JORDAN'S FINANCE MINISTER ON DEBT AND OIL PRICES;

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 007403

SIPDIS

E.O. 12958: DECL: 09/02/2019
TAGS: EFIN EPET EAID JO IZ
SUBJECT: JORDAN'S FINANCE MINISTER ON DEBT AND OIL PRICES;
ASKS FOR HELP WITH THE PARIS CLUB

REF: AMMAN 07153

Classified By: CDA David Hale, Reasons 1.5 (b) and (d).


1. (C) SUMMARY: Although making considerable progress on
Jordan's public debt front, Jordan's Finance Minister is
pushing for more. Driven by targets set by a Jordanian
Public Debt Law, he seeks U.S. support in the Paris Club to
support Jordan's debt swap plans as well as technical
assistance in financial management and fiscal policy. He
will be working through the ambassadors representing Paris
Club members in Amman, drawing in the Prime Minister to lobby
his counterparts in other countries, and hopes King Abdullah
can convince the Japanese to support the debt swap plans
during his visit to Japan in early December. Turning to the
impact of oil prices, the Minister said that the continued
high prices are costing the government an additional $600
million in subsidies, a situation which may force him to
delay his plans to eliminate the subsidies entirely. END
SUMMARY.

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JORDAN'S DEBT PICTURE: LOOKING UP BUT STILL A WAYS TO GO
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2. (C) Charge called on Jordanian Finance Minister
Mohammad Abu Hammour on September 1 to discuss several
issues. Abu Hammour was encouraged by the increase in the
budget surplus covered in detail by Jordanian newspapers the
previous day. Jordan's budget surplus had risen from JD 6
million to JD 55.5 million in the second quarter, thanks to
higher domestic revenues and despite the addition of health
insurance for children under six years of age. Abu Hammour
was particularly happy that he had been able to cut current
expenditures but not capital expenditures. Tax revenues
surged by JD 215 million, with JD 125 million coming from the
higher General Service Tax (GST),JD 45 million from income
taxes and the balance from customs fees. Even the sales tax
revenues rose
JD 6 million last year to JD 55 million so far this year.


3. (C) Despite this good news, Abu Hammour remained
concerned about Jordan's debt picture and about his ability
to reach the targets set by Public Debt Law (NOTE: The law
requires that neither Jordan's official domestic debt nor
official foreign debt exceed 60% of GDP by end-2006 and that
Jordan's
overall debt/GDP ratio not exceed 80% by end-2006. END
NOTE.) He continues to seek debt swaps through the Paris
Club and said he needs U.S. help. He is developing a broader
campaign in which he plans to work through the Paris Club
Ambassadors in Amman, have the Prime Minister lobby his Paris
Club counterparts, and, perhaps, have King Abdullah raise the
issue with the Japanese during his visit to Japan in
December.

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OIL PRICES CONTINUE TO HURT
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4. (C) Regarding oil prices, Abu Hammour explained that the
government had assumed an average oil price of $26/barrel for
this year's budget. With the current situation, every $1
increase in oil prices costs the GOJ $30 million; with
current prices than means an additional $600 million. It
helps that Saudi Arabia agreed to supply half of Jordan's oil
needs for one year beginning in May 2004. Nevertheless, the
government had agreed to eliminate all fuel subsidies within
three years, although Abu Hammour had personally hoped to do
so within two. However, the current prices make those plans
politically impossible. Abu Hammour said that an increase to
reflect the current prices would cause the industrial sector
"to collapse." If oil prices do not fall soon, Abu Hammour
may have to consider a five-year target to remove all fuel
subsidies. Abu Hammour promised to keep the U.S. informed on
this issue before the government makes any final decisions.

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COMMENT
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5. (C) On a technical level, the fact that Jordan's Cabinet
approved the strategic plan to eliminate fuel subsidies met
USAID's condition for the Iraq War $200 million supplemental
in June. It is the specifics of implementation of the plan
the government is trying to finalize. Abu Hammour promised
to stay in close consultation on this point.


6. (C) The continuing high oil prices make Abu Hammour's
job much more difficult. The fact that removing fuel
subsidies has been both a goal of the IMF and a condition for
the USAID cash transfer supplemental only adds to the
pressures on the Minister; the government already increased
fuel product prices in April by 9%. Although it came on the
heels of a 3% hike in the General Sales Tax, there was little
public reaction at the time. This time round Jordan is in
the midst of a highly-publicized campaign to reduce poverty
and the government is under pressure to show its
effectiveness as a servant of the people. The Minister, or
at least his government, will be loath to raise fuel prices
soon.


7. (C) Although the trends are positive on the debt front,
Abu Hammour clearly feels pressure to try to ensure the
government meets its targets set under the debt law. He will
be lobbying the U.S. and other Paris Club members hard with
his debt swap plans.


8. (U) Baghdad minimize considered.


HALE