JORDAN HAS A PROMISING NEW ECONOMIC TEAM, BUT CAN

C O N F I D E N T I A L SECTION 01 OF 06 AMMAN 003649 SIPDIS DEPT PASS USTR E.O. 12958: DECL: 05/09/2020 TAGS: ECON EAID EFIN PGOV JO SUBJECT: JORDAN HAS A PROMISING NEW ECONOMIC TEAM, BUT CAN IT WIN PARLIMENT'S CONFIDENCE? REF: A. A) AMMAN 3358 ¶B. B) AMMAN 3252 ¶C. C) AMMAN 1422 Classified By: Classified by Charge David Hale for reasons 1.4 (B) and (D) ¶1. (C) SUMMARY: Jordan's new economic team only took office as part of the new cabinet on April 7 but has already shown its eagerness to move ahead with economic reform. It has quickly moved to resolve several long-standing economic and investment problems. In an initial series of calls with the Charge, nearly all of the ministers admitted they felt pressure from King Abdullah to move forward the economic reform agenda. But all were already developing dynamic agendas for advancing policy and, in many cases, moving to make their own ministries more effective and efficient. Aggressive Finance Minister Bassam Awadallah heads the team but he is backed by strong, private sector oriented ministers in nearly every position in the economic ministries. It is a team suited to the King: they are of his generation, western educated, private sector oriented, reformist, and goals and performance-driven hard chargers. However, those very qualities (and the Palestinian-Jordanian roots of some of the reformers) make them anathema to many of the loyalist old guard in the country. The team is under intense fire already from parliament, where 45 MPs have raised objections to their personalities and, indirectly, their objectives, as well as the opaque selection process that created this government. PM Badran is struggling to defend a team he openly admits was not of his own chosing. END SUMMARY. -------------- Awadallah: The Leader of the Pack -------------- ¶2. (C) Of the three new ministers in the key economic portfolios--Finance, Industry and Trade, and Planning and International Cooperation--Bassem Awadallah brings to his job the lion,s share of the collective political clout of the new economic team. As Minister of Planning and International Cooperation for four years prior to his resignation in February of this year (ref A),Awadallah clashed repeatedly with Finance Ministers Michel Marto and Mohammed Abu Hammour over Awadallah,s preference for a relatively loose fiscal policy; now the shoe is on the other foot. A confidante to King Abdullah, Awadallah is now working with Ministers of Planning and of Industry and Trade who have been drawn into the government from the private sector and in whose selection he had a hand. (COMMENT: While both are tough, competent, and well-connected, neither is likely to present a challenge to Awadallah on economic policy within the cabinet; they will have enough on their hands restructuring and running their ministries. END COMMENT) Awadallah is the de jure and de facto #3 in this government, after Prime Minister Adnan Badran and Deputy Prime Minister for Parliamentary Affairs and Minister of Political Development Hisham Tal. ¶3. (C) In his first month on the job as Minister of Finance, Awadallah has focused primarily on working with the donor community to drum up additional assistance to Jordan. Presenting the outside world with a considerably bleaker fiscal picture than did his predecessor Abu Hammour, he has mounted a strong push both for debt relief from G8 countries and for increased aid by GCC countries to offset rising crude oil prices. In return, he has promised donors a transparent reform plan to radically improve Jordan,s fiscal position through fuel subsidy elimination, pension reform, and privatizations. Distracted by his duties in coordinating Jordan,s May 20-22 World Economic Forum, Awadallah has not yet been able to concentrate fully on following up these commitments with a roadmap to achieve them. His adviser Omar al-Wir expects concrete plans for each element of Awadallah,s long-term strategy to be announced sequentially in June and early July. ¶4. (C) Awadallah also has yet to substantially alter the key personnel of the MOF, but al-Wir assures us that he is drawing up plans to recruit outsiders for key positions and to shake up the ministry; there will likely be a substantial turnover of personnel at the ministry within the next two months. While we do not yet know the specific heads that will roll, our attention will be focused on the stagnant, corruption-ridden Customs Directorate, whose Director-General has survived months of attempts by Finance Minister Abu Hammour to bring about his resignation. A successful restructuring of this Directorate alone would be a substantial victory for reform, increasing GOJ income and removing a significant obstacle to trade. -------------- -------------- A Sharp Lawyer at Trade: Promoting Investment, Free Trade, QIZs -------------- -------------- ¶5. (C) Minister of Industry and Trade (MOIT) Sharif Zu,bi is already showing his reform stripes: he charged out of the starting blocks with three reform initiatives within the ministry in his first three weeks and made clear to his staff his top priority is radically enhancing Jordan,s investment climate, according