TFIZ01: JORDAN FREEZE OF IRAQI ASSETS

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 001774

SIPDIS

TFIZ01 FOR EB ACTION OFFICER
E STAFF FOR SECOR
TREASURY FOR OASIA--MILLS, CHANG, SIMPSON
COMMERCE FOR 4520/ITA/MAC/ONE/COBERG

E.O. 12958: DECL: 03/24/2013
TAGS: EFIN ETTC PREL IZ JO
SUBJECT: TFIZ01: JORDAN FREEZE OF IRAQI ASSETS

REF: A) STATE 74249 B) AMMAN 1620

Classified By: A/DCM DOUG SILLIMAN, REASONS 1.5 (b) and (d)


1. (C) SUMMARY: Central Bank of Jordan (CBJ) officials have
frozen Government of Iraq (GOI) assets in Jordanian banks
pending resolution of the conflict in Iraq, and, in addition,
are keeping a watchful eye on the Jordanian operations of the
GOI-owned Rafidain Bank. Banking sector exposure to Oil for
Food (OFF) letters of credit continues to be high, and Jordan
hopes an alternative delivery point for OFF goods can be
established with the help of the UN (REF B). The Central
Bank also reports normal business transpiring for the banking
sector in the first few days of the war. END SUMMARY

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GOI FUNDS BELONG TO THE IRAQI PEOPLE
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2. (C) CBJ Deputy Governor Mohammed Said Shahin confirmed
March 24 that the Bank issued a confidential memo March 20
directing Jordanian banks to freeze all GOI accounts until
further notice. The memo was coordinated with Prime Minister
Abul Ragheb and the General Intelligence Directorate (GID).
Shahin said he called the general managers of each bank to
personally pass along Governor Toukan's instructions and to
enjoin them to "keep the memo secret." He said that he
followed up with another call to bank officials March 23,
asking them to call him immediately "with any fishy matters"
that would suggest withdrawals from other accounts on the
part of GOI officials. In line with the points in REF A,
Shahin emphasized to bankers that it was "in Jordan's
national interest to safeguard the funds for the Iraqi
people. It belongs to them, not to Saddam and his
entourage."


3. (C) Shahin stressed to us that while it had the full
support of the Jordanian government, this was a very
sensitive matter for the GOJ. Thus, the Bank was not making
a public announcement of this action.


4. (C) Shahin also said the CBJ was keeping "a close eye" on
the Amman branch of the GOI-owned Rafidain Bank, the only
Iraqi bank with branches outside of Iraq. He said the branch
maintains accounts in Jordanian banks on behalf of the GOI
and its front companies. Shahin told us the CBJ is allowing
Rafidain to transfer funds from one Jordanian bank to
another, but that it cannot move money outside of the system.
He hoped that a post-Saddam Rafidain Bank would be
"energized" to facilitate international commerce and trade
for a normal Iraq.

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OFF EXPOSURE: STILL HIGH
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5. (C) Shahin said the Central Bank of Iraq had no accounts
with the CBJ and that the only relationship between the two
was through the implementation of the bilateral oil for goods
barter protocol. He added that recent protocol trade was
"not what it used to be." He said that the CBJ worked
diligently with the Ministry of Trade and Industry and the
Customs Directorate to ensure proper valuation of protocol
shipments, as over-valuation had been a problem.


6. (C) In a separate conversation, CBJ Director of Banking
Supervision Mai Khamis estimated current exposure of the
Jordanian banking sector to UN-authorized exports to Iraq
under the OFF program at about $250 million. She said she
had no breakdown on how much of that exposure was related to
trade currently held up by the conflict. She requested
Embassy assistance in determining the status of a GOJ request
of the UN to permit OFF deliveries to the Port of Aqaba and
stationing of a Cotechna team in Jordan pending resolution of
hostilities (REF B).

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BANKS REPORT BUSINESS AS USUAL
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7. (C) Shahin said the CBJ was monitoring bank activity
daily and that bank business had been normal since the war
began. He said Jordanian banks had not faced problems
clearing international transactions, attributing this to the
high capital adequacy level of Jordanian banks, currently
around 20% on average. Shahin added that the sector has
approximately $4.7 billion in foreign currency deposits
abroad, which also made foreign banks comfortable dealing
with Jordanian counterparts. Shahin said the Bank had
brought cash into the country earlier this month in case it
was needed to meet customer demand for banknotes.

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COMMENT
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8. (C) There continue to be no reports of unusual demands
for foreign currencies or of efforts to transfer funds
outside of Jordan. Healthy bank capitalization and strong
foreign reserves, should, for now, help the sector weather
the storm. However, a longer-than expected conflict will
require the continued attention and diligence of the CBJ, and
anything we can to support that effort will be in our
interests as much as in the interest of the Government of
Jordan.


GNEHM