JORDAN: NOVEMBER 17 MEETINGS ON FROZEN ASSETS

S E C R E T SECTION 01 OF 03 AMMAN 007691

SIPDIS

TREASURY FOR ZARATE, NUGENT
NSC FOR KIFAYAT
CPA FOR WOLFE

E.O. 12958: DECL: 11/18/2013
TAGS: ETTC EFIN PREL IZ JO
SUBJECT: JORDAN: NOVEMBER 17 MEETINGS ON FROZEN ASSETS

REF: AMMAN 7525

Classified By: Ambassador Edward W. Gnehm. Reasons 1.5 (b) and (d).


1. (S) Summary. In several hours of meetings November 17,
Jordanian financial officials and a U.S. Treasury/Iraqi
finance ministry team were unable to agree on a plan for the
GOJ to transfer all of the remaining Iraqi assets frozen in
Jordan to the Development Fund for Iraq. The Jordanians took
the position that absent U.S. and Iraqi reassurances on their
$1.33 billion central bank trade claim on Iraq, they could do
no more than the already committed transfer of $150 million
(out of $500 million originally frozen) by February. The
Jordanians made clear that they are politically unable to
treat the assets and central bank claims issues separately.
While it is necessary to address this issue at higher levels,
Post does not see prospects for accelerating the transfer of
frozen assets until the Jordanians feel some comfort that
their $1.33 billion central bank claim will be protected.
End Summary.


2. (S) Accompanied by Ambassador Gnehm and Emboffs, a U.S.
Treasury team led by DAS Juan Zarate was joined by Iraqi
Finance Minister Geilani and CPA Advisor Haydar al-Uzri for
approximately five hours of meetings with Jordanian Finance
Minister Abu Hammour and Central Bank Governor Toukan on
November 18, 2003 in Amman. Zarate presented the growing
sense of urgency in the U.S. Government and in Iraq that
assets now frozen outside Iraq that had been controlled by
the former Iraqi government be returned to the Iraqi people
as provided for in UN Security Council Resolution 1483.
While sensitive to concerns Jordan had expressed about the
claims of its citizens and Central Bank on Iraq, it was
important that Jordan be seen as a leader in the region in
complying with the resolution. Thus, Zarate's hope was that
the visit could result in a specific implementation plan for
the transfer of all frozen assets to the Development Fund for
Iraq (DFI).


3. (S) Minister Abu Hammour reviewed Jordan's specific
interests. These included claims of its citizens on Iraq for
goods delivered but not paid for under the former bilateral
oil-for-goods protocol, the financial exposure of individual
banks and the banking system as a whole to these claims, and
the $1.33 billion in trade claims on the Central Bank of Iraq
accumulated by the Jordanian Central Bank under bilateral
trade clearing arrangements since 1983. He said that these
trade claims were not "debt" in the sense of loans or credit
used to finance trade. Rather, they were unsettled balances
accumulated over the years under the "clearinghouse"
mechanism for reconciling oil supplied with goods delivered.


4. (S) Abu Hammour said that in recognition of the concerns
described by Zarate, Jordan had transferred an initial $25
million to the DFI on November 13. Jordan was ready to
transfer more, but needed to be assured that the interests of
its banks and exporters were safeguarded. He said he
expected such claims would ultimately prove equivalent to
roughly 80% of the frozen assets. Toukan and Deputy Central
Bank Governor Said Shahin stressed that it was not at this
point possible to give a more precise estimate of the amount
of claims that would be legitimized and paid under the April
24 law (through which the GOJ had taken title to the assets),
as the documentation of these claims was still being assessed
by a GOJ technical committee. Once this process was
complete, Jordan would be ready to move the "free balance" to
the DFI in a way that protected Jordanian official reserves
and the stability of its banking system. In addition, Abu
Hammour said, Jordan needed to ensure that the $1.33 billion
in Central Bank claims would be paid by Iraq. He said this
could be in a lump sum or over time.