to two senior officials in the ministry. The reforms were not grand -- getting rid of import licensing requirements for 21 commodities; eliminating the need for ministry approval of bakeries; and similarly getting out of the convention-approval business. (The last reform measure on regulating exhibitions is not yet ready for public release, but will be announced soon, according to the office director who handles such convention approvals.) ¶6. (C) The minister,s focus on investment is foremost and unequivocal, Trade Policy Department Director Maha Ali told us. Zu,bi wants to facilitate investment now, she said, and to establish a climate in which businesspeople can be reassured that Jordan is a good place to invest. The Jordan Authority for Enterprise Development (JAED) would be a keystone of this investment reform effort, she said. JAED is the umbrella organization including the Jordan Investment Board, the Jordan Export Development Corporation (JEDC) and the Jordan Industrial Estate Corporation (JIEC). The Minister of Industry and Trade chairs the JAED Executive Board and essentially supervises the work of the three investment agencies, directors. To date, however, JAED has been more a concept than a reality. Zu,bi plans to cut through some of the legal issues holding JAED back, Ali said, and will seek amendments to key legislation. (Details will follow septel.) Zu'bi also moved quickly on resolving a dispute involving the largest U.S. investment in Jordan, the Jordan Bromine Company. Although details of the settlement are still being finalized (and will likewise be reported septel),Zu'bi was the driving force in getting the parties to an agreement. ¶7. (C) Zu,bi is "all for free trade," said Planning Minister Suhair Al-Ali. She noted that he would spend much of the first half of May on a whirlwind tour of the region, starting in Morocco (another U.S. FTA partner). He supports efforts to broaden Jordan,s FTA into a regional Middle East Free Trade Area (MEFTA) and plans soon to make a new proposal on cumulation of content to USTR, she said. Jordan has already proposed to Israel that it consider entering into an agreement on cumulation under the U.S.-Jordan FTA (allowed by one of the FTA clauses),but has not heard back from Tel Aviv, Ali said. ¶8. (C) On the Jordan-Israel Qualifying Industrial Zones (QIZs),the source of some 45,000 jobs and over $800 million in annual exports to the United States, Zu,bi has already met three times with the QIZ investors, managers, and estate developers to discuss their problems. QIZs are a "top priority" for the minister, noted Bilal Hmoud, the new head of the MOIT Industrial Development Department. But QIZ investors "want everything" to bolster their competitive situation in the global economy, said Hmoud. Zu,bi has promised to take their package of proposals to the Prime Ministry later in May. But first, the QIZ group was told by Zu,bi they must be "concise and precise" about what they want from government and what they will do as a private sector partner. Then Zu,bi will make a presentation of feasible solutions for the QIZs at the PM,s office. -------------- New Planning Minister Settles In -------------- ¶9. (C) Minister of Planning and International Cooperation Suhair al-Ali has to date set a slower pace than Zu,bi. Al-Ali has not yet taken any steps to significantly restructure her ministry, preferring first to ensure that the ministry,s ongoing work is being handled competently. USAID reports that already in her brief tenure, they have seen a definite shift in the MOP from an insistence on early release of direct "local currency" (i.e., non-programmatic aid) funds to an approach centering on ensuring GOJ fulfillment of the negotiated conditions precedent for those funds, release. The former Citibank country director for Jordan brings a much more relaxed style to the job than did her struggling predecessor Tayseer Smadi or the hard-charging and highly turf-conscious Awadallah. ¶10. (C) While she has not previously served in the GOJ, Minister al-Ali is no stranger to the circles of power in Jordan. She is the scion of a prominent Palestinian family and a personal friend of both King Abdullah and Queen Rania. Perhaps more importantly, however, she has worked closely - and by all accounts harmoniously - with Awadallah in the past. A fellow alumnus of Georgetown who attended the university at the same time as Awadallah, Al-Ali handled (at Citibank) the MOP,s USAID-funded $4.4 million wholesale funding facility, supporting four microcredit programs whose activities were coordinated by the MOP. Also while at Citibank, she was involved in creating a capital market and project finance training program in co-ordination with Awadallah who was then the Planning Minister. At Citibank, she was reputed to be a competent manager, but not a risk-taker; she is unlikely to significantly shake up her ministry or to challenge Awadallah,s assumption of roles traditionally allocated to the MOP. She will, however, likely soon face the need to significantly re-staff her ministry as Awadallah brings his people into the MOF. -------------- -------------- Cabinet on Short Honeymoon; Fighting A "Bureaucratic