ASSISTANT SECRETARY WAYNE'S JULY 10 MEETINGS WITH

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 005725

SIPDIS

STATE FOR EB
STATE ALSO FOR NEA FRONT OFFICE, NEA/ELA
TREASURY FOR GLASER/ZARATE/QUARLES
TREASURY ALSO FOR OASIA - LOEVINGER/MILLS/DEMOPOULOS
NSC FOR ABRAMS

E.O. 12958: DECL: 07/10/2015
TAGS: EFIN KTFN ETTC PGOV PREL EAID JO
SUBJECT: ASSISTANT SECRETARY WAYNE'S JULY 10 MEETINGS WITH
JORDAN'S CENTRAL BANK GOVERNOR TOUQAN AND FINANCE MINISTER
AL-KODAH

REF: A. AMMAN 5626


B. AMMAN 4391

C. AMMAN 4440

Classified By: CHARGE DAVID HALE FOR REASONS 1.4 (B) AND (D).


1. (C) SUMMARY: In July 10 meetings with Central Bank of
Jordan (CBJ) Governor Umayya Touqan and with Minister of
Finance Adel Al-Kodah, A/S Wayne repeated earlier calls (Ref
B) for action by the Government of Jordan (GOJ) on anti-money
laundering/counter-financing of terrorism (AML/CFT) controls.
On the Arab Bank's AML/CFT controls, Wayne once again asked
for an update, to which Touqan responded the same day with a
call to that bank. Embassy later received a report from Arab
Bank on its progress. In a meeting with the Minister of
Finance, Al-Kodah repeated GOJ support for a rigorous
anti-money laundering law. Al-Kodah also said that the oil
prices and an increasing deficit would cause the reform
process to become "stuck" and asked for increased U.S.
assistance. Al-Kodah noted plans for government spending
cuts of 20 percent, enhanced tax collection and more
privatization of government assets. The GOJ was expecting to
collect up to JD 1 billion (USD $ 1.41 billion) in proceeds
from privatization, part of which he hoped could be used to
settle Jordan's debts. END SUMMARY.


2. (U) Accompanying A/S Wayne in the meeting with Touqan
were Acting Econ/C and Econoff (notetaker). In the meeting
with the Finance Minister, A/DCM Henzel and Acting Econ/C
(notetaker) joined.

CBJ Governor: Pushing AML, Supporting Fiscal Austerity
-------------- --------------


3. (C) In his July 10 meeting with CBJ Governor Touqan,
Wayne raised the subjects of anti-money laundering/
counter-financing of terrorism (AML/CFT) measures being put
in place in Jordan and the GOJ,s plans to extricate itself
from the fiscal hole in which it now found itself. Touqan
noted the importance of the AML bill being placed before
Parliament (NOTE: through an apparent GOJ snafu, AML failed
to appear on the agenda for a special session of parliament -
Ref A). Touqan suggested that Wayne raise the matter in his
other calls, saying that other ministers were worried that
there was too much already slated for the upcoming
extraordinary session of Parliament. Overall, however,
Touqan was pleased with the level of GOJ commitment to the
law and hoped that it would be passed in the extraordinary
session.


4. (C) Touqan responded favorably to Wayne,s request for
updated information on measures being taken by Arab Bank to
improve its AML/CFT controls worldwide. (NOTE: He later
called Arab Bank personally to obtain the requested
information. Embassy received a self-reported update from
Arab Bank, which has been sent to NEA/ELA and EB/ESC/TFS).
Touqan noted that many AML controls were already in place in
other Jordanian banks -- for instance, unless banks already
knew and were in an established relationship with their
customer, they were not allowed to accept cash deposits. His
main source of heartburn on AML/CFT issues were transactions
outside of the banking system; for instance, the purchase and
sale of land for cash.

