CHARGE REVIEWS MONETARY ISSUES WITH CBJ GOVERNOR

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 008031

SIPDIS

E.O. 12958: DECL: 10/10/2015
TAGS: EFIN ECON JO
SUBJECT: CHARGE REVIEWS MONETARY ISSUES WITH CBJ GOVERNOR


Classified By: CDA DAVID HALE FOR REASONS 1.4 (B),(D) AND (E).


1. (C) SUMMARY: In an Oct 5 meeting with Central Bank of
Jordan (CBJ) Governor Umayya Touqan and his two deputies,
Faris Sharaf and Mohammed Shahin, Charge and Ecouns followed
up on Treasury A/S Daniel Glaser's recent visit to Jordan,
and elicited feedback on a wide range of monetary issues.
Governor Touqan and staff indicated CBJ intent to update the
two-year old anti-money laundering bill (AML) prior to its
introduction in an upcoming session of Parliament, to develop
disclosure rules for cash flowing in and out of Jordan, and
to battle rising inflation through interest rate hikes.
Throughout the meeting, Governor Touqan expressed concern
about the 2006 national budget but hoped that focused
monetary policy and continued economic growth would keep the
country moving forward. END SUMMARY.

AML Law: Changes Needed
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2. (C) Due to changes in the Financial Action Task Force
(FATF) "best practices" and lessons learned from a recent
Treasury Department Financial Intelligent Unit (FIU) seminar,
Deputy Governor Sharaf indicated that the two-year old AML
bill currently before Parliament needed updating. Sharaf
commented that Parliament members need to be educated on the
importance of the AML for Jordan's economy. Charge offered
Touqan assistance from the Embassy, USAID, and Washington
agencies if he thought it would help to educate key members
of Parliament. COMMENT: While Embassy Amman has promoted
adoption of the AML in its current form with future changes
via regulation, assurances by Sharaf that the required
changes were only technical in nature give us hope that the
AML remains on track. In any event, post will continue to
push the government for its earliest adoption. END COMMENT.

Arab Bank: Working Towards a Gold Standard
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3. (C) With respect to U.S. regulatory actions taken against
the New York branch of Arab Bank, Sharaf said he had
discussed the case with Treasury U/S Stuart Levey during
their meeting on the margins of the IMF/World Bank meetings
in Washington. Sharaf said all remaining regulatory issues
related to Arab Bank had been resolved, and assured the
Charge that Arab Bank knows it has to upgrade its systems to
be fully compliant with the directives of U.S. regulators.
Arab Bank is in the process of hiring a compliance officer,
and is working hard to have the bank meet a "gold standard"
with its compliance systems.

Cash Disclosure Regulation: CBJ Will Look Into It
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5. (C) In a follow-up to A/S Glaser's request to try to stop
flows of terrorism financing across the Iraq-Jordan border by
requiring cash disclosure forms at points of entry and exit,
Governor Touqan expressed his concern that such a change
could be perceived by some as a capital control and as a sign
of GoJ concern about the strength of the dinar and the level
of foreign reserves. Deputy Governor Sharaf added that the
Ministry of Finance views the problem to be mainly "on the
Iraqi side of the border," and that the GoJ would be willing
to offer Jordanian Customs and military expertise to their
counterparts in Iraq.


6. (C) When pressed, Sharaf indicated that the CBJ would be
willing to consider cash declaration forms under the AML
umbrella but "only declaration forms for declaration
purposes," for an amount not yet specified. Sharaf indicated
that the CBJ governor could hypothetically determine cash
limits, but that imposing a penalty would require legislative
approval. NOTE: Post will continue this dialog with the CBJ.
A paper calling for requiring cash declarations was adopted
at the recent meeting of the Middle East North Africa
Financial Action Task Force (MENA/FATF) in Beirut, of which
Jordan is a member. Jordan, in the person of Sharaf himself,
will take over as Vice President of MENA/FATF in 2006 and
President in 2007. Moving forward with a cash disclosure
requirement in Jordan would be one way of the CBJ
demonstrating leadership. END NOTE.

CBJ: An Anchor of Stability
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7. (C) Thanks to "stable exchange rates" and reserves in
"excess of $5 billion," Governor Touqan felt the GoJ and
public perceive the CBJ to be an anchor of stability for the
economy and the country. In order to maintain this
stability, Touqan's number one priority is to "contain
inflationary prices." Assessing the IMF's expectation of
five to six percent inflation by year-end as too high, Touqan
set a target of three to four percent and stated that the CBJ
is "willing to act aggressively," as demonstrated by a recent
interest hike of fifty basis points. At a time when the
"budget is in deep trouble" - and the GCC is decreasing its
aid to Jordan - his concern that "inflation as the worst
thing at this point" was balanced by hopes that economic
growth fueled by increased FDI and a rise in productivity
would counter the economic drag caused by interest rate
hikes. Touqan is also pinning hopes on lower debt
projections in 2006 with ninety percent of subsidies to be
removed, and further privatization in the telecom, mining,
and aviation sectors upcoming. Again, he declared that the
CBJ will do its job, but the GoJ will need to get "its act
together."


8. (C) COMMENT. Post will continue to lobby for swift
passage of the AML, and try to ensure that any amendments do
not delay its passage. Post, with support from its USAID
Mission, will continue to work with the CBJ to prepare its
provisional Financial Intelligence Unit for work after
passage of the AML. We are working on funding a study tour
for FIU staff to learn how an operational FIU in the region
works. END COMMENT.
HALE