FINANCE MINISTER FRETS ABOUT THE UPCOMING BUDGET,

C O N F I D E N T I A L DHAKA 003330

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/06/2016
TAGS: PGOV PREL EFIN ETRD EAID BG
SUBJECT: FINANCE MINISTER FRETS ABOUT THE UPCOMING BUDGET,
HIS OWN POLITICAL FUTURE


Classified By: Ambassador Patricia Butenis, reason para 1.4 d.


1. (C) Summary: According to Asian Development Bank (ADB)
ResRep Hua Du, Finance Minister Saifur Rahman is frustrated
by his declining influence as a senior advisor to the PM. He
told Du that he wants development partners to know that he
understands the need to act on key issues, like cutting
energy subsidies and bringing the Tata proposal to closure,
but the PM demurs. On the budget he will present to
Parliament on June 8, political considerations will be
preeminent even though some measures could send the economy
into a tailspin. The IMF ResRep termed the anticipated
budget "fictitious with little relationship to reality."
Saifur Rahman, embroiled in a very public intra-BNP dispute
that involves his notorious BNP MP son and the Prime
Minister's son, Tarique Rahman, reportedly asked, "Why should
I stay if I can,t influence final outcomes?" End summary.


2. (C) On June 5, USAID Mission Director attended a
hastily-called meeting at the residence of the ADB ResRep Hua
Du, along with World Bank ResRep Christine Wallich, IMF
ResRep Jonnathan Dunn, and Acting British High Commissioner
Stephen Bridges. The topic was Du's meeting the previous
afternoon with Finance Minister Saifur Rahman.


3. (C) According to Du, Rahman vented his frustration with
a decision-making process that he said could lead the country
to economic disaster. He mentioned such problems as the
BDG,s stance on energy tariffs, its borrowing strategy to
cover energy import bills, the lack of movement on the Tata
mega-investment proposal, the Asia Energy coal project
proposal and an associated ADB funded rail link, a proposed
gas pipeline from Burma to India, and the 2006-2007 budget
due to be presented to Parliament on June 8.


4. (C) On energy, Rahman recalled that he has repeatedly
tried to get PM Khaleda Zia to approve incremental tariff
increases to minimize the budget shock of world oil prices,
but Zia listened to others and now the BDG is faced with
mounting energy bills it cannot cover. He put the shortfall
between energy import costs and sales revenue at about $43
million per month, adding the BDG can cover only one third of
that deficit. The tariff increase now before the PM is just
10%. PM Zia, he said, went to Kuwait to negotiate new loans
for energy and deferred payment of around $1 billion in loans
coming due. The IMF ResRep interjected that while local
media reported agreement on deferred payments, his sources
indicate the Kuwaitis delayed and are not likely to take any
final decision. (Note: The Kuwaiti emir is due to visit
Dhaka June 10-11, which is fueling press speculation that
Kuwait will help on energy.)


5. (C) Turning to the proposed Tata project, Rahman said
the gas price is still not totally settled, but the proposal
is much better and should be moved forward because of its
overall benefit to the national economy. The Asia Energy
coal project is in relatively better shape with the coal
policy on the PM,s desk and likely to be approved, but there
are still issues with gas pricing that need to be worked out
in negotiations. The biggest remaining obstacle, he said,
may be the influential Minister of Health and his close ties
to the Chinese, who contend that their coal project agreement
gives them extraction rights in the area Asia Energy is
interested in. However, the Chinese have made little
progress in actually extracting coal from other areas where
they hold rights, so the PM and others may be inclined to go
with Asia Energy.


6. (C) Rahman expressed frustration over what he called a
missed opportunity to obtain agreement on a Burma-India gas
pipeline transiting Bangladesh. The cabinet, he said, had
agreed the PM would discuss the pipeline during her recent
trip to India and indicate the BDG was prepared to drop its
precondition of a 17-km Indian transit corridor between Nepal
and Bangladesh. However, the issue was never brought up by
the Indians, so the Bangladeshis decided not to raise it
either. The Indian commerce minister later told his
Bangladeshi counterpart that the GOI had no idea the BDG
might drop its precondition and therefore had decided to
ignore the issue. Rahman blamed forces seeking to undermine
his authority for "dropping the ball" on the pipeline.


7. (C) Rahman stated that he tried to align the upcoming

budget with the recently-approved Poverty Reduction Strategy
Paper (PRSP),but with only limited success. Political
forces are against him, he said, and while he wanted to
reduce the Annual Development Plan (ADP) by 30%, he was
forced instead to increase it by 30%, even though there are
insufficient revenues to support that level of spending. The
IMF ResRep characterized the anticipated budget as
politically motivated and "fictitious with little semblance
to economic realities." Revenue targets are grossly
overstated, official development assistance and foreign
direct investment amounts are highly inflated, and the ADP
cannot be supported by either available resources or
implementation capabilities.


8. (C) Asked about his future plans, Rahman told Du that he
intends to present the budget, but as to his future in the
government, "Why should I stay if I can,t influence final
outcomes?"


9. (C) The IMF ResRep stated his concerns over what he saw
as the BDG's short-term approach to economic decision-making.
With the 10% proposed energy tariff increase, the IMF, he
said, could not recommend continuing with its approximately
$100 million credit for the BDG, which means the WB,s
Development Support Credit of around $200 million could also
not be presented to its board. The WB ResRep added this
would jeopardize its $200 million education activity, and
the ADB followed that its $100 million rail credit was also
at risk. There was broad concern that the BDG might resort
to draining its foreign exchange reserves to pay import
bills, which would deny it access to IMF and WB credits to
backfill. Moreover, remittances would be insufficient to
cover the deficits. Borrowing externally for the BDG would
be hard and expensive given the extremely high political risk
premium it would have to pay, and would further exacerbate
the BDG's financial woes next year.


10. (C) Comment: Rahman is embroiled in a nasty and public
dispute with a BNP MP from his own Sylhet area, largely as a
reflection of growing tensions between old guard BNP leaders
like Rahman and the young Turks clustered around PM son and
heir apparent Tarique Rahman. Another factor is the
notoriety of Saifur Rahman's son, Nasser Rahman, a BNP MP who
has been implicated in large-scale corruption and other
misdeeds. Saifur jealously defends his son, so staying on
in BNP to protect him must be an important consideration for
him. Regardless of Saifur's future, and whether he would
really abandon PM Zia at this sensitive stage of her
administration, or whether his problematic health might be a
factor, there is no question that BDG inaction is making a
bad fiscal situation worse, especially on energy prices. Our
multilateral and diplomatic colleagues agree that economic,
national interest arguments will make little headway with the
election-focused BNP, but it is important that we register
our concerns and press for corrective action. Ambassador did
this June 6 with Home Minister Babar (who took the points,
and then just said, "There's an election coming up"). The
Ambassador will make the same points when she calls on the
Minister of Health on June 8th. We are also requesting an
appointment for Ambassador with the PM on this matter to
underscore the gravity of our concern.
BUTENIS