5. (S) Zarate stressed that the U.S. is a friend and ally
that does not want to destabilize Jordan's banking system and
is well aware of the $1.33 billion issue. Nevertheless, he
thought it was possible to accomplish the imperative of
transferring assets to the DFI while protecting the interests
the Minister described. In particular, Zarate and Finance
Minister Geilani and CPA adviser al-Uzri said it was
important that Iraqi officials with knowledge of the
underlying transactions be involved in evaluating claims.
Al-Uzri emphasized the importance of the Iraqis taking part
in this process and asked for details and documentation of
claims involved, including those that had already been paid
by the GOJ. Zarate suggested that the meeting should create
a schedule for paying the entire $500 million -- less
legitimate claims mutually agreed by Jordanians and Iraqis --
to the DFI. He noted that the United States had transferred
$1.8 billion in frozen assets back to Iraq despite the
existence of U.S. claims, with the understanding that claims
would be addressed by the government of Iraq, as foreseen by
UNSCR 1483. Other countries, like Japan, had done similarly.


6. (S) The Jordanians, however, said they could not
separate the issue of the frozen assets from the $1.33
billion in Central Bank claims. Explaining the origin of the
claims as accumulated balances in Jordan's favor under the
clearinghouse payments system of the former protocols, Abu
Hammour reiterated that this was not "debt" like that owed by
Iraq to wealthy creditor governments. Jordan is a poor, net
debtor country, he said, and could not sacrifice its assets.
Geilani replied that Iraq had not forgotten its obligations
and that it was ready to discuss and study "everything."
But, Geilani said, the issues of the frozen assets and the
Central Bank claims had to be treated separately.

7. (S) Pressed by al-Uzri for more precise information
about the amounts of claims received and those already paid,
Shahin specified that from JD 350 million ($500 million) in
frozen assets, JD 73 million ($103 million) had already been
paid to claimant banks. Adding the $25 million already moved
to the DFI, this left JD 264 million ($373 million) to
address the "hundreds" of claims received. Toukan estimated
that once claims found to be valid had been paid, about $150
million might be left to transfer to the DFI. Thus, the GOJ
had conveyed to the United States its willingness to transfer
that $150 million to the DFI over a period of months in
installments. The Ambassador said that this was less
specific than the commitment to transfer $150 million in 4
monthly installments made by Planning Minister Awadallah to
NSC Deputy Edson. Furthermore, he said it was our
understanding from previous conversations with Jordanian
officials that valid claims would amount to about $250
million. We saw no reason then why the GOJ was not ready to
transfer at least $250 million immediately.


8. (S) Zarate said we needed to see movement to transfer
the remaining frozen assets without finalizing claims,
although this process could also be expedited by working with
the Iraqis. Al-Uzri added that the Iraqis wanted Jordan to
stop settling claims until Iraqis had reviewed the relevant
records. Abu Hammour and Toukan objected that there was no
need for Iraqis to be involved. In fact, Abu Hammour
asserted, it would be contrary to the Jordanian law for
non-Jordanians to be involved in the process. Further
muddying the discussion, Toukan and Abu Hammour asserted that
they continued to receive new claims (note despite a cutoff
date in the April 24 law). Having reached an impasse, the
group broke for a meal and agreed to reconvene later that
evening.


9. (S) Upon reconvening, Zarate presented a concrete
proposal for transferring the $373 million in frozen assets
still remaining to the DFI over a period of 4-6 months. At
the same time, Jordanians and Iraqis could mutually expedite
their review of the claims. The staging of payments should
both smooth the financial impact on the Jordanian banking
system and ensure effective cooperation to resolve claims.
With the proposal having clarified the discussions of the
frozen bank assets, the Jordanians returned to the point that
they needed -- for domestic economic and political reasons --
to have a U.S. and Iraqi commitment that the $1.33 billion
Central Bank claims would be honored and paid, even if over
an extended period. Governor Toukan said that the Bank's
external auditors would require either a reaffirmation of the
validity of the claim or a commitment by the central
government to recapitalize the bank. The auditors asked for
such a statement every year. In previous years, the Bank was
able to show a letter from the Iraqi Central Central that
acknowledged the claim and agreed to draw it down. "How
would the auditors be satisfied?" this year, Toukan asked.


