KARZAI DISCUSSES ASSISTANCE BUDGET WITH

UNCLAS SECTION 01 OF 02 KABUL 004967

SIPDIS

DEPT FOR SA/FO AMBASSADOR QUINN, SA/A NSC FOR AHARRIMAN,
KAMEND FOR CENTCOM FOR POLAND, CG CFC-A, CF CJTF-76
USAID FOR AID/ANE, AID/DCHADG

SENSITIVE

E.O. 12958 N/A
TAGS: EAID PGOV SNAR AF
SUBJECT: KARZAI DISCUSSES ASSISTANCE BUDGET WITH
ADMINISTRATOR NATSIOS

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


1. (SBU) President Karzai and AID Administrator Natsios on
November 17 ran through a tour dhorizon of the progress of
U.S. assistance programs, Afghan needs, U.S. budget
realities, and plans for counter-narcotics work in the
coming year. While Karzai continues to believe a twenty
percent reduction in the are under poppy cultivation is
attainable, and is committed to achieving this, both Karzai
and Finance Minister Ahadi expressed concern for the
economic and political fallout that could occur if counter-
narcotics (CN) performance impacted on economic prospects
for rural populations without adequate alternative
livelihood income substitutes. End Summary,


2. (SBU) On November 17, AID Administrator Natsios,
accompanied by Ambassador, met with President Karzai and
key ministers, including finance Minister Ahadi and
Economic Minister Farhang, to discuss assistance and
Afghanistans current top development priorities. Natsios
briefed President Karzai on AID activities that he had
visited the day before in the Panjshir Valley. He noted
that the blacktop (Note: the sphaltic concrete road from
Charikar and Gulbahar and the double bituminous surface
treatment road from Gulbahar to Baharak)in the Panjshir
would be finished by the end of 2006. The new courthouse
would be completed in three weeks, as well as four schools
and four health clinics.

Roads
--------------


3. (SBU) Karzai then asked about progress on the national
plan for roads, health clinics and schools. The
Administrator responded that 389 schools had been
completed, and 378 health clinics with trained personnel,
and stocked with pharmaceuticals were now operational.
Responding to Karzais question about the status of the
Kandahar-Heart road, Natsios said that the U.S. and Saudi
portions of the road would be completed by July and
December of next year, respectively, but that the Japanese
portion of the project is still lagging. Of the originally
targeted 1,000 kilometers of Provincial/District Center
roads, USAID has funded work on 850 kilometers. (Note:
About 360 kilometers are already completed). Karzai
mentioned that he had heard that the Jalalabad-Asmar road
was having problems with contracts, which Natsios promised
to look into. (Note: Two contractors were replaced with a
single new contractor and the road is scheduled for
completion on/about December 30, 2006). When the Afghan
leader asked about the Gardez-Khost road, Ambassador
answered that we did not currently have the money to
support the project, even though it was an important road.

Power
--------------


4. (SBU) Administrator Natsios noted that the Ambassador
had been in the U.S. lobbying hard for additional
supplemental funds, which would be targeted on roads,
power, and other key infrastructure projects. Natsios
cautioned, however, that recovery from Katrina made the
budget climate difficult and the attitude of the American
public toward foreign aid was not as supportive as
Europes. He noted that the FY 07 budget looked pretty
good, but said that it was almost inevitable that there
would be some decline from present levels. Natsios added
that power generation was also one of the three major areas
that need more funds. He pointed out that when the U.S. had
started on the Kajacki Dam (the major source of power for
Helmand and Kandahar),we had expected other international
donors would help with transmission; but they did not. The
additional costs could come the USD 100 million. The
German and French aid ministers say they cant help now.
The EU speaks loudly in councils, but has been light on
donations and disbursements. Projects for power
generation, transmission, and distribution are very
expensive, and all must be completed in order for the
systems to function economically. USAID is already funding
the gas power generation plant in Sherbegan near the Uzbek
border to the tune of USD 100 million, and the World Bank
in Kabul alone was spending USD 23 million on distribution
networks. The IFIs were helping, but there was not enough
funding to do everything that was desirable.

Counter-narcotics
--------------


5. (SBU) The Ambassador noted that success in CN
performance would be a factor in U.S. budget support. Good
progress on Afghanistans part will improve the chances of
increasing U.S. assistance. The alternative livelihoods
development program will work in conjunction with
interdiction and eradication, but will not work otherwise.
Both Karzai and Finance Minister Ahadi emphasized that
there was no doubt about the GOAs commitment and
determination to succeed in CN activities, but expressed
the concern that if the solution were not comprehensive
enough, it could lead to poverty and instability. Karzai
noted that narcotics might contribute as much as USD 3
billion to the economy, and if eliminated, the economy will
suffer. Karzai opined that cartels had not yet formed in
Afghanistan, but that Turkish, Iranian, and Central Asian
mafias are involved, as well as intelligence officers from
former Soviet Union countries. The Afghan President also
felt that some of the recent attacks in the Kandahar area
had been narcotics-related.

Natsios noted that there was no way that any alternative,
,
livelihood development would replace the total lost
revenues, except in the long run if the economy takes off.
Natsios added that the U.S. was aware that eliminating
poppy cultivation cannot be done in one year, and that it
will take time. If another twenty percent reduction in the
area of cultivation occurs next year on top of the twenty
percent reduction achieved last year, this will be seen as
a success.

Comment
--------------


5. (SBU) President Karzai appearedconcered that if the
economy is not productive enough in the rural areas after
CN campaigns, instability will increase. He stressed his
determination to succeed at the CN agenda, but at the same
time he does not want Afghanistan to be held to unrealistic
standards in the counter-narcotics struggle. If CN
activities lead to a snapback in support for the
government, then our CN goals and our governance goals in
Afghanistan will have moved into conflict with each other.
NEWMANN