Identifier
Created
Classification
Origin
05AMMAN5009
2005-06-22 13:35:00
CONFIDENTIAL
Embassy Amman
Cable title:  

JORDAN COMMITTED TO ENDING FUEL SUBSIDIES

Tags:  PREL EAID JO 
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This record is a partial extract of the original cable. The full text of the original cable is not available.

221335Z Jun 05
C O N F I D E N T I A L AMMAN 005009 

SIPDIS

E.O. 12958: DECL: 02/28/2015
TAGS: PREL EAID JO
SUBJECT: JORDAN COMMITTED TO ENDING FUEL SUBSIDIES


Classified By: Charge d'Affaires David Hale for reason 1.4 (b) and (d)

C O N F I D E N T I A L AMMAN 005009

SIPDIS

E.O. 12958: DECL: 02/28/2015
TAGS: PREL EAID JO
SUBJECT: JORDAN COMMITTED TO ENDING FUEL SUBSIDIES


Classified By: Charge d'Affaires David Hale for reason 1.4 (b) and (d)


1. (C) In conversations this week with virtually every
relevant Jordanian official - the King, Prime Minister,
outgoing Finance Minister, Planning (and acting Finance)
Minister, and Royal Court Minister, Charge has heard renewed
pledges of their commitment to ending fuel subsidies over a
three-year time span. (These subsidies, calculated at an
average annual crude oil price of $40 per barrel in the 2005
budget, were equivalent to $437 million in the GOJ,s current
expenditures. The GOJ in June recalculated the subsidies
assuming a crude oil price of $45 per barrel, which would
place the total cost at around $600 million. If current
trends held for the rest of the year, an average price of $55
per barrel and a $940 million subsidy could result. This
would leave a shortfall in the oil subsidy budget line item
of $503 million.) Current thinking is to announce a 25% cut
in the subsidies starting in early July, once a new Finance
Minister and other anticipated cabinet changes are in place.
Prime Minister Badran wants a more politically palatable team
in place, and the King is giving him some scope for further
changes so long as Badran sticks with the comprehensive
reform program. The political risks from ending subsidies
are real, and understood by those who remember the 1989
violence triggered in Maan by efforts then to reduce
subsidies. But the government recognizes this is a necessary
step, given the impact rising oil prices have had on the
budget, the resulting threat to macroeconomic stability, and
the unavailability of unlimited support from the
international donor community, especially in the Gulf ($760
million in projected grants from GCC countries for 2005 have
not materialized).


2. (C) As the government embarks on this process, it will be
moving simultaneously to unveil comprehensive reforms of the
broad sweep of government activity, including in the
political sphere. The leadership is committed to pursuing
this reform path for its own sake, recognizing the necessity
of meeting the aspirations of its public. Unfortunately, at
this stage in Jordan the reform process is poorly understood
and the public is easily manipulated by traditional forces
who would fall by the wayside if true political reforms take
root. They paint a picture of western-imposed reforms
designed to sell Jordan,s patrimony to rich Palestinians
through privatization, or to get Jordan ready to be a
Palestinian state. These may sound like absurd charges, but
they get traction in a conspiracy-laden environment, and the
King had to deny them in person on television to tone down
national debate. The case for reform is especially hard to
make among Jordan,s poor, who will suffer the most from the
end of subsidies - the largest of which are on fuel products
disproportionately consumed by the poor, such as diesel and
kerosene (65% subsidized) and fuel oil (46% subsidized) - and
job losses made through privatization and the ongoing
streamlining of the military.


3. (C) To get through this challenging period, Jordan needs
as much budget support as it can get. This argument was the
basis for their request for a full cash transfer of the
supplemental. We have always maintained to the Jordanians
that as they move forward at an appropriate pace with reform,
they can count on support -- and the deeper the reforms, the
easier the case will be for assistance dollars. Those
changes are proceeding, and the best way we can shore up the
reformers is with a substantial cash transfer, along the
70/30 division decided upon by the Department. As the Queen
recently told the Secretary, of any country in the Middle
East, you can expect no better return on our assistance
dollars than in Jordan. They need the breathing space of an
expeditious cash transfer this year in order to ensure we
maintain forward momentum on reform. If this particular
cabinet at this particular moment in Jordan stumbles because
of its fiscal stresses (produced by high oil prices),the
enemies of reform, here and in neighboring countries, will
point to the folly of the reform process.
HALE