Identifier
Created
Classification
Origin
06KUWAIT87
2006-01-10 10:33:00
CONFIDENTIAL
Embassy Kuwait
Cable title:  

A/S WAYNE AND TREASURY DAS SAEED ENGAGE KUWAITIS

Tags:  PREL EAID EFIN ECON KPAL AF LE IZ IS KU 
pdf how-to read a cable
VZCZCXRO6978
OO RUEHDE
DE RUEHKU #0087/01 0101033
ZNY CCCCC ZZH
O 101033Z JAN 06
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2462
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHBUL/AMEMBASSY KABUL PRIORITY 0198
RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0523
RUEHLB/AMEMBASSY BEIRUT PRIORITY 1007
RUEHJM/AMCONSUL JERUSALEM PRIORITY 1262
C O N F I D E N T I A L SECTION 01 OF 05 KUWAIT 000087 

SIPDIS

SIPDIS

STATE PASS TO TREASURY ASAEED

E.O. 12958: DECL: 01/08/2016
TAGS: PREL EAID EFIN ECON KPAL AF LE IZ IS KU
SUBJECT: A/S WAYNE AND TREASURY DAS SAEED ENGAGE KUWAITIS
ON STRATEGIC INVESTMENT INITIATIVE


Classified By: Ambassador Richard LeBaron for reasons 1.4 (b and d)

C O N F I D E N T I A L SECTION 01 OF 05 KUWAIT 000087

SIPDIS

SIPDIS

STATE PASS TO TREASURY ASAEED

E.O. 12958: DECL: 01/08/2016
TAGS: PREL EAID EFIN ECON KPAL AF LE IZ IS KU
SUBJECT: A/S WAYNE AND TREASURY DAS SAEED ENGAGE KUWAITIS
ON STRATEGIC INVESTMENT INITIATIVE


Classified By: Ambassador Richard LeBaron for reasons 1.4 (b and d)


1. (C) SUMMARY: On January 7, A/S Wayne and Treasury DAS
Ahmed Saeed, accompanied by the Ambassador, NEA/ARPI Deputy
Director Steve Walker, EB Financial Economist Roland de
Marcellus, and Econoff, met separately with Minister of
Finance Bader Al-Meshari Al-Humaidhi, Minister of Commerce &
Industry Abdullah Abdul Rahman Al-Taweel, Minister of Foreign
Affairs Shaykh Dr. Mohamed Sabah Al-Salem Al-Sabah, Kuwait
Fund for Arab Economic Development (KFAED) Director General
Abdul Wahab Al-Bader, and Arab Fund for Economic and Social
Development (AFESD) Director General Abdulatif Al-Hamad to
discuss the Strategic Investment Initiative (SII). A/S Wayne
explained the concept behind the initiative, and encouraged
the GOK to participate in a regular dialogue to establish a
systematic method for determining aid needs and mechanisms
for aid implementation, for Iraq, Afghanistan, Lebanon, and
the Palestinian Authority (PA). A/S Wayne noted that 2006
will be a critical year in the region, with a new Iraqi
government, upcoming PA elections, the "Afghanistan Compact"
conference, and a possible donor conference for Lebanon all
needing to be addressed, and expressed hope that his current
meetings will pave the way for effective meetings by more
senior USG officials in late January or early February.


2. (C) All interlocutors responded positively to the
initiative. FinMin Al-Humaidhi suggested that coordinating
with regional development funds would be the best approach,
noting that the bulk of GOK assistance is channeled through
the KFAED and the AFESD. AFESD Director Al-Hamad seconded
the notion in a later meeting, calling the AFESD the region's
biggest player in multilateral assistance. KFAED DG Al-Bader
also endorsed working with other regional development funds,

and offered to arrange a meeting between the USG and the
bilateral Arab development funds (Saudi Fund, Kuwait Fund,
and Abu Dhabi Fund). Additionally, Al-Bader acknowledged the
wisdom of conducting needs assessments instead of depending
on recipients for project guidance. Al-Taweel and Al-Sabah
both acknowledged the need to systematize need assessments
and projects, although Al-Sabah betrayed some skepticism
about the efficacy of financial assistance to Lebanon amidst
what he sees as a political problem.


