OVERVIEW OF GOK ASSISTANCE TO AFGHANISTAN

UNCLAS SECTION 01 OF 02 KUWAIT 004626 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ARPI SWALKER, SA/A FOR MQUINN, SA/A FOR NKROMASH, LONDON FOR LTSOU, TREASURY FOR ASHOK PARAMESWARAN E.O. 12958: N/A TAGS: ECON EFIN PGOV PREL KU AF SUBJECT: OVERVIEW OF GOK ASSISTANCE TO AFGHANISTAN REF: A. KUWAIT 1677 ¶B. KUWAIT 3850 ¶C. KABUL 4049 This cable is sensitive but unclassified; please protect accordingly. Not for internet distribution. ¶1. (SBU) Summary. This cable provides an overview of GOK assistance to Afghanistan, including outstanding GOA arrears with the GOK's Kuwait Fund for Arab Economic Development (KFAED). The following information is current as of October 2005 and was provided to the Embassy by KFAED in response to Embassy Kabul's email request. (Note: On September 27, Post forwarded KFAED data via email to Embassy Kabul Econcouns). According to KFAED, since 2002, the GOK has contributed $30M in multilateral grants (through UN and Asian Development Bank) for Afghanistan's reconstruction efforts. However, bilateral GOK assistance to Afghanistan, initiated in 1977, has been on hold since 1993 following the cessation of payments by the GOA on a $29M concessional KFAED loan for a sugar factory in Baghlan, Afghanistan. KFAED claims $19M in GOA arrears and is willing to sign a rescheduling agreement with the GOA to clear the way for renewed KFAED assistance. The GOA has not accepted the KFAED offer pending resolution of Russian debt claims. (Note: GOK rescheduling offer was submitted to GOA in October 2004 and revisited by Embassy Kabul in September 2005.) End Summary GOK Bilateral Assistance -------------- ¶2. (SBU) GOK bilateral assistance to Afghanistan dates back to 1977 when KFAED, the GOK's main development assistance entity, awarded the GOA a concessional loan for 8.5 million Kuwaiti Dinars (KD)--$29M or 1.3 billion Afghanis at current exchange rates--for the construction of a sugar factory in Baghlan, Afghanistan. According to KFAED records, due to political instability in Afghanistan, GOA payments ceased shortly thereafter, resulting in the cessation of GOK assistance to Afghanistan in 1993 as a result of non-payment. (Note: By 1993 GOA repayments totaled 7.2 million KD or $24M.) GOK Multilateral Assistance -------------- ¶3. (SBU) According to KFAED records, the GOK pledged $30M in grants for Afghanistan during the 2002 Tokyo Conference, despite the GOA's bilateral arrears with Kuwait. These funds have been distributed equally between the UN Trust Fund for Afghanistan and the Asian Development Bank's Kandahar-Spin-Boldak road construction project. According to KFAED officials, these grants were provided in response to a U.N.-led multilateral effort. KFAED has advised us that any additional bilateral GOK assistance would be possible only after a rescheduling agreement has been signed for the GOA's arrears. ¶4. (SBU) According to the GOK's MFA (ref A),the GOK pledged an additional $135M at the 2004 Berlin Donors Conference. However, KFAED records do not confirm this amount and it is unclear what amount, if any, has been approved by the Kuwaiti National Assembly and disbursed. (Note: The latest donor assistance matrix provided to Embassy by SA/A does not list the 2004 GOK pledge and cites total GOK assistance at $45M.) Status of Afghan Arrears -------------- ¶5. (SBU) KFAED has not resumed bilateral assistance to Afghanistan pending rescheduling of the 1977 loan arrears, which currently stands at KD 5.5M ($19M or 805M Afghanis). This amount represents the outstanding principal and interest that has accumulated. ¶6. (SBU) Based on Embassy's discussions (ref B),KFAED is eager to conclude a rescheduling agreement in order to re-activate its bilateral assistance to Afghanistan via concessional loans and technical grants. On October 20, 2004, the Director General of the Kuwait Fund, Bader Al-Humaidhi (now GOK Finance Minister) provided his GOA counterpart a rescheduling offer requiring an initial GOA KUWAIT 00004626 002 OF 002 "good will" down payment of $514,000, followed by 40 semi-annual installments over a 20 year period commencing on January 2006. (Note: copies of the rescheduling agreement were forwarded via email to Embassy Kabul on September 27.) ¶7. (SBU) According to Embassy Kabul, the GOA, per guidance from the U.S. Treasury Department, is holding off additional bilateral settlements with creditors who are not members of the Paris Club, including Kuwait, pending resolution of the larger Russian claims (ref C). ¶8. (SBU) Post is confident of GOK's commitment to resuming concessionary loans to Afghanistan. Post welcomes the timely resolution of the Russian debt claims in order to facilitate a rescheduling agreement with the GOK. Post appreciates any updates from Treasury on the status of current USG guidance to GOK on bilateral arrears and the pending Russian debt claims that can be shared with GOK counterparts. ********************************************* Visit Embassy Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ You can also access this site through the State Department's Classified SIPRNET website ********************************************* LEBARON