Blizzard" -------------- -------------- ¶11. (C) Ali said Zu,bi had given positive feedback on the fate of economic reforms in the cabinet in the first few sessions. However, so far none of Zu,bi,s reforms have required inter-agency consultation or cabinet approval and, for all of their expressed hopefulness, MOIT insiders are making no predictions about Zu,bi,s ability to deal with the "old school" bureaucratic gamesmanship that has in the past slowed some of Jordan,s trade- and investment-related reforms. Ali points to overlapping portfolios in different ministries as one problem that might stifle Zu,bi,s innovations, but noted that the King,s National Agenda might help Zu,bi overcome rivalries that in the past had resulted in policy gridlock. Hmoud said that parliamentary recalcitrance and a bureaucratic mind-set at the Prime Ministry were two challenges Zu,bi had yet to confront. He put Zu,bi squarely in the "new school" camp, however, and expressed confidence in the minister, who had been gathering information on the obstacles he faced as he prepared to plow through what Hmoud called the "bureaucratic blizzard". -------------- "Sectoral" Ministers Largely Remain in Place -------------- ¶12. (C) Awadallah, Zu'bi and Al-Ali are clearly the troika of this economic team and will be the drivers of reform. Encouragingly - and in contrast with the majority of the ministries in the new cabinet - the bulk of the other ministries dealing with sectors of the Jordanian economy retain their ministers. Minister of Energy and Mineral Resources Azmi Khreisat, who unveiled an ambitious strategic plan at the beginning of his tenure as minister in October 2003, has outlived his own pessimistic predictions and provides continuity to guide the energy sector,s ongoing transformation. This root-and-branch project includes the privatization of all power generation and distribution (transmission would remain under government control), hundreds of millions of dollars worth of BOO and BOOT power generation projects, a wholesale upgrade of Jordan,s power transmission backbone, the opening of Jordan to exploration by foreign oil, gas, and mining corporations, and preparations for the upcoming expiration of the Jordan Petroleum Refinery Co. monopoly on production, importation, and distribution of fuel products. Minister of Tourism and Antiquities Alia Hattough-Bouran, who entered the cabinet at the same time as Khreisat, is also continuing with the implementation of an ambitious strategic plan for her sector. This plan, designed with heavy USAID assistance and launched in 2004, envisions a large-scale opening of the Ministry,s facilities to private management and investment and a renewed focus on support of private-sector efforts to promote Jordan as a destination, along with substantial changes in GOJ policy to reduce barriers to the industry,s success. ¶13. (C) Also returning are Minister of Transport Saud Nseirat and Minister of Information and Communications Technology Nadia al-Saeed, who entered the Cabinet at the most recent reshuffle in October 2004. Since assuming office, Nseirat has moved forward aggressively on high-priority reforms such as the restructuring of the Civil Aviation Authority, improvements to the management of Aqaba port, the privatization of several transport-related corporations partially or fully owned by the GOJ, and plans for several rail projects. Saeed has efficiently continued her predecessor,s reform program, focused on promotion of e-government and coordination of efforts to improve IT in Jordan,s schools, along with rhetorical support for the ongoing deregulation of Jordan,s telecommunications sector. New to his position is Yousef Shraiqi, the Minister of Agriculture (and former Minister of the environment); not a strong personality, he is regarded as a quick study and a competent worker by Embassy personnel who have worked with him. Also new is Labor Minister Bassem Al Salem, bringing to his post a background in banking. Al Salem hopes to pull the government out of the supervision and management of Jordan's Social Security Corporation (SSC),a move he hopes will de-politicize the SSC and fundamentally transform the investment climate in Jordan. -------------- From NGO to the Cabinet -------------- ¶14. (U) Jordan's economic team may get a boost from an unexpected quarter, the Ministry of Environment. Newly appointed Minister of Environment Khaled Irani (ref B) had been a consistent champion of environmentally friendly development. His prior job was as the Director of the Royal Society for the Conservation of Nature (RSCN),whose operations are notable for their support of development and use of private sector tools to protect and conserve natural resources. For example, RSCN's modern headquarters building, paid for in large part by USAID funding, is home to one of Amman's trendiest restaurants, the "Wild Jordan Cafe." RSCN under Irani has also developed several environmentally friendly ecotourism destinations. As Environment Minister, he will doubtless continue with a nuanced policy that links rural development, incomes, conservation and eco-tourism. RSCN, an NGO, is also unique in the region for its role as the day-to-day manager