IRAQ ECONOMIC RECONSTRUCTION: POST ASSESSMENT

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 004372

SIPDIS

DEPT FOR NEA/ARP, DEPT FOR EB/IFD - BRIAN MOHLER

E.O. 12958: 9/28/08
TAGS: ECON IZ PREL TC
SUBJECT: IRAQ ECONOMIC RECONSTRUCTION: POST ASSESSMENT



1. Classified by Ambassador Marcelle M. Wahba for reasons
1.5 (b and d).


2. (SBU) Summary: Post believes that the UAEG will make a
contribution to Iraqi reconstruction at the October donors'
conference. We believe that the UAEG's preference,
however, will be to provide "in-kind" contributions and
services rather than cash. After running a 9% of GDP
budget deficit in 2002, the UAEG significantly tightened
its purse strings over the past 10 months. By the end of
the year, the UAE will have already contributed between $80
to $100 million of humanitarian aid to Iraq, so an approach
that allows the UAE to pledge a multi year contribution is
likely to get a more positive response than a request for
immediate up-front cash. We believe that large-scale
assistance (i.e., providing technical training or credit
facilities) from the Arab Monetary Fund will likely be
dependent on resolving Iraq's outstanding arrears to the
AMF. End Summary.


3. (SBU) Post believes that the UAEG will make a
contribution to Iraqi reconstruction. The security and
stability of Iraq, and its ability to balance Iran, are a
national security priority for the UAE. UAEG officials
have told mission staff and official visitors repeatedly
that Iraq cannot be allowed to fail.


4. (SBU) Minister of State for Finance and Industry Dr.
Mohhamed Khalfan bin Khirbash repeated these points to
Undersecretary of State For Economic, Business, and
Agricultural Affairs Alan Larson on the margins of the
IMF/WB Annual Meetings in Dubai. Dr. Khirbash told
Undersecretary Larson that the UAEG had not focused on
participation or contributions for the Madrid conference
because it had been focusing on its preparations to host
the IMF/WB Annual Meetings. He pledged that the UAEG would
turn to this issue as soon as the meetings were over.


5. (C) Post is less confident about near term aid from the
Arab Monetary Fund. According to AMF Director General Dr.
Jassem Al-Mannai, Iraq owes the AMF approximately $368
million ($189 million in principal and $179 million in
unpaid interest) and is not eligible to participate in the
AMF's Arab Trade Financing Program. He also noted that the
AMF would take its direction on multilateral debt from the
IMF (rescheduling, but probably little or no forgiveness).


6. (SBU) While the willingness of the UAE to "step up to
the plate" is not in doubt, we are less clear about the
extent of their ability to provide large cash donations
this year. According to the IMF, the 2002 consolidated
budget deficit was approximately 9% of GDP. Higher oil
prices in the first half of 2003 have likely improved
revenues and the UAE still possesses substantial overseas
assets, but it will need to balance aid to Iraq with other
domestic and foreign policy priorities. On several
occasions during 2003, the UAE has deferred acquisitions or
offered "in kind" foreign aid rather than cash payments.
In fact, the UAE has already provided substantial "in-kind"
assistance: including building hospitals, offering training
to Iraqi bankers, and is considering training Iraqi police.


7. (C) Post suggests that our approach to the UAEG needs
to address two UAE concerns: fiscal reality and the UAE's
preference for providing assistance quietly rather than
publicly. We strongly suggest that Washington NOT/NOT ask
for any specific sum, but rather emphasize the leading role
that the UAE has played as a member of the donors' group
and encourage it to be as generous as possible. In
addition, the approach should make clear that, while the
USG is looking for "fast disbursing" grants, longer range
assistance (monetary and in kind) is also welcome,
especially if it can be committed to in Madrid. We also
suggest that - if we have not already done so - we provide
the UAEG with a list of specific sectors where in-kind
assistance can be directed. We believe they would be
responsive to requests for a variety of training needs as
well as humanitarian support. This approach is likely to
maximize the contribution that the UAE can and will make.


8. (C) The UAE also prefers to provide its assistance
quietly, at least partially out of a belief that charity
should not be publicly proclaimed. An approach that might
address the UAE "publicity shyness" and our desire to
obtain a large "up front" number to encourage reluctant
donors would be take advantage of the UAE membership in the
core group. If the core group were to make a group
announcement, the UAE might be persuaded to join in as a
member.

9. (SBU) In the longer term, foreign direct investment will
be key to Iraqi reconstruction. UAE businesses are
interested in the investment opportunities in Iraq and
their interest will likely increase when the security
situation improves. To that end, UAE businesses would
appreciate further transparency in the awarding of
contracts and more information on areas for investment.

Wahba