3. (C) On assistance to Iraq, Commerce Minister Al-Taweel
stated that private investment is crucial to post-conflict
reconstruction, but that investments outside of the logistics
sector have been hampered by the security environment.
Foreign Minister Al-Sabah stated his hope that the incoming
GOI would be easier to work with than the interim
authorities, noting that difficulties with the current GOI
are the major reason that $120 million in promised GOK grant
funds had yet to be spent. He gave the example of Kuwait's
desire to build a hospital in Basra: the Iraqis had been
unable to agree on a location so construction had not yet
started. (NOTE: These project funds are separate from the
$440 million in soft loans.) Nonetheless, Finance Minister
Al-Humaidhi addressed the Iraqi debt issue, saying that the
GOK is adopting a "wait and see" attitude for now. Al-Hamad
noted that AFESD has not financed any projects in Iraq since
before the 1990 invasion, and that Iraq is currently in a
"frozen position" because of its $65 million in arrears to
the AFESD. KFAED DG Al-Bader said that meetings with the
Iraq's Deputy Minister of Planning two weeks ago in Amman and
two weeks prior to that in Kuwait to discuss grant and loan
money pledged by the GOK have been productive, and that a
final decision has been reached on the initial $30 million
grant for school construction. The Foreign Minister
suggested adding Yemen to our "strategic dialogue." END
SUMMARY

-------------- --------------
Finance Minister: Work with Regional Development Funds
-------------- --------------


4. (C) Minister of Finance Al-Humaidhi agreed that there
should be a system in place for assessing aid needs and
coordinating projects. He stated that Kuwait is a major
contributor in Iraq, and could do more if the security
situation would permit. Al-Humaidhi agreed on the need for
greater U.S.-Kuwait coordination, bemoaning what he described
as the past lack of follow-up on aid efforts. He said this
was evidenced by the fact that the last Afghanistan donor
meeting was more than two years ago, with very little
follow-up. He agreed with the SII in principle, and
suggested that the most effective way would be for the USG to
coordinate with regional aid funds - such as the Kuwait Fund,

KUWAIT 00000087 002 OF 005


Saudi Fund, Abu Dhabi Fund, etc - through the coordinating
committee of these gulf financial institutions, which meets
every six months. A/S Wayne agreed that coordinating with
the regional funds is a good idea, noting that thus far the
USG has not had as much interaction with these funds as it
should. (Al-Humaidhi was Director General of the Kuwait Fund
before becoming Minister of Finance.)


5. (C) In response to DAS Saeed's question about aid to the
PA, Al-Humaidhi stated that GOK assistance was initially
channeled through the Kuwait Fund, but later through two
funds (the Al-Aqsa Fund and the Intifada Fund) administered
by the Islamic Bank. Total GOK assistance, he said, was more
than $200 million. A/S Wayne noted PA claims that it has not
received all of the Arab League Summit commitments, but
Al-Humaidhi responded that the PA has received everything,
and PA claims otherwise are disingenuous.


6. (C) Turning to Iraqi debt, Al-Humaidhi stated that there
has been no direct dialogue with the GOI on the issue, and
that the GOK "doesn't want to raise it at this time." The
debt issue was to be discussed at the last GCC meeting, he
said, but was not. Al-Humaidhi said that the GOK "hasn't
seen anything concrete" from either the GOI or international
donors. In response, noting that the Paris Club commitments
to an 80 percent debt reduction were being met by individual
donors, A/S Wayne expressed appreciation for the GOK's recent
commitment to try to match this effort, which had been
critical for approval of IMF arrangements.

