Identifier
Created
Classification
Origin
06SEOUL3916
2006-11-14 04:56:00
CONFIDENTIAL//NOFORN
Embassy Seoul
Cable title:  

TREASURY DEPUTY SECRETARY KIMMITT MEETS ROKG ON

Tags:  EAID ECON EFIN EINV ETRD PGOV PREL KS IZ AF 
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VZCZCXRO7756
PP RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHUL #3916/01 3180456
ZNY CCCCC ZZH
P 140456Z NOV 06
FM AMEMBASSY SEOUL
TO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 1293
INFO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0066
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1506
RUEHKO/AMEMBASSY TOKYO PRIORITY 1597
C O N F I D E N T I A L SECTION 01 OF 02 SEOUL 003916 

SIPDIS

NOFORN
SIPDIS

TREASURY PASS TO CATHERINE DOWNARD, VICKIE ALVO

E.O. 12958: DECL: 11/19/2016
TAGS: EAID ECON EFIN EINV ETRD PGOV PREL KS IZ AF
SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT MEETS ROKG ON
INTERNATIONAL COMPACT WITH IRAQ

REF: STATE 181094

Classified By: Amb. Alexander Vershbow. Reasons: 1.4 (b/d)

C O N F I D E N T I A L SECTION 01 OF 02 SEOUL 003916

SIPDIS

NOFORN
SIPDIS

TREASURY PASS TO CATHERINE DOWNARD, VICKIE ALVO

E.O. 12958: DECL: 11/19/2016
TAGS: EAID ECON EFIN EINV ETRD PGOV PREL KS IZ AF
SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT MEETS ROKG ON
INTERNATIONAL COMPACT WITH IRAQ

REF: STATE 181094

Classified By: Amb. Alexander Vershbow. Reasons: 1.4 (b/d)


1. (C) Summary. On November 8, Treasury Deputy Secretary
Robert Kimmitt met National Security Advisor and Foreign
Minister-Designate Song Min-soon, Deputy Prime Minister
(DPM-Finance and Economy) Kwon O-kyu, and Ministry of Foreign
Affairs and Trade (MOFAT) Special Representative for Korean
Peninsula Peace and Security Affairs Chun Yung-woo to discuss
steps forward for the International Compact with Iraq (ICI).
While Kwon and Chun outlined political and financial
constraints limiting the ROKG's ability to boost its current
aid level, FonMin-designate Song indicated he would consider
extending more help once in office and after the National
Assembly extends the current Korean military deployment in
Irbil through 2007. (Follow-on discussions on the Banco
Delta Asia case and Iran reported septel.) End Summary.

International Compact with Iraq (ICI)
--------------

2. (C) In separate meetings with Special Representative
Chun, DPM Kwon, and FonMin-designate Song, D/S Kimmitt
thanked them for the ROKG's generous support of Iraq, both in
development assistance and debt relief, and in troops on the
ground. He noted that Korea has proven itself as a major
ally of both the U.S. and Iraq by deploying the third largest
military force in Iraq.


3. (C) Turning to future steps, D/S Kimmitt emphasized that
the ICI had laid out a reform plan, a "glide path" to Iraq's
economic self-sufficiency and financial independence over the
next five years. Among other reform commitments, he
highlighted the GOI's planned hydrocarbons law that would

provide for (1) a fair, transparent, and effective foreign
investment regime in oil resources; and (2) domestic oil
revenue distribution on the basis of population, thereby
helping to calm sectarian and ethnic strife stemming from a
sense of deprivation.


4. (C) To attain the ICI's goal of self-sufficiency,
however, donors needed to step forward to assist Iraq in
meeting its financing gap over the same period of time. That
would thereby help Iraq to improve basic social services and
accelerate badly needed infrastructural development,
including an expanded and more efficient oil production
capacity that could double current output.


5. (C) D/S Kimmitt explained U.S. hopes for additional
pledges at the late-November or early-December Ministerial
meeting to sign the Compact, and expressed the hope that
Korea would be able to make (1) a new pledge of development
assistance, and (2) move from 80- to 100-percent debt
forgiveness. (Note: To date, Korea has written off 80
percent of its sovereign debt of USD 200 million, but USD 42
million remains outstanding. The much larger commercial debt
of USD 2.6 billion was dealt with in a separate debt swap
agreement. End note.)

