TEXT OF DPM SALIH'S ECONOMIC DOCUMENT FOR AMMAN

S E C R E T SECTION 01 OF 03 BAGHDAD 004391

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/29/2016
TAGS: ECON EINV IZ PREL
SUBJECT: TEXT OF DPM SALIH'S ECONOMIC DOCUMENT FOR AMMAN
SUMMIT

Classified By: Ambassador Zalmay Khalilzad, Reasons 1.4 (b,d)


1. (S) Deputy Prime Minister Barham Salih provided post with
a draft of the comments on economic issues he developed for
the Prime Minister for the upcoming summit in Amman. In the
wide-ranging document, Barham outlines a vision for the
development of the petroleum sector, the centrality of the
International Compact with Iraq to the development strategy,
and improving Iraq,s legal and regulatory environment to
promote investment and economic growth. The full text is in
paragraph 4.

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SCRD
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2. (S) The text also offers additional details about the
creation of a Supreme Commission for Reconstruction and
Development (SCRD),which would serve to develop and finance
investment projects, and take its funding from &oil price
windfalls,8 unexecuted funds from the budget, and external
assistance. It also outlines in general terms the key steps
immediate-term steps for the SCRD to develop plans for key
sectors of the Iraqi economy. The SCRD would be able to
access stream-lined approval procedures for projects.

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Appeal for Relief of Debt and War Reparations
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3. (S) In the draft, DPM Saleh makes an appeal for
Saddam-era debt relief and forgiveness of war reparations,
both for the sake of the GOI,s fiscal situation as well as
with an aim to improving the climate for private sector
investment. He notes that even after debt relief from Paris
Club nations, Iraq still faces US$84B in outstanding
obligations, and war reparations consume 5 percent of oil
revenues.

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Text of the Document
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4. (S) BEGIN TEXT.


Iraq Economic Recovery Program
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A vital prerequisite for security and political stability is
improving the living conditions for all Iraqis. This entails
combating poverty, creating employment opportunities and
providing essential services. The International Compact with
Iraq offers an effective framework for a viable partnership
between the Government of Iraq and the International
Community in pursuit of the needed economic and political
recovery.

The Compact includes a reconstruction program and reform
agenda to achieve these goals within the next five years.
The recovery program aims to mobilise domestic and foreign,
public and private capital to finance strategic investment in
key sectors. Major projects in energy, agriculture and
infrastructure will be carried out to generate growth and
employment, provide essential services and contribute to
national unity.

In order to support the implementation of the recovery
program and create the environment for private sector
investment the Government of Iraq is seeking further
reduction in external debt, relief from reparations and fresh
investments.

The Government of Iraq inherited an economy ruined by war and
sanctions and deformed by mismanagement and corruption. Over
three years, working under extreme political and security
conditions we managed to lay some of the essential foundation
for economic growth and investment. We stabilized the
national currency and key macro-economic indicators. With
essential support from the US Government we achieved
significant debt reductions.

We are building the legal and institutional underpinning of
free market economy including an independent Central Bank,
financial market institutions, and most recently an
investment law which is dedicated to promoting private sector
initiative and foreign investment. We are now finalizing a
hydrocarbon law, consistent with the Constitution which will
clarify mandates and open the way to major foreign investment
into the oil and gas sector - the engine of our economy.


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A key to promoting investment is prudential fiscal
management. We are successfully carrying out the Stand by
Arrangement with the IMF which has just passed its third
review. We are completing work on next year's budget which
will amount to US 41 BN including US 11 BN in investments.
The budget will be consistent with IMF requirements. The
shortfall estimated at US 7 BN will be covered by Iraq's own
resources including funds accumulated at the Development Fund
for Iraq.

Our reform agenda as spelled out in the ICI cover four key
areas: Improving the management of public financial
resources; building good governance institutions and
combating corruption, creating an enabling environment for
private sector development and foreign investment; and human
development.

Our investment agenda over the next five years devotes
special attention to the energy sector as a main driver for
growth. Our goal is to develop an energy sector that meets
Iraq's needs, maximizes the benefits of hydrocarbons for all
Iraqis and reinforces national unity and institutions.

Investments will be carried out on the basis of an Energy
Sector Master Plan which will:

- Asses the needs of the oil, gas, and electricity
sub-sectors as an interdependent energy complex and determine
investment priorities.

- Lays out a plan for the most effective and efficient
development of the energy sector;

- Quantifies financing requirements and identifies public and
private sources including domestic and foreign investors.