"Deficit Hawk"
--------------


5. (C) Touqan portrayed himself as a "deficit hawk" who had
pressed for even more stringent austerity measures than had
the IMF in its recent visit to Jordan. He expressed his
opinion that the deafening silence from GCC donor countries
was probably a good thing in the end: "it is high time we
stopped depending on them." He said that the new (from July
9) fuel prices would lead to JD 120 million ($170 million) in
savings over 2005 -- less than the CBJ had wanted, but still
a step in the right direction. The price rises posed new
challenges for the CBJ, however; cement prices had already
gone up 5% in one day, and further inflation was likely. On
other measures, Touqan was more ambivalent. While the 20%
reductions in ministries, use of utilities, vehicles,
travel, and other contributors to operating expense might
save a further small amount, Touqan felt that significant
savings might be realized from alterations to and improved
management of large capital projects.


6. (C) Touqan added that increases in revenue might also be
realized through reforms to the tax system. Income taxes
currently were producing virtually no revenue because few
paid them; the solution would be to go to a 10-15% flat tax,
to encourage compliance. As the Jordanian constitution
required that income tax be progressive, Touqan allowed that
the new structure might be given two tiers instead of just
one. On the other hand, Touqan said, the general sales tax
(GST) and value-added taxes (VAT) were producing substantial
revenue; perhaps the GOJ should look at raising rates and
improving collection of a tax that could produce
substantially more income if these actions were taken.

Meeting with Finance Minister Al-Kodah
--------------


7. (C) With Finance Minister Al-Kodah, A/S Wayne noted the
high level of interest in Jordan's economic situation and USG
efforts to support Jordan's economic reform program,
including with cash support from supplemental assistance. In
addition to the $70 million cash grant (on top of $30 million
in program support),which would give Jordan more
flexibility, the USG had responded positively to Jordan's
request for a higher debt swap ceiling in the Paris Club.
However, other donors remained unconvinced; the U.S. would
support Jordan as it continued to press on the debt swaps.


8. (C) Minister Al-Kodah expressed his government's
gratitude for U.S. assistance and praised the friendly
bilateral relations marked by improving trade and economic
ties. The GOJ was making strong efforts to open the economy
and had been serious in its follow-on program with the IMF.
Economic growth would help fight unemployment and poverty.
The government was serious about public reforms, he said,
noting that financial management would be one pillar
supporting that effort. Fiscal discipline, efficient
resource allocation, and more efforts to make the population
self-reliant would be hallmarks of the new program. A
consultant from Bearing Point was assisting the ministry with
its own financial management program. He noted examples of
fiscal reform such as the Medium Term Fiscal Framework (MTFF)
planning exercise, privatization efforts, tax reform and
employment of a Government Financial Management Information
System (GFMIS).

Reform Stuck Due to Oil Prices, Debt
--------------


9. (C) Jordan was well on its way to reform, the minister
continued, but these efforts were now "stuck" due to the high
price of oil. The GOJ needed the assistance of the United
States to support the three-year phase-out of oil subsidies,
ending in the 2007 budget year. In phase one this year, the
government had already announced a reduction in oil subsidies
by JD 120 million ($ 170 million),he said. He cited some of
the resulting increases in prices of fuel products in Jordan
that went into effect July 9, from a 33 percent increase in
diesel to a 59 percent increase in fuel oil for industries.


10. (C) At the same time, the Government was embarked on a
very serious effort to cut expenses, he said. Starting with
a 20 percent cut in government expenditures in FY 2005 by
rationalizing government employees' use of cars, telephones
and travel allocations, and reducing furniture purchases.
The GOJ had to set a good example, and show that it was
serious about cutting the budget deficit, Al-Kodah said.


11. (C) A/S Wayne welcomed the three-year plan to eliminate
oil subsidies, noting that it would not be easy for the GOJ.
More public outreach that explained to the public why the
subsidies had to go might create better understanding and
make the exercise easier, he added.


12. (C) Two important issues for Jordan were the increase
in the price of oil and the need for support on the GOJ's
external debt, Al-Kodah said. He noted that each increase in
the price of crude oil in the international marketplace had
an impact on the oil subsidy deficit. (NOTE: The MOF is now
citing the budget impact of oil price increases over the
second half of 2005 as JD 13 million (USD $18.33 million) per
USD 1 dollar increase in the price of a barrel of crude. END
NOTE.)

