DEPUTY TREASURY SECRETARY KIMMITT AND COUNSELOR

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 002954

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FOR NEA/ARP, NEA/I AND EB; NSC FOR BOUZIS, LONDON FOR TSOU,
PARIS FOR ZEYA

E.O. 12958: DECL: 07/22/2016
TAGS: EAID PREL KU IZ KUWAIT IRAQ RELATIONS
SUBJECT: DEPUTY TREASURY SECRETARY KIMMITT AND COUNSELOR
ZELIKOW ENLIST ARAB FUND SUPPORT FOR IRAQ COMPACT


Classified By: CDA Matt Tueller for reason 1.4 (d)


1. (C/NF) Summary: During a July 22 meeting with Mr. Abdul
Latif Al-Hamad, Director General (DG) of the Arab Fund,
Deputy Treasury Secretary Kimmitt and State Dept. Counselor
Dr. Philip Zelikow outlined the concept for the Iraq Compact,
laid out a timeline for critical steps, and solicited the
active participation of the Arab Fund as a member of both the
preparatory group and the executive committee. Deputy
Secretary Kimmitt emphasized the credibility and competence

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of the key Iraqi participants in the Compact as well as the
need for the regional, technical, and process expertise that
the Arab Fund could bring to the project. The DG responded
that the Arab Fund was eager to return to Iraq and contribute
to reconstruction. He acknowledged that after being "totally
cut off from Iraq for 15-16 years" the Fund lacked specific
knowledge of the Iraqi landscape. (Note: Iraq is still
technically suspended from participation in the Arab Fund.
End note.) Nevertheless, the DG accepted the invitation to
participate in the Compact, stressing that his staff would
need weeks to prepare. He added that the Fund could "fill in
gaps" in areas such as water and power, realizing significant
benefits from investments at the margin. In conclusion, the
DG expressed optimism about Iraq's future while predicting
progress would be slow and difficult. End summary.

Kimmitt Explains Compact, Asks for Arab Fund Participation
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2. (C/NF) Deputy Secretary Kimmitt opened the July 22 meeting
with Director General Abdul Latif Al-Hamad of the Arab Fund
by stating that the Iraq Compact was the best mechanism for
driving development within Iraq. Kimmitt and Zelikow were
accompanied by Rear Admiral Robert Moeller of U.S. Central
Command, NSC Director Evangelia Bouzis, CDA Matt Tueller,
State Dept. Financial Economist Alexei Monsarrat, Treasury
Dept. Financial Economist Vickie Alvo, and Econoff
(notetaker). DepSec Kimmitt explained that the invitation to
the Arab Fund to play a leading role was strongly supported
by the USG. He said the Iraq Compact would comprehensively
address political, economic, and security problems by
compelling the GOI to commit to critical economic reforms in
exchange for financial and technical support from the
International Community. He added that the involvement of
the Arab Fund would lend credibility and bring needed
expertise. Kimmitt added that, if necessary, this
participation could take place remotely. Kimmitt explained
that although the initial meeting of the preparatory group
scheduled for July 20 had to be postponed due to events in
Lebanon, the formation of the Compact would still need to
adhere to an ambitious timeline. Technical discussions would
continue through August culminating in a meeting of the
preparatory group at the end of the month. Meetings would
then be held at the margins of the IMF/World Bank sessions in
September. Signing would be scheduled for November prior to
the debate in the Security Council over the continuation of
the mandate for the Multi-national Force in Iraq in December
and prior to the end of Kofi Annan's term as Secretary
General.

DG Commits to Participation but Recognizes Challenges
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3. (C/NF) Director General Al-Hamad explained that the Arab
Fund had not committed to sending a representative to the
July 20 meeting because he "had no one to send" -- a
significant proportion of his small staff is on vacation in
July/August and the Fund was given notice only four days
prior to the meeting. The DG said that although the Fund was
still technically prevented from working with Iraq, this
situation could be easily remedied. He said that Iraq could
play an important, constructive role in the region with the
caveat that stability in Iraq was "a longshot." However, he
expressed some optimism that the Fund, with its broad
experience in the region, could play a useful role despite
its disengagement from Iraq in recent years. The DG said
that the Compact would serve as a "vote of confidence from
the international community," but he warned that the work of
the Compact must "create an impression of equity and unity in
development" to dispel the image of Iraq as "not a country,
but a collection of vested interests and fighting groups."
Al-Hamad accepted the invitation for the Fund to participate
in the executive committee.

DepSec Vouches for Competence and Commitment of the Iraqis
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4. (C/NF) Kimmitt referred to the GOI's success in
stabilizing the dinar, building up foreign reserves, and
collecting government revenue. He added that the IMF had
endorsed the Iraqi economic team, recognizing that they had
"laid a strong macroeconomic foundation." The Deputy
Secretary said that it was, in fact, the GOI that conceived

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the idea of the Compact as a means of creating a binding
external commitment that would help the Government to
overcome domestic political constraints. He stated the
shared vision for the Compact to serve as a plan of action
rather than an aspirational document. To allay the DG's
concerns over a lack of accurate, up-to-date data on Iraq,
DepSec Kimmitt offered to furnish copies of recent World
Bank, IMF, UNDG, and IRRFI reports. (Note: The Embassy has
followed up and provided the reports to the Arab Fund. End
Note.) Counselor Zelikow said that the Fund could support
the Iraqi team by drawing on its broad experience in
identifying the most appropriate development targets to
strategically address the most critical problems. Picking
the right targets, and then being tough on implementation
would be key. Zelikow added that the USG was eager to
re-engage the Fund at a broader, systemic level in the near
future.

Arab Fund On Board but Level of Involvement Uncertain
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5. (C/NF) The DG expressed eagerness to engage but with
modest expectations. He emphasized that initial involvement
by the Fund would be limited to "filling in gaps" to enhance
the performance of existing projects. He also stated that
the extent of the Fund's involvement would be limited by the
size of his staff as well as the time of the year with summer
vacations being followed by Ramadan and the Haj.
Nonetheless, he said that the effects of modest and
accessible projects such as improving the provision of clean
drinking water could be significant. In closing, the
Director General said, "I'm optimistic despite all the
problems. It's a long haul, but there's really no
alternative."


6. (U) Deputy Secretary Kimmitt and Counselor Zelikow have
cleared this cable.

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