Based on this plan we will aim to raise crude output to 4.3
million barrels per day by 2010. Increase output of refined
products to 700,000 barrels per day and achieve self
sufficiency in power generation by 2011.

Similar investment plans are envisioned in other key sectors,
including agriculture and infrastructure. Overall we
stimulate investment requirements needed to meet Iraq
essential needs over the next five years to exceed US 170
Billion. Iraq will mobilize US 70-80 Billion of its own
resources to meet these needs. The rest will need to be
raised from private and public sources.

In order to mobilize financial resources and carry out
essential investment we need to address several factors which
have so far hampered effective reconstruction. The security
environment is key among them and the government is sparing
no effort to address this critical factor with the help of
our friends and allies. Other impediments include the lack
of project execution and management capacity, regulatory and
administrative bottlenecks and red tape; bureaucratic
inefficiency and corruption. The government of Iraq has
embarked on a number of reforms and actions to address those
impediments within the framework of the International Compact
for Iraq.

To oversee the Economic Recovery Program we will establish a
Supreme Commission for Reconstruction and Development (SCRD).
The Commission will develop detailed investment and actions
plans; cost Iraq's needs, and quantify the financial and
technical resources (public and private) necessary to meet
them and oversee the execution of key investment projects of
national importance. Commission,s activities will be
financed among others, form oil price windfalls, budget
overhangs resulting from under-performance by line ministries
and external assistance.

The SCRD plans and costings will be developed, within the
context of the ICI, working together with partners including
Iraqi stakeholders, multilateral organizations, international
private sector, OIC's, investment banks and management
consultants.

SDRD will focus on the sectors that are key to Iraq's
economic recovery - in the first instance Energy,
Infrastructure and Agriculture, and will produce within six
months:

- Specific actions to address key constraints within the
government and facilitate execution of major investment
projects; and specific actions which could significantly
facilitate foreign direct investments and private sector
development;

- Master plans for key sectors describing actions and

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investments needed in the next 5 and 10 years to meet agreed
targets; investment needs for key sectors anchored in
concrete, economically viable projects and programs which are
prioritized on the basis of maximized economic rate of
return.

- Schedule of public and private investment requirements and
sources of financing (including Iraqi financing) along with
mechanisms for management and execution of these investments;

- Pipeline of feasibility studies and business plans which
can act as a basis for raising financing and enlisting
strategic partners for specific projects.

Institutions and regulations will be put in place to support
the work of the Commission such as a Strategy Unit,
Procurement and Contracting Agencies, and Intergovernmental
Structures to facilitate interactions with relevant agencies
across government.

A simplified regulatory regime including streamlined
procedures for approval and implementation of major
investments will enable the Commission to accelerate projects
necessary to kick start recovery. The Commission will
operate within a framework of transparency, accountability,
fiscal integrity and sustainability.

Working with our friends and allies, the Government of Iraq
will seek to match the Recovery Program needs against
available sources of finance, technical and managerial
assistance.

Debt and Reparation Relief
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One of the key areas of assistance which will help accelerate
growth in Iraq is debt and reparations relief.

As part of Saddam's legacy, Iraq inherited onerous debts of
over US 115 Billion which were largely used by the regime to
finance repression at home and aggression abroad. Iraq still
allocates 5 percent of its badly needed oil revenues to war
reparations.

The Paris Club with 26 countries waived over 80 percent of
Iraq's obligations to them which amounted to 31 Billion but
Iraq still has outstanding obligations of approximately US 84
Billion, including 8 Billion Paris and 76 Billion non Paris.
In 2011 Iraq will have to spend US 4 Billion to service
outstanding debt.

Debt and reparations relief can be provided immediately even
before the political and economic reforms outlined in the
International Compact begin to bear fruit. By improving
Iraq's liquidity and credit worthiness debt and reparations
relief can provide immediate benefit by allowing Iraq to
mobilize private sector support and investment.

Finally, debt and reparation relief is a powerful message to
the Iraqi people and the international community signally the
end of the Saddam's era and a true sign of solidarity with
the Iraqi people - its main victims.

The issues of security and economic recovery are closely
intertwined. The lack of security has seriously hampered
reconstruction efforts so far. The opposite is also true.
Without providing Iraqis with jobs, social security and
services, we will not be able to defeat the enemies of Iraq.

END TEXT.

KHALILZAD