Anti-Money Laundering Law
--------------


13. (C) A/S Wayne noted the USG's strong interest in a
proposed anti-money laundering law (AML) and urged its
passage by the GOJ parliament in the special session, if at
all possible. Al-Kodah spoke of the cabinet's consideration
of the AML and noted the cabinet's support for the law. AML
was on the cabinet's agenda for parliament, he emphasized,
and the aim was to win approval. (POST COMMENT: As reported
Ref (A),the AML is not on the agenda for the two-week
special summer session of parliament.) A/S Wayne replied that
the AML was an essential tool to fight terrorists and other
criminal elements and that it was important to the USG to
know the progress of Jordan in furthering its efforts to
thwart terrorists through systems that were as rigorous as
possible. Al-Kodah agreed.


14. (C) Al-Kodah noted that the Central Bank of Jordan
(CBJ) was getting its systems in place and that the proposed
anti-money legislation would allow the CBJ to act vigorously
against money laundering.

USG: Cooperation and Support
--------------


15. (C) Wayne replied that the USG and GOJ enjoyed good
cooperation, noting that an AML would make such coordination
easier. A/S Wayne expressed gratitude for the GOJ's efforts.
On debt, A/S Wayne said that the G-7 was divided on the
issue of debt swaps and forgiveness, but that the USG would
try to be supportive of Jordan's request for debt relief.
Similarly, the USG had been trying to seek oil assistance for
Jordan from Gulf partners and would continue to do so as the
opportunity arose.

Tax Reform and Privatization
--------------


16. (C) In response to a comment by A/S Wayne that tax
reform would help the GOJ with its budget problem, Al-Kodah
said that the "number one item on the agenda" was how to
improve tax collection. The GOJ had to start by tackling tax
evasion, he noted, citing past experience as Director General
of Customs and as an Auditor. Equally important to the
budget would be the privatization of major government
entities, from telecom, where the GOJ was selling 41.5
percent of its Jordan Telecom stock, to the Jordan Phosphate
Mine and the Central Electric Generating Company (CEGCO)
plant, as well as the Queen Alia International Airport hotel
and other real estate. The Jordan Telecom privatization was
on a fast track, he said. He was expecting altogether up to
1 billion JD (USD $ 1.41 billion) in proceeds from
privatization, part of which he hoped could be used to settle
Jordan's debts. Jordan Petroleum Refinery would not be sold
until 2008, when the 50-year concession would expire.

The Budget Deficit
--------------


17. (C) The original budget deficit for FY 2005 had been
targeted at 270 million JD (USD $381 million),he said. But
with the decline in grants it might reach JD 524 million (USD
$ 739 million) or six percent of GDP. (COMMENT: The budget
deficit remains a moving target, depending on what other
cost-savings or revenue-enhancing measures one includes. The
figure given by Al-Kodah for a revised deficit appears to be
based on oil price rises alone; it reflects the difference
between the original budget deficit based on USD $42 per
barrel of oil and a more recent projected budget deficit
based on USD $60 per barrel. END COMMENT.) The Finance
Ministry subsequently reported to Embassy the current state
of play regarding the budget, to be reported septel.

Iraqi Debt
--------------


18. (C) A/S Wayne inquired if the GOJ had talked to the
Government of Iraq to reconcile Jordan's outstanding claims
against Iraq. (He noted that the characterization of those
claims -- whether they were sovereign debt or trade ledger
accounts -- was still an unresolved matter.) Wayne noted the
two sides had talked before on this issue but had not agreed
on an outcome. One of the minister's aides responded that
the Central Bank was now on the front lines of the Iraq debt
issue. (COMMENT: If an accurate depiction of the situation,
this is a new development, as Finance Minister Abu Hammour
had tracked this issue carefully up until his replacement by
Bassem Awadallah in early April, 2005. END COMMENT.)


19. (U) A/S Wayne cleared this cable.
HALE