THE DEPUTY SECRETARY'S MEETING WITH JORDAN

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 005887

SIPDIS

STATE FOR NEA FRONT OFFICE AND FOR NEA/ELA
TREASURY FOR MILLS/DOWNARD
NSC FOR ABRAMS
USAID FOR NATSIOS

E.O. 12958: DECL: 07/10/2015
TAGS: EAID EFIN PREL JO
SUBJECT: THE DEPUTY SECRETARY'S MEETING WITH JORDAN
MINISTER OF PLANNING SUHAIR AL-ALI


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


1. (U) The Deputy Secretary met with Jordanian Minister of
Planning and International Cooperation Suhair al-Ali July 10
at 3:40 p.m. at the Ministry during a visit to Jordan in
connection with the U.S.-Iraq Joint Commission for
Reconstruction and Economic Development (JCRED) held July 11.


2. (U) Participants:

U.S.
--------------
The Deputy Secretary
Charge Hale
D Chief of Staff Wilson
USAID Administrator Natsios
EB Assistant Secretary Wayne
NSC Senior Director O'Sullivan
USAID Amman Mission Director Aarnes
Notetaker Lawless

Jordan
--------------
Minister of Planning al-Ali
Ministry Secretary General Maher Madadha
Ministry Director of Bilateral Cooperation Nasser Shraideh
Ministry Americas Desk Officer Ghaith Zureikat

Summary
--------------


3. (C) Minister of Planning and International Cooperation
Suhair al-Ali gave an extensive presentation to the Deputy
Secretary of Jordan's current budget challenges, which

SIPDIS
threatened the new government's aggressive reform agenda.
Al-Ali noted the decision to eliminate oil subsidies had been
taken even before the new government faced parliament for the
first time, to show its resolve. She outlined plans for tax
reform, privatization, government cost-cutting and pension
reform. A deficit estimated at $950 million, however,
undermined the government's effectiveness. The GOJ was
continuing to seek debt swaps but was focusing more on debt
relief -- especially for the $1.6 billion owed to Japan. (The
minister's request for relief from U.S. debt was withdrawn in
subsequent bilateral meetings.) She outlined Jordan's
comprehensive plans through a National Agenda to enhance
economic freedoms and a market economy, to involve its people
at the grass roots in an inclusive political system, and to
build government institutions marked by accountability and
justice, with stronger anti-corruption measures.


4. (C) The Planning Minister touched briefly on continued
GOJ requests from Saudi Arabia for 50,000 - 100,000 barrels
in crude oil assistance per day. The Deputy Secretary
encouraged Jordan to apply for assistance under the
Millennium Challenge Account. He also emphasized our
continuing efforts to assist Jordan, noting our support for
higher debt swap ceilings at the Paris Club, our requests to
Gulf neighbors for oil support to Jordan, and our willingness
to engage on debt relief to the extent possible. The Deputy
Secretary emphasized that part of the success of past GOJ

SIPDIS
requests had derived from an excellent bilateral relationship
that had been built on careful dialogue and feedback. End
Summary.

Planning Minister: Reforms Might be "Wiped Out"
-------------- ---


5. (C) Minister of Planning Suhair al-Ali expressed the
Jordanian government's gratitude for U.S. assistance which
had helped promote reforms in Jordan in legal, regulatory and
other areas. The government was particularly grateful for
the $100 million included for Jordan in the FY05 Supplemental
and its $70 million cash transfer component. It was now
important for the people on the ground to see the fruits of
the assistance-supported efforts, even as Jordan faced its
most serious challenges in very trying times. Jordan was
facing significant challenges because of the rise in oil
prices, she said. Even if revenue topped JD 2.1 billion, the
oil subsidies originally had amounted to over 16 percent of
the budget's current expenditures (before the recent
reduction in subsidies) and that share was growing as oil
prices grew. Jordan's very strong program of reform would be
"wiped out" if the Government of Jordan (GOJ) does not take
tough measures to meet the challenges, she said.


6. (C) She noted that the Deputy Secretary's visit was
taking place on the eve of the special session in parliament,
where the government would have to show results. Needless to
say, parliament would be very tough, she said. A vote of
confidence would likely take place around July 21, depending
on how many MP's spoke and for how long. Despite the pending
political pressure, the GOJ had committed to a three-year
plan to eliminate oil subsidies so that there was nothing
that the MP's could say to sway the government to not take
the right steps (to get rid of subsidies).

Reforms on the Revenue Side
--------------


7. (C) Tax reforms were at the top of the GOJ's agenda,
said al-Ali. The GOJ would streamline the system to remove
the loopholes. People were not paying now, but if the system
were simpler, more would pay. The GOJ was also considering
an increase in the general sales tax next year. Increasing
the sales tax on hotel accommodations was also planned as
that sector was doing extremely well, she said. The goal was
to achieve a revenue rate that was about 33 percent of GDP,
she added. (NOTE: In the 2005 budget, approved last
December, revenues were estimated to be less than 25 percent
of GDP.)


8. (C) The GOJ would accelerate privatization, including by
selling Jordan Telecom and divesting about 40 percent of its
holdings in Jordan Phosphate Mines. Other sales would be
made from among holdings in the electricity sector. She
hoped that privatizations in these three largest areas would
start by the end of the year. When asked by the Deputy
Secretary about the process -- including Parliamentary

SIPDIS
consent -- Minister al-Ali said that it might typically be a
two-or-three step divestiture. Parliament would be
consulted, she said, so that none could accuse the government
of "selling the jewels for almost nothing." Proceeds from
privatizations would go to more useful purposes, such as
buying back debt or key capital expenditures, she noted.