-------------- --------------
Commerce Minister Highlights Private Sector Role in Iraq
-------------- --------------


7. (C) Minister of Commerce and Industry Al-Taweel was eager
to praise the SII concept, saying that he was "glad you're
talking about it openly." Al-Taweel stated that Kuwait had
given generously in the past, but had not always been
recognized internationally for doing so, a situation he
described as "embarrassing" for Kuwait. He noted that the
GOK is being "smarter" about aid now, no longer disbursing
cash without any follow-up, but is instead financing specific
projects through the Kuwait Fund.


8. (C) On Iraq, Al-Taweel stated that private sector
investment is critical to post-war development, and lamented
that the security situation has hampered significant private
investment outside of the logistics industry. He indicated
the extent of Kuwaiti ambitions for investing in Iraq,
stating that Kuwaitis consider the area of Iraq from Baghdad
southward as "Kuwaiti territory" in terms of investment.

-------------- --------------
SII a "Noble Cause," but FM Concerned About Yemen Too
-------------- --------------


9. (C) Foreign Minister Al-Sabah responded favorably to A/S
Wayne's and DAS Saeed's description of the SII, agreeing that
a structured approach would be beneficial and "the GCC and
the U.S. should share views about development." Al-Sabah
noted that he first discussed the SII concept with Secretary
Rice at the Forum For the Future in Bahrain, and agreed with
the need to avoid overlap in our respective aid efforts.


10. (C) Al-Sabah stated his concern about Yemen, noting that
the "GCC had taken a special interest in Yemen" at the last
GCC Summit. He urged the need for international and regional
cooperation to prevent instability in Yemen. At the request
of the Yemeni Foreign Minister, GCC Foreign Ministers will
meet with him to discuss financing for infrastructure
projects. In response to Al-Sabah's question, A/S Wayne
replied that the U.S. is willing to participate in
discussions to assist Yemen.


11. (C) Al-Sabah said that Iraq is "of special interest" to
the GOK, and noted the $500 million allocated by Kuwait for
Iraq. Referring to a $125 million grant package that has not
yet been disbursed, he stated that the GOK is "still waiting
for Iraq to get its house in order" before the funds can be
released for projects. As an example, Al-Sabah related
problems in building a $16 million hospital in Basra because
the GOI could not agree on a site; Iraqi officials eventually
asked that the funds just be transferred, a request the GOK
declined. Al-Sabah expressed hope that the new GOI will be
easier to work with.


KUWAIT 00000087 003 OF 005



12. (C) Al-Sabah was initially skeptical about financial
assistance to Lebanon. Lebanon, he said, is "an interesting
case," whose "problems are not economic, but of a political
nature." He argued that political stability must come first,
because financial aid during a time of crisis may not have
much of an impact. He was unsure of the fate of previous
loans to Lebanon, and was hesitant provide more money without
some certainty that the funds would be appropriately used.
DAS Saeed responded that without a financial aid structure,
as proposed in the SII, assistance might well be wasted,
providing a strong argument in favor of developing a
strategic aid framework. A/S Wayne added that the planned
donor conference could provide just this type of framework
that would result in less risk in disbursing aid. He also
stressed the vital role of the IMF.


13. (C) On assistance to the PA, Al-Sabah said that "we
would like to help" PA President Mahmoud Abbas, but that
Abbas's concerns "are more short-term finance, not long-term
projects." Wayne agreed that the PA needs to get through
short-term budgetary problems in order to be able to tackle
the medium- and long-term proposal being developed by the
Wolfensohn team.


14. (C) A/S Wayne addressed the upcoming conference on
Afghanistan in London, stating that the "Compact" will focus
on GOA commitments to transparency and good governance in
return for conditional promises of sustained financial
assistance from donors. Al-Sabah asked for a copy of the
draft Compact, which Post has now received and will forward
to him. The Foreign Minister said he plans to attend the
London conference.

