JORDAN OFFICIALS REITERATE COMMITMENT ON OIL PRICES

C O N F I D E N T I A L AMMAN 002569

SIPDIS

E.O. 12958: DECL: 05/02/2008
TAGS: EFIN EAID JO
SUBJECT: JORDAN OFFICIALS REITERATE COMMITMENT ON OIL PRICES

Classified By: Gregory L. Berry, Charge d'Affaires, a.i. Reasons 1.5 (
b) and (d).


1. (c) In public and private statements, senior Jordanian
officials continue to reaffirm their commitment to eliminate
subsidies and move to a market-based system for distributing
petroleum products. In remarks to Jordanian newspaper
editors published in each of the three Arabic dailies on
April 29, Prime Minister Abu Ragheb was quoted as saying that
the government would eliminate petroleum subsidies over a
three year period until local prices reach global market
levels. According to one of the newspapers, al-Destour, Abu
Ragheb said this would start with a 7% increase in prices in

2003. Abu Ragheb also told the editors that he hoped it
would be possible to continue the 2003 concessional
oil-for-goods protocol with Iraq.


2. (c) In a conversation with the Ambassador on April 29,
the Prime Minister referred to these comments and reaffirmed
his commitment to meet IMF deficit reduction targets and
promises to the United States to eliminate petroleum
subsidies. He stressed that the idea of the possible
continuation of the concessional oil for goods protocol for
2003 was not in any way a step back from these commitments.
Finance Minister Marto repeated the same points in a meeting
with USAID Director and Econ/C on April 30. He said there
would be no backing away on these or other economic reforms,
which "were being made in Jordan's national interest, not the
United States'."


4. (c) Marto said that if Jordan were to receive additional
concessional support of any kind in 2003, it would be used to
offset budget shortfalls that are not covered by
extraordinary assistance from the United States or other
donors. He reiterated that those costs were much more severe
than he had originally foreseen. Government accounts data
for April that he had just received from the Central Bank
showed a fiscal shortfall of over JD 150 million ($210
million) for the month of April alone. Marto was very
surprised by this since he had expected a shortfall of no
more than the equivalent of $40-50 million. He pointed out,
however, that the economic worst case scenarios many had
feared in the months leading up to the war (collapse of the
banking system, transport interuptions causing major export
losses, exhaustion of fuel supplies, etc.) had been avoided.


5. (c) Comment: We remained convinced of the Jordanian
commitment at the highest levels to eliminate oil subsidies.
While the worst case scenarios were avoided -- thanks, in
part, to expectations of U.S. assistance -- it does appear
that Jordan's budgetary needs as a result of the war are
greater than first expected. This is likely due to a deep
contraction in domestic consumption and investment that began
in late 2002 as uncertainty grew about whether or not the
coalition would take military action against the Saddam
regime. Raising the the oil-for-goods protocol serves two
purposes: 1) its concessional element could help meet a
genuine financial need, and 2) raising the issue serves the
domestic political purpose of demonstrating to politically
influential segments of the business community that relied on
Iraq barter business that it was not Jordan's, but Iraq's,
decision to end the trade.
BERRY