Austerity Measures, Cost Control, Pension Reform
-------------- ---


9. (C) Minister al-Ali outlined a series of belt-tightening
measures (reported septel) that showed the GOJ was serious
about fiscal restraint. These measures (e.g., cutting
government expenditures by 20 percent) were not meant to
imply that the GOJ had solved its problems, she emphasized.
Rather, it was to show the people that the government would
lead by example. The World Bank has already outlined a
program for reform of the GOJ's overly generous pension
system and this would be pursued by next year. (NOTE:
Pensions constitute 15 percent of expenditures in the FY 2005
budget.)


10. (C) Jordan's debt stock of USD $7.5 billion was another
area requiring serious review, she noted, pointing to $4.6
billion owed to industrial nations of which $1.6 billion was
debt to Japan. It was Jordan's intention to phase out its
dependence on grants. Recapping her recent trip to Japan,
she said that she found Japanese officials to be cooperative
about debt relief. She added that they had said such relief
for Jordan should be on the positive agenda of the U.S.

Debt Relief, More Aid Now...Phase Out ODA Later
-------------- --


11. (C) Al-Ali requested that the USG consider debt relief
of about USD $400-450 million in monies owed by Jordan to the
United States, including export credits and direct
assistance. Later in the discussion, the Deputy Secretary
clarified that U.S. legislation requires budget scoring of
debt relief according to a formula, and that Jordan might
find better uses for U.S. appropriated funds than debt
relief. (NOTE: In subsequent conversations with Charge,
al-Ali has made clear that the GOJ is no longer interested in
pursuing relief of U.S. debt but is still seeking strong
support for the GOJ's appeal for debt relief from Japan. END
NOTE.)


12. (C) Al-Ali said the request for debt relief should be
viewed in the context of the GOJ's aggressive program to get
rid of fuel subsidies and to phase out Jordan's dependence on
overseas development assistance (ODA). With rising fuel
prices, Jordan was going to have an FY 2005 deficit of $950
million, she stated. Next year, aid levels would need to
increase. But there was light at the end of the tunnel and
Jordan will phase out its grant needs. In the short term,
however, Jordan was in a tough spot but it was taking tough
actions and would continue to take tough decisions. What
Jordan needed now was an increase in baseline assistance
funds to help it through a difficult stretch. Some in the
U.S. Senate seemed sympathetic to such an increase in the
USG's FY 06 budget, she noted. Jordan's elimination of fuel
subsidies was testing the limits, given a 14.2 percent
poverty rate and 13.4 percent unemployment. She later said
Jordan would require even higher levels in FY 07, but that in
three to four years, the GOJ would "require less."

Millennium Challenge Account (MCA)
--------------


13. (C) Minister al-Ali reviewed at length Jordan's
preparation for the MCA, noting its commitment to economic
reform, its interest in a more inclusive political system,
and its stronger national government structures that
emphasized accountability, judicial reform, and
anti-corruption measures. She emphasized that the ongoing
National Agenda exercise (an action plan for major reform
based on nationwide committees, due to be published in
September) was the type of bottom-up process that was in
keeping with MCA concepts. To overcome the significant
challenges ahead, however, the GOJ would need the full
support of the United States including in debt relief,
enhanced aid, and through the MCC.

Deputy Secretary: Continued USG Assistance
--------------


14. (C) The Deputy Secretary noted that his first major
experience with Jordan -- on the Free Trade Agreement, as
USTR -- had been a good one because of the excellent rapport
between the two nations and the ability to have good feedback
that allowed both sides to understand the probabilities for
success. On debt, we had supported the GOJ request to the
Paris Club for a higher ceiling on debt swaps, but Germany,
Japan, and Canada had reservations, he noted. He promised to
keep checking on the GOJ request, but noted that the Japanese
had been "unchanging" in their position and Germany might not
be approachable until after the upcoming elections. (NOTE:
A longer discussion on debt relief ensued, as noted above.)


15. (C) On increased assistance levels, he noted that
Jordan as a front line state in the war on terrorism had
benefited from supplemental assistance in the past two budget
years. This was on top of the regularly appropriated
amounts. While the USG would remain alert to the possibility
of increased assistance, he could not say if there was going
to be a Supplemental in FY 06. The higher oil prices had
been a shock to the U.S. economy, too, he noted. Thus, it
was a hard argument to make in Congress that Jordan needed
help because of high oil prices. Nonetheless, the USG was
committed to supporting governments making tough decisions
and strategic decisions, he added.


16. (C) The Deputy Secretary said that Jordan appeared to
be well positioned to compete in the MCA, but said the real
challenge might be for the USG to determine how to assist all
of the nations that qualify and whether the MCC funds would
be spread thin or whether substantial investments would be
made in a smaller number of countries.


17. (C) Minister al-Ali and the Deputy Secretary had a
brief exchange on the GOJ's continuing requests to the
government of Saudi Arabia for grants of crude oil, a need
al-Ali calculated to be between 50 to 100 thousand barrels a
day. The Deputy Secretary noted our own efforts in this
regard and suggested that the GOJ continue to appeal to
Kuwait and the UAE, as well.


18. (C) The Deputy Secretary closed by thanking the
Minister for her presentation, noting that the USG understood
well the importance of Jordan as a friend and ally in the
region, and the difficult decisions the GOJ was taking and
that the United States remained open to bilateral discussions
of these and other opportunities for assistance and
cooperation.


19. (U) D staff has cleared this message.
HALE