--------------
Kuwait Fund: Our Interests are the Same
--------------


15. (C) Kuwait Fund for Arab Economic Development (KFAED) DG
Al-Bader noted that "our interests are the same" when it
comes to investments in the stability of the region, and that
it was important to "find common ground, especially on these
priority countries." He said the by-laws of KFAED require it
to focus on projects, not programs or budgetary assistance to
governments.


16. (C) Al-Bader said the operations chiefs of the Arab
donor organizations meet every six months and that it might
be possible to hold a side meeting during one of them to
discuss specific aid initiatives in the four countries of
concern. "The Arab countries might be open to U.S.
participation," he said, "and we could broach it." He
explained that, every six months, the Directors of Operations
of the KFAED, Saudi Fund, Abu Dhabi Fund, the OPEC fund, the
AFESD, and the Islamic Development Bank meet to discuss aid
and development projects. He had found this to be "an
effective mechanism" for coordinating aid among these donors,
but was not a discussion of levels of aid. He pledged to
raise the idea of U.S. participation in these meetings with
the KFAED Director of Operations to determine whether this
would be a good instrument for interaction with the U.S. He
also offered to arrange a meeting between the USG and the
three bilateral Arab funds.


17. (C) Al-Bader said these donors have not in the past done
overall needs assessments because they are not major donors
individually. Speaking for the KFAED, he noted that while he
can express interest in aid for a certain country, decisions
on assistance levels remain with the GOK. Al-Bader agreed
that more support for private sector development was needed,
especially for small- and medium-sized enterprises. He said
that there was some support for micro-financing projects for
small businesses, but only if there was a reliable government
partner with which the KFAED could work.


18. (C) On Iraq, Al-Bader said he met recently in Amman and
in Kuwait with Iraq's Deputy Minister of Planning Dr. Fa'ik
Rassoul to discuss grant and loan money pledged by the GOK.
He said the final decision has been reached on the initial
$30 million grant for school construction and the specific
schools have been identified. Another $30 million would be
dedicated to medical storage supply facilities and a mobile
hospital, but KFAED still needed the GOI to identify specific
areas for these facilities. For a second $60 million in
grant aid, Al-Bader said that the Iraqis had asked for $34
million for a sewage project in Baghdad, and $26 million for
school construction in central and northern Iraq. Of $440

KUWAIT 00000087 004 OF 005


million in pledged soft loans, the Iraqis wanted $200 million
for electricity projects and the rest for schools and sewage
projects. He said that GOI changes and differing priorities
expressed by different officials had made disbursing aid
difficult, and he would not discuss any aid initiatives with
anyone except the Ministry of Planning. He specifically
pointed out Deputy Minister Dr. Fa'ik Rassoul as someone he
was comfortable with. (He noted that, during Iraq's invasion
of Kuwait, Dr. Rassoul was put in charge of the KFAED and the
Deputy for the Central Bank and perhaps kept those
institutions from being completely destroyed. He said that
he is now on friendly terms with Dr. Rassoul.)


19. (C) Al-Bader said the problem with new aid for
Afghanistan was still a 1977 loan to build a sugar factory,
on which the GOA had defaulted to the tune of $19 million.
(NOTE: The GOK rescheduling offer is pending GOA approval and
the issue is expected to be resolved after settlement of
Russian debt claims with the GOA.) "All I need is to sit and
discuss this loan," he said, "even if it's paid back over
thirty years." He said KFAED has told the GOA of this "many
times," but they still have yet to reach an agreement. A/S
Wayne noted that a paper was currently being drafted for the
upcoming London conference on assistance for Afghanistan, and
that this initiative might help KFAED "have this
conversation" with the GOA.


20. (C) Al-Bader said a KFAED mission had just returned from
Lebanon and he had its report on his desk. There were "many
delays" in current projects, and KFAED needs to "sit down
with them to figure out" the status of the various projects.
In general, KFAED has had "good relations" with Lebanon over
the years, with "a number of good projects." A number of
road projects were being held up "because of the political
situation," and because the GOL had yet to make the necessary
land acquisitions for the construction, he stated.