and custodian of Jordan's national parks under an agreement with the ministry he now heads, the Ministry of Environment. Irani is young, smart, open-minded and brings to his environmental portfolio a strong skill set that includes NGO experience, hands-on business management skills, and a deep understanding of the value of economic tools for conservation. -------------- COMMENT -------------- ¶15. (C) This is an economic team facing many challenges. King Abdullah will not be patient if the team does not show results quickly. And the challenges faced are daunting. Although economic growth is currently strong, at over 7%, perceptions among the populace are widespread that an elite few in Amman are enjoying the lion's share of the wealth generated, a perception reinforced by the mansions going up on the outskirts of Amman and the increasing numbers of Humvees and other luxury cars cruising the roads. The government faces a growing bulge of new entrants to the workforce over the coming years. Employing those young people will require an invigorated economic reform program, changing laws, regulations, and mentalities in order to attract the foreign and domestic investment needed to create jobs. Water constraints on continued development loom large in the future and the government has several very expensive projects planned to try to address them. Jordan will continue to be vulnerable to the vicissitudes of its region -- continued unrest in Iraq or Israel would deter needed investors. Jordan's own internal security vigilance is also key, as a successful major terrorist attack in the country would stop the current recovery in the tourism sector in its tracks and further slow investment. ¶16. (C) Facing the county's debt challenges will remain key and take up much of Awadallah's time at the beginning of his term. A debt management law requires the government to get the country's sovereign debt/GDP ratio to 80% by end 2006, a factor complicating the government's desire to wean itself off foreign aid and foreign oil assistance. Awadallah will have to move this agenda ahead in the face of a Parliament in which many members detest him (Ref C) and want him out of government. Many traditionalist East Bankers in the legislature resent him bitterly for his perceived arrogance (and his West Bank roots),and the fact that the Social Economic Transformation Program he previously managed was not included in the government budget approved by Parliament. Widespread rumors that Awadallah was put in the cabinet under U.S. pressure may mean that his reform initiatives could be branded as American directives. ¶17. (C) These economic ministers must whip their own ministries into shape, convince suspicious parliamentarians worried about their own prerogatives and special interests, and face the economic, social and fiscal challenges cited above. Fortunately, this economic team has the best credentials of any in years. Its members are already demonstrating energy, creativity and pragmatic approaches to problems. Jordan has made substantial economic reforms since Abdullah became King; this team has a real chance to raise economic reform in Jordan to another level. ¶18. (C) Perhaps the biggest challenge of all, however, will be to win parliament,s confidence. Despite a series of meetings with the King and Prime Minister Badran, the 45 East Bank stalwarts who have publicly declared their opposition to the cabinet are standing firm. If the Islamic Action Front either joins the opposition or abstains, the team will fail the vote. Badran is proving an uncertain political operator, a role for which he has little experience and no aptitude. Cabinet and palace insiders have told Charge there is an intense internal debate on an appropriate strategy to gain confidence; Badran advocates dumping key but controversial figures such as Awadallah in order to satisfy the Lower House (and quixotically telling most of his visitors that these ministers were not of his choosing). Failing that, he is inclined to call parliament into session at the latest date possible (November) while getting Awadallah and others to deliver something significant such as G-8 debt relief. Awadallah, Muasher and others recognize there will be little to deliver by November, and a strategy of delay will reflect the reality of their fear to face up to parliament. The King is contemplating half measures, such as replacing Umayya Touqan, Central Bank Governor and a Jordanian-Palestinian, with a southern East Banker. He and the leading reformers blame outgoing GID chief Saad Khayr for inciting this opposition; most of the MPs who oppose the new cabinet were packed into the Lower House during the 2003 gerrymandered elections masterminded by Khayr. But while Khayr was, until his departure for Washington, telling his parliamentary allies to drop their objections, the opposition seems to have developed a momentum and sustainability of its own. Throughout the history of this parliament, the palace and government have resorted successfully to outright bribery to gain majorities for unpopular actions, and may do so again; but the price keeps rising, in terms of both cash and credibility of all those involved. HALE