Identifier
Created
Classification
Origin
05TELAVIV363
2005-01-21 07:43:00
CONFIDENTIAL
Embassy Tel Aviv
Cable title:  

FINANCE MINISTRY DG ON U.S. ASSISTANCE, BUDGET AND

This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 000363 

SIPDIS

NSC FOR ABRAMS/DANIN

E.O. 12958: DECL: 01/18/2015
TAGS: ECON EFIN PREL KWBG IS ECONOMY AND FINANCE ISRAEL RELATIONS GAZA DISENGAGEMENT
SUBJECT: FINANCE MINISTRY DG ON U.S. ASSISTANCE, BUDGET AND
JOINT ECONOMIC DEVELOPMENT GROUP (JEDG)

REF: TEL AVIV 244

Classified By: Ambassador Daniel C. Kurtzer for Reasons 1.4 (d,b)

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 000363

SIPDIS

NSC FOR ABRAMS/DANIN

E.O. 12958: DECL: 01/18/2015
TAGS: ECON EFIN PREL KWBG IS ECONOMY AND FINANCE ISRAEL RELATIONS GAZA DISENGAGEMENT
SUBJECT: FINANCE MINISTRY DG ON U.S. ASSISTANCE, BUDGET AND
JOINT ECONOMIC DEVELOPMENT GROUP (JEDG)

REF: TEL AVIV 244

Classified By: Ambassador Daniel C. Kurtzer for Reasons 1.4 (d,b)


1. (C) Summary. Economic Counselor and Deputy held a
wide-ranging meeting with Finance Ministry DG Yossi Bachar on
January 18. Bachar discussed the Cabinet's January 16
decision to name him chair of a committee coordinating all
assistance requests to the USG. He believes this would give
coherence to the GOI's policy in this area. In this regard,
Bachar noted it was "too early" for the GOI to submit any
assistance request for disengagement. Furthermore,
Washington should not view recent Israeli probing on U.S.
assistance for Israel's Palestinian quality of life program
as an official request. During the meeting, Bachar also:

-- Accepted the USG's proposal to hold a Joint Economic
Development Group (JEDG) meeting in April. He noted GOI
interest in utilizing rolled-over U.S. loan guarantees in
March or April, and agreed to seek a USG determination
approving such an issuance closer to the actual date of loan
issuance.
-- Said the GOI was about to release $75 million in attached
revenues to the PA.
-- Noted that PA Finance Minister Fayyad was key to the
revenue transfer arrangement and said Israel hoped he would
continue in his current capacity;
-- Stressed that, come what may in the political sphere, the
GOI would maintain the 2005 budget framework agreed upon by
the cabinet in 2004 (i.e. 3% budget deficit and 1% real
expenditure growth, aside from disengagement). He emphasized
that the GOI was "paying" for the new coalition (i.e. funding
Labor and UTJ budgetary priorities) out of a 3%
across-the-board cut in ministerial budgets (primarily in the
area of procurement);
-- Expressed hope that the Knesset would approve his
financial reform package in mid-February.
End Summary.

-------------- --------------
Bachar to Coordinate All Requests for U.S. Assistance
-------------- --------------


2. (C) Bachar outlined a new GOI effort to bring improved
coordination to its requests for U.S. assistance. He noted

the wide variety of Israeli officials who went to the U.S.
and asked the U.S. to provide funding for their own pet
projects. In many cases, these requests were made with no
intragovernmental coordination, leading to a lack of policy
coherence. Bachar had successfully lobbied the Prime
Minister's Office (PMO) to implement a new way of doing
business. From now on, all assistance requests would be
coordinated by a new committee he would chair, which would
include representatives from appropriate ministries,
including PMO DG Ilan Cohen. Bachar said that future
assistance requests would be smaller in number, and
transmitted through a very limited number of channels: at
the political level by the PMO's advisor Dubi Weissglas, and
at the working level by himself. The PM and Weissglas would
decide on a case-by-case basis who would raise such requests
in Washington, but Bachar promised that any such requests
would be closely coordinated.

--------------
"Too Early" for Disengagement Request,
PA Quality of Life Request "Not Official"
--------------


3. (C) Bachar noted that it was "too early" to submit a
request for disengagement assistance, saying the GOI had to
first "prove its seriousness" on implementation. As for
Washington discussions held by Ambassador Ayalon and
Economics Counselor Boaz Raday on U.S. assistance for the
GOI's Palestinian quality of life initiative (reftel),Bachar
termed these exploratory only and stressed they should not be
viewed by Washington as official assistance requests.

--------------
No Need for JEDG Before April
--------------


4. (C) Bachar said the GOI agreed to the U.S. proposal to
hold a Joint Economic Development Group (JEDG) in April or
May. He asked whether the USG agreed to Israeli utilization
of rolled-over loan guarantees in a late-March or April bond
issuance. EconCouns noted that, according to the Loan
Guarantee Agreement (LGA),the USG would need to make a
"determination" that the GOI continued to meet the economic
conditionalities laid down by the 2003 and 2004 JEDG
consultations before the GOI could utilize rolled-over
guarantees. Although the GOI was now meeting these
conditionalities, it was premature to issue a blanket
determination so far in advance of an April issuance. The
USG would prefer to make such a determination closer to an
actual issuance in a forum less formal than a JEDG. Bachar
said this was acceptable, and asked for a letter outlining
this understanding.

--------------
GOI Concern over Fate of Salaam Fayyad
--------------


5. (C) Bachar stressed Israeli support for Salaam Fayyad's
efforts to reform PA finances. The GOI was now preparing to
transfer an additional USD 75 million in court attachments to
the PA. Bachar said he hoped Fayyad would continue in his
current capacity, and said he was concerned a change in the
PA Finance portfolio could impact on the current revenue
transfer arrangement, which in large part hinged on the GOI's
trust in Fayyad.

--------------
Politics be Damned: The Budgetary
Framework "Can't be Broken"
--------------


6. (C) In response to the Economic Counselor's question how
much the new coalition government had cost in budgetary
terms, Bachar stressed that any such costs would be borne
within the budgetary framework approved by the cabinet in

2004. The recent agreement with the Histadrut had left GOI
finances for 2005 in "good shape" and with new flexibility.
Aside from disengagement, Bachar said, the 2005 budget
deficit would not exceed 3% and real expenditure growth would
not exceed 1%. Disengagement included, the deficit would not
exceed 3.4%. "If the government wants to spend more in a
certain area, cuts will have to be made elsewhere." PM
Sharon had made this point crystal clear in a January 16
cabinet meeting, which had agreed to an across-the-board 3%
cut in ministerial budgets (primarily in the area of
procurement) to make up for new expenditures on Labor and UTJ
priorities. Although Bachar did not respond directly to a
follow-up question relating to how much it would cost to
bring Shas into the government, he again noted that the
budget framework would not be broken. Bachar expected the
Knesset to pass the 2005 budget sometime in mid- to
late-February.

--------------
Bachar Beams over the Fischer Coup and
Exudes Hope over His Own Reforms
--------------


7. (C) Bachar ended the meeting by exulting over the recent
appointment of Stanley Fischer as the new Bank of Israel
(BOI) governor. "This was a real coup, wasn't it?" He said
that "only someone like Netanyahu could have convinced
Fischer to come here." Bachar hoped the appointment would
help bolster cooperation between the MoFinance and the BOI.
Bachar specifically noted that Fischer supported his
financial sector reform program, which Bachar said he
expected the Knesset to pass sometime in mid-February.


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