21. (C) Al-Bader said that support for the PA's budget goes
through the GOK, not through the KFAED, and the KFAED cannot
make loans to the PA "because they are not a state." He
expressed interest in seeing "small grants" made to the PA
through the KFAED for specific studies and programs.

--------------
"Biggest Player in the Region"
--------------


22. (C) Arab Fund for Economic and Social Development
(AFESD) Director Al-Hamad thanked A/S Wayne for his visit to
the region, noting that the AFESD is in a unique position.
"We are not part of the GOK," he noted, adding "sometimes
they forget we exist." He explained that the AFESD answers
to the Finance Ministers of each member country and that the
AFESD "is the biggest player in the region" in terms of
multilateral development assistance, committing over $1.2
billion in 2005 alone. Al-Hamad explained that the AFESD
"does not deal with Afghanistan" since it is not part of the
League of Arab States.


23. (C) Al-Hamad said that, in order for development
institutions to work together properly, they need to
understand each others' limitations. Wayne noted that the
Fund is project-driven, while other donors are "program"
driven. Al-Hamad noted that the U.S. approach is global,
while the AFESD's approach is regional, and that cooperation
over the years has been "stop and go." He had worked closely
with USAID when he was with the Kuwait Fund in the 1960s and
1970s, but the region has become more politicized. He
welcomed any future cooperation and communication and
recommended that development assistance efforts be moved
"from the political level to the technical," in order to make
them work.


24. (C) Al-Hamad stated that he hoped to renew dialogue with
Iraq "soon," and expected an initiative to that effect after
the next AFESD annual meeting in April 2006. He said that
AFESD had financed a number of projects in Iraq before the
August 1990 invasion, but that Iraq defaulted on those loans
in February 1990. The loans were stopped, per AFESD
regulations, and Baghdad asked someone from AFESD to come to
Iraq to work out a solution. "Then they sent one million
people here. They had their own solution," Al-Hamad said,
referring to the invasion of Kuwait. Since then, Iraq has
been in a "frozen position" rather than being suspended from
the organization, and Iraq was $65 million in arrears to the
AFESD, with "no interest being charged" on the interest, he

KUWAIT 00000087 005 OF 005


stated.


25. (C) On Lebanon, Al-Hamad said that AFESD was the "second
largest donor in Paris," and praised Lebanon for never
defaulting on any of its project loans, not "even during the
most difficult times of their civil war." While he expected
to receive documentation for new projects soon, the $500
million pledged for these has not been disbursed because
project sites need to be identified and "we need to wait for
the political situation to calm down." Al-Hamad said that an
earlier commitment of $700 million was already allocated to
projects with $100 million of it committed so far. Projects
under consideration for future loans include: repairs of the
extensive water and sewage network; a highway in Northern
Lebanon; investing in public administration development,
including computerization efforts; and construction of a new
campus for Tripoli University.


26. (C) On assistance to the PA, Al-Hamad said AFESD had
"refused to deal with Arafat" from the beginning, opting to
work with NGOs instead. He said AFESD's work in the
Palestinian territories was focused on the "humanitarian
level" and that the organization repeatedly had to refuse
Arafat's desire to have the money under his "umbrella." He
added that AFESD has insisted on "absolute and total control"
of its funds and has demanded transparency at the local
level. Beginning a few years ago, he explained, the AFESD
board decided to allocate 10 percent of its annual income to
the Palestinian territories for drinking water and other
development-related endeavors. He was especially proud that
AFESD "managed to maintain the universities" in Palestine and
had created a fund to lend directly to Palestinian students
for their university fees, "to keep students out of the
streets and in the universities."


27. (U) A/S Wayne and DAS Saeed have cleared this cable.

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