Special Representative Chun
--------------

6. (C) In his response, Special Representative Chun said
that the ROKG was proud to be part of the international
effort to help Iraq stand on its own feet. The ROKG's Madrid
commitment of $260 million in grant assistance was
unprecedented in the ROK's foreign assistance history,
comprising more than its total aid to Africa. In addition,
the ROKG believed its participation in the Madrid and ICI
exercises constituted a long-term investment in the future of
the Korean peninsula. After all, Chun observed, North Korea
would collapse at some point in the future, necessitating
Korea's appeal to international donors for a development
program similar to ongoing efforts on behalf of Iraq.


7. (C) Notwithstanding these points, Chun was quick to add
that it would be difficult for Korea to find additional
resources for Iraq at this time. First, the ROKG has already
submitted a FY-07 budget proposal for USD 40 million in Iraqi
aid as part of its Madrid pledge - and faces a bill for $110
million in UN membership arrears that would need to be paid
in the near future as newly elected UN Secretary General Ban
Ki-moon assumed office. Secondly, the ROKG was currently
"overcommitted" on its Official Development Assistance (ODA)
budget, which represented 0.1 percent of GDP and was slated
to be tripled if the National Assembly accepted MOFAT

SEOUL 00003916 002 OF 002


justifications for new programs, particularly in Africa.
Finally, Chun stressed, while troop contributions were not
counted as part of assistance to Iraq, the National Assembly
might view the ROKG's current overall financial commitment to
Iraq as constituting a "disproportionate" share of its ODA.


8. (C) Chun added that additional sovereign debt relief was
problematic for the same reasons, and indicated little could
be done at this time.

Deputy Prime Minister Kwon
--------------

9. (C) In response to the Deputy Secretary Kimmitt's ICI
presentation, DPM Kwon stressed that Korea remained committed
to fulfilling its promises to Iraq. Nonetheless, the ROKG's
FY-07 budget (beginning January 1) had already been submitted
to the National Assembly and would be hard to pass in light
of the fractious political opposition, as well as the
approaching National Assembly (and Presidential) elections in
December 2007. Several opposition parties had strongly
signaled their intention to try to trim the Roh
administration's budget proposal and cut taxes, thereby
squeezing the ODA budget on both its revenue and expenditure
sides.


10. (C) Since Korea planned to triple its ODA to African
countries by 2009, budget resources remained extremely tight.
Kwon indicated, however, that the ROKG would take another
look at Iraqi assistance in FY-2008, possibly including new
ODA and additional soft-lending. Responding to D/S Kimmitt's
observations on Iraq's long-term commercial potential,
particularly in its energy and construction sectors, Kwon
promised to revisit the aid issue in the future, possibly
looking at the Korea Export Insurance Guarantee Agency's
outstanding Iraqi obligations. Turning briefly to commercial
debt, Kwon noted one of Korea's biggest companies, Hyundai
Construction almost collapsed partly due to its USD 1.4
billion in Iraqi-related accounts receivable. This
experience complicated ROKG efforts to encourage the private
sector to do more in Iraq at present.

National Security Advisor Song Min-soon
--------------

11. (C) D/S Kimmitt made a final ICI presentation to
National Security Advisor Song Min-soon, who is widely
expected to be confirmed as Foreign Minister by the National
Assembly before the end of November. D/S Kimmitt stressed
the importance of help to the newly elected and first
democratic government of Iraq at this critical time, adding
that Iraq's long-term strategic, commercial, and political
significance called for a sustained donor effort in the
coming months.


12. (C) Song promised that he would look into extending
additional assistance to Iraq once he took office. He noted,
however, that the National Assembly needed first to take up
the ROKG's authorization request to extend its military troop
deployment in Irbil through 2007. This request was a
political "hot potato." Predicting that the Roh
administration would ultimately succeed in obtaining the
authorization, Song nonetheless indicated that maintaining
the Zaytun division's current 2,400-strong troop level
throughout 2007 remained "uncertain."


13. (C) In closing, D/S Kimmitt highlighted Iraq's proposed
hydrocarbons law that opened the door to foreign direct
investment in Iraq's energy sector. The Deputy Secretary
observed that Korean companies seemed to be holding back on
growing commercial opportunities in Iraq. To help jump start
business, he recommended increased contact between the Korean
Ambassador to Iraq and the Iraqi oil minister on emerging
energy and infrastructural opportunities. Song took note of
this suggestion.


14. (U) Deputy Secretary Kimmitt cleared this cable.
VERSHBOW