MINISTRY OF TRADE FOOD SUBSIDY REFORM PLANS

C O N F I D E N T I A L BAGHDAD 004108

SIPDIS

E.O. 12958: DECL: 10/04/2015
TAGS: EAGR ECON EFIN IZ
SUBJECT: MINISTRY OF TRADE FOOD SUBSIDY REFORM PLANS

REF: BAGHDAD 4041

Classified By: ECON MINCOUNS Thomas Delare, Reasons 1.4 b/d


1. (C) Summary: State and MNF-I representatives met with
Ministry of Trade (MoT) on October 3 to discuss Public
Distribution System (PDS) reform. Minister Abd al-Basit
Karim Mawlud told us that Prime Minister Jafari tasked an
inter-ministerial committee to develop a reform plan by the
end of the year. Abdul Kareem Fajer, Acting Director General
for Foodstuffs, a state-owned enterprise operated by MoT,
seemed supportive of PDS reform so long as it happened in
small steps, and he agreed to informally participate on the
PDS Reform Strategy Team with the Embassy. End summary.

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Garnering Support
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2. (C) During an October 3 meeting with MoT, we discussed
PDS reform with Minister Karim. Minister Karim told us that
the Prime Minister has assigned an interministerial committee
to provide a reform plan by the end of the year. The
committee consists of the Minister of Planning, the Minister
of Finance, the head of the Trade Bank of Iraq (TBI),and
Minister Karim. Minister Karim told us that the committee
has met once, but that nothing has been achieved.


3. (C) In a separate meeting, Abdul Kareem Fajer, Acting
Director General for Foodstuffs, a state-owned enterprise
operated by MoT that controls a significant chunk of the PDS,
was also supportive of PDS reform. He agreed to informally
participate on a PDS Reform Strategy Team that is being
chaired by the Embassy Economic Section. The goal of this
team, which consists of State, MNF-I, USAID, FAS, and GOI
representatives, is to engage the GOI on PDS reform aimed at
eventual termination of the program in favor of a mechanism
less prone to corruption and, ideally, targeted at the
genuinely poor.

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Avoiding Instability
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4. (C) Earlier, Kareem had stated that PDS reform would need
to happen in small steps. He argued that the Iraqi private
sector is not prepared to fill the void that PDS reform
undertaken too quickly would create. (In the past, Minister
Karim has also expressed that reform would need to be slow.)
Kareem believes Iraqis lack the knowledge and skills required
to create a successful private-sector system to purchase,
import, process, and distribute food throughout Iraq. In
addition, he believes there is not enough capital available
to entrepreneurs to acquire the necessary ships and trucks or
to build the proper infrastructure. We agreed that the
transition would be difficult, but told him we believed the
change needed to start because the current PDS is failing and
its funding is likely to diminish substantially (reftel).


5. (C) Kareem expressed concern that rapid reform could lead
to instability. He said that Iraqis often disrespect the
government authorities who operate the current PDS, and he
worries that the situation could be worse if private-sector
development is forced too quickly. Kareem believes that too
many Iraqis currently view democracy as simply meaning that
people can take matters into their own hands and no longer
must bow down to authority.


6. (C) Comment: Kareem was receptive on PDS reform. As
Acting Director General of Foodstuffs, he controls a large
part of PDS operations, and considering the strong likelihood
that he will be involved in the new government, we are
pleased that he agreed to further engage us on PDS reform.
In fact, the PDS appears increasingly dysfunctional, with
spotty and lagging deliveries now the norm. It is also
possible that budget cuts put in motion by the Ministry of
Finance will force Kareem to make rapid changes in the PDS
not currently envisioned in a slow reform process. End
comment.
Khalilzad