AMBASSADOR MEETS WITH ISLAMIC DEVELOPMENT BANK

C O N F I D E N T I A L SECTION 01 OF 03 JEDDAH 000548

SIPDIS

SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP;
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E.O. 12958: DECL: 08/14/2016
TAGS: EAID EFIN IZ KISL LE PREL SA
SUBJECT: AMBASSADOR MEETS WITH ISLAMIC DEVELOPMENT BANK
PRESIDENT

Classified By: Ambassador James C. Oberwetter, for
reasons 1.4 (b) and (d).


1. (C) SUMMARY: On August 8, Ambassador Oberwetter led a
group to met Islamic Development Bank (IDB) President
Al-Madani. The Ambassador apprised Al-Madani of the
forthcoming visit of Deputy Treasury Secretary Kimmit to
discuss U.S. and potential IDB involvement in the
reconstruction of Lebanon and Iraq. Al-Madani described
current IDB involvement in Iraq and explained IDB operations.
END SUMMARY.

AMBASSADOR OBERWETTER'S MEETING WITH IDB PRESIDENT - AUGUST
8, 2006


2. (C) On August 8, Ambassador Oberwetter, accompanied by
Jeddah CG and Pol/Econ Chief met with Dr. Ahmad Mohamed Ali
Al-Madani, President of the Islamic Development Bank (IDB).
Also present for the IDB was Director of the Special
Assistance and Scholarship Office Dr. Mohamed Hassan Salim,
and Press Officer Mustafa H. Wadi.

KIMMIT VISIT - LEBANON


3. (C) The meeting began with Dr. Al-Madani expressing his
grave concern over the situation in Lebanon and his hope that
a cease fire could be effected quickly. The Ambassador
agreed that the situation was deplorable, but that a stable
solution must be found. In connection with Lebanon, the
Ambassador informed Al-Madani of the impending visit of
Deputy Treasury Secretary Robert Kimmit. The Ambassador said
that Kimmit would be interested in the latest information the
IDB had concerning events in Lebanon. Kimmit was also
formulating U.S. assistance and reconstruction efforts in
Lebanon. The Ambassador described current U.S. assistance to
the Lebanese people, consisting of an allocation of $2
million in humanitarian assistance and $4 million in in-kind
assistance.

KIMMIT VISIT - IRAQ


4. (C) The Ambassador told Al-Madani that a second subject
for D/S Kimmit's visit was to discuss IDB assistance to Iraq.
The Ambassador outlined the current level of the U.S.
commitment to Iraq. The U.S. has already allocated $21
billion to Iraqi reconstruction and Congress is in the
process of voting on an additional $2 billion, and promised
that more funds would be forthcoming in the future.

IRAQ WILL REQUEST IDB ASSISTANCE


5. (C) The Ambassador advised Al-Madani that Iraq would
formally approach the IDB with a request for assistance. He
admitted that the situation in Iraq was fluid and unstable,
and, as a consequence, many financial institutions were
reluctant to invest or send personnel to Iraq. He noted
instability was a primary reason that the Saudi government
had not invested.

IDB AND IRAQ


6. (C) Al-Madani responded that the IDB is already involved
in Iraq. Iraq's debt to the IDB has been successfully
renegotiated. Iraq has made two installment payments and
future installments were expected. He also revealed that an
IDB loan to finance education projects in Iraq is scheduled
to be signed on August 18. At this time, the IDB does not
have staff in Iraq, but it has met Iraqi representatives in
Amman and has also developed projects in cooperation with
the World Bank, which does have representatives in Iraq. The
educational project is a product of IDB-World Bank
cooperation.

IDB OPERATING METHODS


7. (U) Explaining the IDB's operating methods, Al-Madani
stated that the IDB generally engages countries at the level
of the national government, but also has some contact with
the private sector. The IDB endeavors to cooperate with all
international financial institutions sharing its interest in
promoting development. In addition to extensive interactions

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with the World Bank and IMF, the IDB routinely cooperates
with the Kuwait Fund, the Saudi Fund, OPEC Fund, and UN
agencies. Cooperation is multi-dimensional. It may consist
of an exchange of information between the organizations,
exchange visits of personnel, joint missions, or, as in the
education project, joint financing. In a personal aside, the
Ambassador told Al-Madani that James Wolfenson, whom
Al-Madani knows well, is likely to conclude his mission for
the Quartet in the near future and return to the private
sector.


8. (U) In general, according to the President, the IDB's
interaction with countries is through the agency of the
member state's Governor or Lieutenant Governor on the Board
of Governors of the IDB. These individuals attend the annual
meeting of the IDB Board and may advocate for programs in
their countries. Typically, the annual meeting would vote on
projects and initiate action with the government of the
requesting state. While the member state's representative on
the Board of Governors is the primary contact for project
requests and the official point of contact, technical and
subordinate officials coordinate with the IDB project
planning staff and in preparation of the loan package.

IDB GOVERNANCE


9. (U) When the IDB was formed in 1975, it had only 22
members; it now has 51. The IDB's Board of Governors is
composed of the Finance Minister or the Economics Minister of
the member states. During its first three years existence,
the Board of Governors was a full-time board that oversaw
Bank operations. This was judged unwieldy and was replaced
by the current structure, in which the President and his
staff oversee the day-to-day operations of the Bank. The
Full Board of Governors meets yearly, most recently in Kuwait
in May. In addition to the full Board, there is an executive
committee of 14 members. Seven of the members of this
committee are appointed by the major investors in the Bank,
including Saudi Arabia which provides approximately 22% of
the Bank's capital. The other seven member are elected by
the full Board of Governors. This executive committee meets
every six weeks at the Bank's headquarters in Jeddah.

IDB FUNDS DOUBLED AT KUWAIT MEETING


10. (C) Al-Madani stated that at the Kuwait meeting of the
Board of Governors in May, the Board of Governors voted to
increase the capital of the IDB from 15 billion Islamic
Dinars (ID) to 30 billion ID (Note: Al-Madani described the
Islamic Dinar (ID) as the common accounting unit of the Bank,
analogous to the Special Drawing Right (SDR) at the IMF.
From the figures provided by Al-Madani during the
conversation, this unit appears to equal approximately 1.5
USD; e.g. he offered the dollar equivalent of the above
figures as 22-44 billion USD. End note). At this meeting it
was also resolved that the subscribed capital of the member
nations would likewise increase from 8.2 billion ID to 15
billion ID. The Governors also decided to pay off 1.3
billion ID (c. USD 2 billion) of outstanding debt.

INTENT TO FINANCE MORE LOANS


11. (C) Al-Madani said that these initiatives were taken in
order to permit the Bank to finance more projects. They are
in the process of issuing Islamic bonds, called sukuk, to
finance development projects. Their first bond offering
totaled USD 1 billion in two tranches of USD 500 million
each. Both of these offerings were oversubscribed.
Al-Madani proudly reported that Standard and Poor's rates IDB
debt as a AAA investment.

IDB LOANS


12. (C) In its primary role as an investment and financing
institution, the IDB makes soft loans and equity loans for
major projects. The soft loans are provided from a
relatively limited fund. They are relatively small in size,
having a maximum value of 7 million ID. Other types of loans
may range in size up to 70-80 million ID. The IDB offers
short-term and long-term loans. Short-term loans are
primarily used for trade-financing, and the IDB is involved

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in trade promotion and offers insurance to guarantee
transactions. The total of the IDB's current loans are
approximately USD 4.5 billion. The Bank's total operations
amount to USD 44 billion according to Al-Madani.

Gfoeller