KUWAIT FORMS HIGH-LEVEL IAWG TO EXPLOIT GOVERNMENT

UNCLAS SECTION 01 OF 02 KUWAIT 003316

SIPDIS

E.O. 12958: N/A
TAGS: ETRD EFIN PREL PGOV KU IZ
SUBJECT: KUWAIT FORMS HIGH-LEVEL IAWG TO EXPLOIT GOVERNMENT
AND PRIVATE-SECTOR DEVELOPMENT OPPORTUNITIES IN IRAQ

REF: A. KUWAIT 3266


B. STATE 206458


1. Summary. Kuwait has inaugurated a high-level interagency
working group to coordinate government and private sector
programs for participation in the reconstruction of Iraq.
Embassy and GOK interlocutors see this development as an
excellent opportunity to promote the economic and regulatory
reforms essential to attracting non-energy related investment
to Kuwait. End Summary.


2. Ref B note verbale invited the GOK to designate a
representative for appointment to the Council for
International Cooperation (CIC) in Iraq. CIC was created 17
June under Regulation No. 5 issued by the Administrator of
the Coalition Provisional Authority (CPA) to facilitate
greater international involvement in the CPA,s funding and
operations.


3. Embassy strongly endorses CPA,s decision for Kuwaiti
participation in the CIC. We view that offer as perhaps an
important opening for the sui generis economic reform we push
for in Kuwait as well as a useful tool in our post-war
bilateral political kit. In the weeks prior to the CPA,s 17
July formal request, EconChief met with key private sector
and government officials at the working and policy levels who
then already were evaluating the potential for Kuwaiti
collaboration with the CPA in Iraq.


4. The concept of direct, private-sector Kuwaiti involvement
we have promoted has resonated nicely at our post-election
meetings with such interlocutors as Minister of Finance
Mahmoud Al-Nouri; Ministry of Finance Asst. U/S for Economic
Affairs Mustafa Al-Shamali; Ministry of Finance Asst. U/S for
Financial Affairs Fawzi Al-Qassar; Higher Committee for
Economic Development and Reform Secretary General Fawzi
Al-Sultan; Kuwait Investment Authority Managing Director
Ahmad Bastaki; Central Bank Manager for Inspections and
Licensing Yaqoub Al-Ebrahim; Mr. Waleed Al-Humaidhi, member,
Kuwaiti Chamber of Commerce and Industry. Indeed, very
senior members of the new 5 July government have promoted the
idea of considering a market-oriented development plan for
Kuwait. In these public discussions, private sector
opportunities in Iraq frequently have surfaced as a potential
vehicle for such reform.


5. Kuwait,s continuing behind-the-scenes action and
interest in developing the Iraqi market is substantive and
impressive. Several of our para 5 interlocutors played key
roles in the GOK,s interagency &brainstorming8 discussions
held during May and June to evaluate private sector
opportunities in Iraq. By 10 July, the group had been vetted
personally by Prime Minister Sheikh Sabah and formally
charged with continuing to plan a role for Kuwait,s
parastatal and private sector participation in the rebuilding
of Iraq. A major impetus for this effort is the $37.5
billion that the GOK quantifies as the minimum owed Kuwait by
Iraq for pre-war loans; GOK oil sales on behalf of Iraq
during the Iran/Iraq War; and previously agreed, but still
unpaid compensation claims.


6. The Kuwaiti IAWG is tentatively titled, Work Team to
Support the Construction of Iraq (Work Team). Its
institutional members include: the Public Authority for
Compensation; Kuwait Investment Authority; Kuwait Petroleum
Corporation; Kuwait Fund; the Arab Fund; Kuwait Chamber of
Commerce and Industry; Secretariat General of the Higher
Committee for Economic Development and Reform. This Work
Team has developed under the direction of now Minister of
Foreign Affairs/Acting Minister of Social Affairs Sheikh Dr.
Mohammed Sabah Al-Salem Al-Sabah who chaired the Team,s
first plenary session on 16 June. The Secretariat General of
the Higher Committee for Economic Development and Reform
(Reform Committee) coordinates Work Team's day-to-day
operations effectively.


7. EconChief met 16 July with Reform Committee Secretary
General Fawzi Al-Sultan, for a read out on the Work Team,s
progress. SecGen Fawzi launched into an upbeat staccato
presentation, noting that his agency considers the market
potential of Iraqi as Kuwait,s &best bet to roll the wheels
of economic reform.8 He said it,s the GOK,s official (in
public and private) expectation that under CPA,s tutelage,
Iraq could emerge from its present troubles a strong,
democratic and market-oriented society. His group had, he
noted, debated thoroughly a draft set of strategies on how
best to capitalize on an anticipated CPA success in Baghdad.


8. Fawzi concurred that the following areas are ripe for
reform in Kuwait: intellectual property rights; greater
acceptance/implementation of WTO; tax law transparency with
across-the-board equality in treatment; expedited
administrative procedures for imports, exports and company
registrations; and streamlined licensing regimes. He agreed
that a suitable framework for addressing these issues
deliberately could start at the working level with renewed
discussions on Double Taxation, BIT and TIFA agreements.


9. Fawzi volunteered that Kuwait,s size of the Iraq
reconstruction pie necessarily would depend on successful
reform of Kuwait,s present and trade-inhibiting regulatory
structures. He said he would urge GOK to take the necessary
steps. (Septel describes our initial meeting with Ministry
of Finance officials regarding a Double Taxation Treaty.)


10. The SecGen next listed Iraq market opportunities his team
had identified as potentially advantageous to Kuwait in a
CPA-regulated trade regime. Even minor successes in these
areas, he asserted, would facilitate the task of moving
forward on reform:

-- Private Sector: Private security services,
transportation/marketing services; catering and food
production; mobile telecommunications systems; housing and
tourism.

-- Public Sector: Passenger air traffic to Baghdad via
Kuwait flag carrier; provision of emergency medical services;
police training; development of border security regime;
integration of Kuwait/Iraq power grids for load-sharing;
development of a joint port authority; Free-Trade Zones;
development of Iraq gas reserves; bank supervision and
licensing; securities market and exchange operations.


11. Comment. Publicly and privately, the GOK is making the
right sounds and moving in the right direction with intent
and deliberation it seems. How committed domestic power
brokers are to the substantial reform needed to make Kuwait
more attractive for investors and competitive in non-energy
industry remains unclear, however. In our conversations with
knowledgeable sources, we hear that much will depend on the
reception the GOK and Kuwaiti private sector entrepreneurs
receive in Baghdad. Some national pride, and a lot of money
will be riding on the efforts of the Work Team to Support the
Construction of Iraq. Kuwaitis are concerned that changes in
the U.N. compensation fund, a re-structuring of payments on
Iraqi,s debt to Kuwait and anticipated Kuwaiti contributions
to a donor countries, reconstruction program for Iraq, will
affect Kuwait adversely. In compensation, Kuwait can be
expected to seek a major role for its private sector and
parastatals in rebuilding Iraq. End Comment.


12. Minimize considered.
JONES