DEPUTY SECRETARY'S MEETING WITH IRAQI PLANNING

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002987

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E.O. 12958: DECL: 07/13/2025
TAGS: PGOV PREL ECON IZ IMF ECON
SUBJECT: DEPUTY SECRETARY'S MEETING WITH IRAQI PLANNING
MINISTER BARHAM SALIH

Classified By: Charge d' Affaires David M. Satterfield for reasons 1.4
(b) and (d)


1. (C) SUMMARY. Iraq's Planning Minister Barham Salih told
Deputy Secretary Zoellick on July 10 that key hurdles in
finalizing a constitution include Sunnis' role in the process
and the differing views of federalism held by the main
ethno-religious communities. Zoellick emphasized the
importance of sticking to the TAL timetable; Salih said it
will be difficult but not impossible to do so. The Minister
hopes that the IRFFI donors conference on July 18-19 will
provide a venue to translate the political support shown for
Iraq at the Brussels conference of June 22 into action,
although he recognized new pledges were unlikely. Salih
agreed when the Deputy Secretary emphasized the need for Iraq
to demonstrate a clear policy direction to honor its
commitments to the IMF to reduce subsidies, cut the budget
deficit, and carry out other economic reforms, but noted
there is politically-motivated foot-dragging among Prime
Minister Jaafari's staff. The Minister highlighted the
importance of private investment for reconstruction and
development in Iraq. Salih suggested that the next JCRED be
held inside Iraq. END SUMMARY.


2. (SBU) Deputy Secretary Zoellick met on July 10 with Iraqi
Planning Minster Barham Salih on the occasion of the July
10-11 Joint Committee on Reconstruction and Development
(JCRED).


3. (SBU) Participants:
U.S.
Deputy Secretary Zoellick
Assistant Secretary/EB, Tony Wayne
NSC Senior Director Meghan O'Sullivan
D Executive Assistant Ross Wilson
S/I Deputy Director Bob Deutsch
Economic Minister-Counselor Anne Derse (notetaker)

For Iraq:
Minister of Planning and Development Cooperation, Barham Salih
Chief of Staff Ahmed Salman

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Constitution Drafting Process
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4. (C) Salih told the Deputy Secretary that there are now a
large number of Sunnis in the constitution-writing process,
but questions remain with respect to how representative they
are and how cooperative they will be. Some of those brought
into the process want to stop it, while others genuinely want
elections as soon as possible. Salih said he disagreed with
some who want an extension of the timetable. An election is
needed as soon as possible to legitimize Sunni participation
in the political process.


5. (C) The Minister said there is a move to change the
elections law to have proportional representation at the
governorate level. The Shia support this move. The Kurds
would lose seats, but it probably would assure Sunni
participation. Even though the Sunnis retain a dim view of
Kurds, Salih said the Sunnis "are our people, and we have to
talk to them." On other contentious issues related to the
constitution, Salih noted the presence of a strong
pro-federalist movement in the south of Iraq. The Minister
said with regard to Kirkuk that the Kurds had made a
commitment to normalize the situation there after the
constitution, and he made clear his view that there is no
need for Kirkuk's status to be in the Constitution.


6. (C) Zoellick emphasized the importance of sticking to the
TAL timetable. Salih strongly agreed, saying it will be
difficult but not impossible to do so. He said Speaker
Hassani agrees it can be done. Noting that the EU
constitution had fallen of its own weight, the Deputy
Secretary told Salih that not every issue needs to be

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addressed in the Iraqi constitution. It can put in place a
basic structure, leaving some issues for the future. The
Minister agreed that it would make sense to have a
constitution with basic structure and modalities, but not all
the details, leaving some issues for the future.

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IRFFI Donors Conference/Economic Reform
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7. (C) Turning to the IRFFI donors conference that Jordan
will host at the Dead Sea July 18-19, Salih said that it will
be an important test as to whether the political support for
Iraq shown at the June 22 Brussels conference would translate
into action. Salih hopes to agree on priorities for the next
six months. Donors want priorities; but everything in Iraq
is a priority, and Salih therefore hopes to focus on job
creation--where construction and housing are key sectors--as
the overarching theme. The Minister recognized this will not
be a pledging conference, but underscored the political
desirability of finding some new pledges if possible.
Assistant Secretary for Economic and Business Affairs Wayne
noted that the USG has contacted all invitees to urge they
make new pledges and disburse pledges already made.


8. (C) Noting his recent discussions with the IMF and World
Bank leadership in Washington, Deputy Secretary Zoellick
underscored the importance for Iraq of presenting to the
IRFFI conference a short, prioritized, and action-oriented
National Development Strategy draft, accompanied by an
illustrative list of projects that lets donors know the ITG
is focused. A short document would be the most effective
one. He suggested the ITG present ranges or variables for
the expected budget deficit so people know it is an issue
that must be tackled. The Deputy Secretary said the IMF and
World Bank are pressing for integration of the development
and operating financing budgets. Progress on fuel subsidy
reform, data provision, and the independent audit of the
central bank are key for the IMF. The ITG needs to
demonstrate a sense of commitment and signal clear direction
on subsidies, even as details remain to be worked out through
the political process. This will contribute to a positive
IMF Board Review of Iraq in early August. The Deputy
Secretary offered to work with the ITG to encourage Fund and

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Bank action with respect to Iraq.


9. (C) Salih agreed the ITG must make decisions and bite the
bullet on subsidies and the budget deficit. Any government
would think politically six months before elections, but the
risk of inaction would be the unraveling of Iraq's historic
debt reduction agreement. Salih said he and Finance Minister
Ali Allawi are pushing for economic reform and compliance
with the IMF's Emergency Post-Conflict Assistance (EPCA)
program. He predicted action on fuel subsidies. Prime
Minister Jaafari understands the situation is serious, that
it not sustainable, and that Iraq cannot get enough fuel to
the people as a result of the subsidies. Jordan had acted
and so must Iraq. The Minister acknowledged he is worried,
however, about those close to the Prime Minister who point to
the downsides of reform, arguing elections are only six
months off. In this context, headline-grabbing new pledges
are very important.


10. (C) Salih further agreed the budget process must be
integrated, pledging that he and Allawi will integrate the
budget, and the new donor coordination mechanism will be
built around that process. His vision is to spend $30
billion over the next two years, with funding split equally
between Iraq and donors.


11. (C) With reference to Iraq's need for resources, Salih
said he is working hard on the investment law. He sees no
need to replace the CPA orders on foreign investment (nos. 39
and 46) as some have pushed to do. Rather, the law will be
elaborated with regulations. The new Investment Promotion
Agency and OPIC Investment Incentive agreements will play a
key part in empowering the private sector. Further,
according to the Minister, Iraq's financial problems are
pushing it to explore alternatives like build-own-operate
(BOO) and build-own-transfer (BOT) agreements. Salih said
the government cannot provide all needed investment in the
oil sector.

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Next JCRED
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12. (C) The Deputy Secretary suggested holding another JCRED
meeting in the fall. Noting that USG engagement is very
important to help push for reforms, Salih agreed but added it
is politically important to conduct the meeting in Iraq -- in
the capital or Irbil. He said the ITG is pushing the UN and
World Bank to do more training in Iraq as well.


13. (U) REO Hillah, Basrah, Kirkuk, and Mosul Minimize
considered
Satterfield