10. (S) Zarate emphasized that neither he nor the Iraqis
were in a position to make commitments on the Central Bank
claims, although, Geilani said, Iraq did not "deny the $1.33
billion." Both the U.S. and Iraq were, Zarate said, prepared
to discuss the subject with Jordan, but separately from the
frozen assets and the UNSCR 1483 obligation to transfer them
to the DFI. Zarate said that Jordan's responsibility was not
just a moral one under the UNSC resolution. Jordan should
also show leadership to other countries holding frozen
assets. Joining the Jordanian team at this point, Justice
Minister Salah Al-Bashir made an argument that the allowance
for prior judgments in UNSCR 1483 paragraph 23 applied to the
claims of Jordanian banks and exporters. Bashir said that
this was because a letter of credit was "morally equivalent"
to a court judgment. (He did not address the inconsistency
of why such claims would need evaluation by an inter-agency
GOJ committee.) Bashir also highlighted the political
sensitivities surrounding the $1.33 billion in central bank
claims. The government could not be seen by Parliament or
the private sector as returning the frozen assets without
having protected Jordan's interest in the "trade ledger."


11. (S) Emphasizing that Jordan could not move further than
it had already agreed to do on returning the frozen assets
without progress on the $1.33 billion, Abu Hammour proposed
that Jordan would make one more transfer of $35 million to
the DFI, but would then stop such transfers until there was
agreement on the central bank issue. The Ambassador pointed
out that this was contrary to the commitment already made to
transfer $150 million to the DFI over four months.


12. (S) At this point, it was clear to both sides that the
discussion had exhausted the issues and that there would not
be a resolution during these meetings. Given this impasse,
Zarate said U.S. officials, including the President, would
pursue the subject during the King's December visit to
Washington. Both Zarate and the Ambassador reiterated that
the United States was sensitive to Jordan's interests, which
was why we had gone so far as to propose a mechanism for
transferring the frozen assets over time, which would also
provide for Iraqi assistance in evaluating Jordanian claims.
Zarate said he would take back to Washington Jordan's
concerns over the $1.33 billion central bank claim, but
emphasized that for legal and practical issues this issue
would have to be addressed separately.

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Comment
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13. (S) DAS Zarate did an outstanding job of showing
sensitivity to Jordanian concerns and at the same time
firmness over the issues at stake. The plan for repayment of
the remaining $373 million over several months in conjunction
with Jordanian/Iraqi evaluation of claims against the assets
addresses Jordanian concerns about both the liquidity the
banking system and the bank/exporter claims. We had the
sense that the Jordanians would have been able to accept this
proposal, were it not for their need to reaffirm the status
of the $1.33 billion central bank claim. As Abu Hammour
explained after the meetings, the government would be
politically crucified if it were seen as conceding on the
assets without progress on the enormous central bank claims
(equivalent to 15% of GDP). Following internal GOJ cabinet
and economic team meetings the day after the discussions with
Zarate (see reftel),Abu Hammour reaffirmed the Jordanian
position on linking the two issues to Zarate by phone. He
also reaffirmed the commitment to transfer $150 million to
the DFI by February. (In addition to the $25 million, the
GOJ transferred $10 million to the DFI November 20.) In
Post's assessment, the political pressures on the government
to address the central bank balance sheet problem are very
real. We do not expect further discussions of the frozen
assets to make progress until we and/or the Iraqis are able
to provide reassurances that the CBJ will not be required to
write-off all or part of its claim.


14. (SBU) Treasury and CPA did not have the opportunity to
clear this message.
GNEHM