JORDAN: DAS SATTERFIELD DISCUSSES PROPOSED

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 006722

SIPDIS

TREASURY FOR DAVID LOEVINGER/LARRY MCDONALD

E.O. 12958: DECL: 11/13/2007
TAGS: EFIN EAID JO
SUBJECT: JORDAN: DAS SATTERFIELD DISCUSSES PROPOSED
ASSISTANCE PACKAGE


Classified By: AMBASSADOR EDWARD W. GNEHM, JR. REASONS 1.5 (B) AND (D)
.


1. (c) Summary. In meetings with the Jordanian Prime
Minister and Finance Minister, DAS Satterfield was told that
answers to the U.S. questions regarding possible supplemental
economic assistance for Jordan would be ready within the
coming week. The ministers agreed that additional U.S.
assistance could be structured so as to address the basic
objective of weaning Jordan off its economic dependence on
the Iraqi oil grant within the framework of its existing IMF
supported economic program. While there is a need for
further discussion of the details of such a transition, both
the Prime Minister and the Finance Minister accepted the need
for economic conditionality that supported this objective.
Both sides acknowledged the need to foster support in the
U.S. Congress. The Prime Minister said there had been no
movement on a proposed Kuwaiti-Saudi-UAE oil package and
asked for continued U.S. involvement. The finance minister
briefed on the positive economic performance so far this
year. End Summary.


2. (c) DAS Satterfield met separately with Finance Minister
Michel Marto and Prime Minister Abul Ragheb on November 13 to
follow-up on the November 1 Jordanian-U.S. discussions in
Washington of a supplemental assistance package for Jordan.
Foreign Minister Marwan Muasher joined Abul Ragheb.
Ambassador Gnehm, Treasury Deputy Office Director Marshall
Mills, and Econ/c Goldberger accompanied Satterfield.

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Follow-up Questions
--------------


3. (c) Abul Ragheb explained that the Jordanian government
had been working on answers to the five follow-up questions
that emerged from the Washington meetings. He said that this
work was not yet finished, mainly because of uncertainty over
the intent of the fourth question relating to social spending
programs. Satterfield explained that the question was
looking for reassurance that Jordan would use additional
resources made available by the United States within its
existing budgetary structures and targets agreed with the
IMF. Additional resources should compensate for revenue
losses (and perhaps exceptional spending needs) associated
with the dissolution of Jordan's special economic
relationship with Iraq. The goal or philosophy behind
extraordinary assistance would be to facilitate the creation
of an independent Jordanian economic system that is
sustainable over the long term, Satterfield said. As part of
this, Satterfield stressed the need to establish market
pricing for petroleum products.


4. (c) Both Abul Ragheb and Marto agreed with these
objectives. They understood that current fiscal dependence
on the Iraqi oil grant was not sustainable. They agreed it
was necessary to have a plan for making a transition to
petroleum product prices set by market forces. They also
accepted the need for the U.S. to put economic conditions on
the use of assistance. Marto in fact welcomed such
conditionality as giving him additional leverage to promote
reforms. Abul Ragheb's comments suggested, however, a need
for further discussions about the details and timing of a
transition to market prices. He said, for example, that oil
produce prices could be raised in annual increments of 7% per
year for five years (which doesn't add up). (Comment: the
visiting IMF team told Mills and Goldberger earlier in the
day that they thought a 50-60% increase in average product
prices needed to meet world prices could be achieved over two
to three years.) Abul Ragheb noted that the Administration
was considering a multi-year ESF package. He pointed out
that the most significant economic consequences of any
confrontation with Iraq would occur during the first year.
He argued for maximum disbursals early on.


5. (c) Abul Ragheb appreciated the guidance from
Satterfield and said the he would work to have the answers
ready by early in the week of November 19. Abul Ragheb asked
wither additional assistance would be provided even if there
were no conflict in Iraq. Satterfield responded that that it
was unclear, but that Congressional support would be more
problematic if there were no conflict. Mills also said he
would be available for any further technical discussions.

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Iraq Debt
--------------


6. (c) Abul Ragheb also raised the possibility of
supplementing U.S. assistance with repayments of what he said
was the $1.4 billion in old debt owed by Iraq to Jordan. He
suggested that if this debt were repaid over five years it
could help cushion the fiscal impact of having to buy oil at
market prices. Satterfield said he would transmit this to
Washington, but noted that other creditors also had
significant claims on Iraq.

--------------
Oil Package
--------------


7. (c) Abul Ragheb also confirmed that there had been no
new developments regarding the special oil supply package
suggested by Kuwaiti State Minister Muhammad al-Sabah. He
expected that such a package would include concessional
elements. King Abdullah had not specifically raised the
question with Crown Prince Abdullah in Riyadh the day before
(November 12),although he did receive general assurances of
Saudi support for Jordanian "brothers."

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Economic Performance
--------------


8. (sbu) Marto briefed on the outcome of the just completed
IMF mission. He said that the Fund thought the 2002 annual
real GDP growth target of 5.1% was attainable and that 2003
growth could reach 6%. Improved performance was based mainly
on strong export growth, tourism receipts, and remittances.
(Tourism receipts were 11% more in the first nine months of
2002 than the same 2001 period, as greater tourism from Arab
countries more than compensated for a lower number of
European and U.S. visitors.) Internal demand, however,
remained weak. Marto expected that all of the stand-by
program's year-end performance criteria would be met, despite
lower than expected fiscal receipts. He noted that this had
been achieved despite the uncertainties in the political
environment and appreciated U.S. economic support,
particularly for the Program for Social and Economic
Transformation (PSET). He said the government was continuing
to make progress on its structural reform goals, particularly
those connected with pension reform.


9. (c) Satterfield and Mills cleared this message.
GNEHM