On the Hydrocarbons Law, Hormats urged reconciling
the differences between the central government in Baghdad and
the KRG. Al-Mahdi responded that the differences surrounding
the Law boil down to "just a few words." The main issue, he
said, was confidence, and that building Baghdad-KRG
confidence should be a top priority after the elections.

8. (SBU) Al-Mahdi said that business investor confidence
would also be improved by resolving the "American claims,"
referring to the lawsuits of the American victims of the
prior regime. Al-Mahdi sees great benefits coming from
well-executed "pilot projects," that when shown to be
successful could be readily duplicated around Iraq. "Make
one good bank and others will follow; similarly for a
supermarket, or a hotel, or an airport," he said.

Education
---------

9. (SBU) Al-Mahdi noted that while Iraqis are good workers,
having lived in isolation for decades, they need education
and training to catch-up and connect with the rest of the
world. His advisor, Zuhair Homaidi, went on to explain
Iraq's new program for providing up to 10,000 scholarships
for Iraqis to study in universities in America and the United
Kingdom. Six to seven hundred students will participate in
the program during 2010, seeking bachelors, masters and
doctoral degrees; the numbers will increase at an
accelerating pace in future years. Now, the students can
choose their fields, but in the future studies in such areas
as engineering, the sciences, public administration and
education will be encouraged. U/S Hormats wholeheartedly
endorsed this emphasis on education, recalling how a similar

program helped to transform China in the 1970s and 1980s.

Qualified Industrial Zones
--------------------------

10. (SBU) Responding to Advisor Fareed Yasseen's inquiry as
to whether the U.S. would consider adopting the Qualified
Industrial Zone (QIZ) concept in Iraq, U/S Hormats explained
that QIZs were first established to tap Israeli investment to
employ Palestinian manpower, and then extended to Jordan and
Egypt and adapted in a different form to Afghanistan (the
latter without the Israeli investment component). However,
in today's environment, where creating new jobs for Americans
in the United States is a top priority, extending the QIZ
concept has many opponents in Congress. The American labor
and environmental lobbies are particularly critical.

11. (U) List of Participants:

USG
---
U/S Robert Hormats
NEA/I DAS Michael Corbin
E Staff Sara Yun
NEA/I-EAA Kevin Taecker

GOI
---
VP Abd' Al-Mahdi
Amb Samir Sumaidaie
Advisor Muhammed Al-Hakim
Advisor Zuhair Homaidi
Advisor Fareed Yasseen
ISCI-DC Rep Karim Almusawi
CLINTON

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