IRAQ'S ROLLERCOASTER RIDE TO DECEMBER 23 IMF

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 005092

SIPDIS

E.O. 12958: DECL: 12/22/2015
TAGS: EFIN PREL IZ IMF
SUBJECT: IRAQ'S ROLLERCOASTER RIDE TO DECEMBER 23 IMF
STAND-BY ARRANGEMENT

REF: A. BAGHDAD 5073

B. STATE 229318

Classified By: Economic Section Minister Counselor Thomas Delare, reaso
ns 1.4 b/d


1. (C) Summary: Popular protests against December 18 fuel
prices have died down. Some southern provinces might be
resisting price hikes, but the Central Government took a
tough stance against recalcitrant governors December 21. In
reaction to surprising news concerning last minute debt
assurances necessary for the IMF Stand-By Arrangement, the
Prime Minister and others in the government swung into action
to elicit required support from Kuwait, Qatar and UAE. End
Summary


2. (C) The endgame to the IMF's Stand-By
Arrangement(SBA)signing has been complicated. With little
PUBLIC preparation, the government imposed fuel prices
increases, the major condition of the program. Despite some
initial trepidation about holding fast to their price
decision, prompted by public protests and some unhelpful
statements by the Minister of Oil, the government decided not
to move (ref a). The governor of Basra then publicly
challenged the government in refusing to implement the price
increases. The Government reacted by calling in all the
governors and representatives of provincial councils on
December 21, including from Basra, and ordered the provinces
to implement the prices increases or use their limited funds
to pay the difference between local and nationally set
prices.

Provincial Administration Still Uncertain
--------------


3. (C) As of December 22, there were no reports of major
public protests anywhere in Iraq over the fuel prices
increases. However, we have been told by the British that
Basrah officially continued to resist price increases. We
also have unconfirmed press reports of filling stations not
implementing higher prices in Maysan, Karbala and Dhi-qar
(all in the South). (Note: It is not clear whether such
reports are true or if they represent more than isolated
refusals to implement the new policy. End Note) Our GOI
interlocutors seem to believe their internal implementation
problem in the provinces does not cross an IMF red-line and
that their firm stance towards the provinces at their
December 21 meeting met IMF criteria. We heard from the IMF
that they were "very pleased" with how the GOI handled the
price increase and at the GOI's "tough stance" at its meeting
with provincial governors yesterday. Most of Iraq, including
the Kurdish regional governorates Baghdad and Mosul, have, in
fact, increased prices.

Disbelief over "last-minute" IMF requirement
--------------


4. (C) Upon receipt of ref B describing last minute
difficulties with needed assurances from Qatar, UAE and
Kuwait that they would negotiate debt relief on terms similar
to those provided by the Paris Club, we called Deputy Prime
Minister Chalabi, who expressed surprise at this last minute
development. He said it was unbelievable that the IMF would
add a &new condition8 at the last minute and wondered if
this was a deliberate effort to block the Stand-by
Arrangement (SBA),given that there was little time to get
these assurances. We told him that we were reaching out to
the 3 countries to urge them to provide the needed
assurances. He agreed to raise this with the Prime Minister.
In the course of the day, we followed up with repeated
discussions with Chalabi, the Director of the Central Bank
and the Chief of Staff to the Prime Minister, encouraging all
of them to be proactive in furthering Iraqi interests in this
matter with the three Gulf States.

Caution Yellow Moves to Green
--------------


5. (C) As a result of our promptings, Adnan Ali, the Prime
Minister's Chief of Staff, told us that the PM would call his
counterparts in the three countries. The PM later connected
with the Prime Minister of Kuwait without much difficulty and
was promised that a letter of assurance would be sent
immediately to the IMF. Ali told us that the PM would keep
trying on Qatar and the UAE, but expressed some dubiousness
about the PM's ability to influence Qatar. As he put it, the
well had recently been poisoned with mutual slanging over the
supposed anti-Shiite stance of Qatar-headquartered Al
Jazeera. He later reported to us that the UAE appeared
receptive toward providing assurances, while UK colleagues
told us that they had reached Qatar Finance Minister al Kamal
and were promised that the Qatar would deliver a latter
stating that they also will provide financing assurances.




KHALILZAD