DEPUTY SECRETARY KIMMITT ADDRESSES THE NORTH

C O N F I D E N T I A L SECTION 01 OF 02 USNATO 000640

SIPDIS

NOFORN
SIPDIS

STATE FOR TREASURY

E.O. 12958: DECL: 10/17/2016
TAGS: MOPS NATO PREL IZ AF
SUBJECT: DEPUTY SECRETARY KIMMITT ADDRESSES THE NORTH
ATLANTIC COUNCIL


Classified By: Ambassador Victoria Nuland for reasons 1.4 (b) & (d)


1. (U) Summary: Treasury Deputy Secretary Robert Kimmitt
reviewed key points of the International Compact for Iraq
(ICI) with the North Atlantic Council on 18 October 2006.
Kimmitt noted that the ICI is a contract between the
international community and Iraq with the goal of achieving
economic self-sufficiency and financial independence within
five years. This effort is linked with security and
political reforms, which should be mutually reinforcing. The
presentation generated significant interest among Allies,
including a follow-up inquiry by the Slovak Mission on how to
join the Compact. It also served our larger goal of
broadening strategic dialog among NATO Allies into vital
security areas where the Alliance itself is not the lead
actor.


2. (U) Deputy Secretary Kimmitt, reviewing key milestones,
noted that the Compact was announced in July and a
preparatory group composed of countries with the greatest
financial engagement with Iraq at that point in time was
formed. Specifically, all countries with 200 million dollars
in assistance or 4 billion dollars in debt forgiveness were
invited to participate in the preparatory group. The Iraqis
organized the first meeting in Baghdad in July to craft the
Iraqi contribution to the Compact: a set of economic reforms
designed to deliver growth and demonstrate progress to Iraqi
citizens. He noted that the Iraqi plan had been reviewed at
ministerial-level meetings around the edges of the IMF/World
Bank meetings in Singapore and the U.N. General Assembly
meetings in New York. Over 35 countries participated in such
meetings. A final preparatory group meeting is planned for
October 31 in Kuwait City.


3. (C) Kimmitt said that the time has come to focus on the
international community's side of the agreement. He
explained that, once the Compact is signed, any other party
interested in assisting Iraq will be welcome to join the
Compact. Current Iraq needs include: funding for economic
development, security, and capital investment for
reconstruction purposes. He noted that GOI has its own
resources and that no "Marshall Plan" structure is needed.
He indicated that GOI has the potential to reach economic
self-sufficiency within 5 years if they receive medium-term
bridge support now. The goal is to use the economic reform
package to draw together the strategic center and help the
government exercise control in the country.


4. (C) Kimmitt also noted that the GOI has proved able to
meet defined targets and goals that contain conditionality
components. Their experience with the IMF stand-by agreement
in particular demonstrates Iraq's ability to hold up its end
of the Compact when it is finalized.


5. (C) In response to questions regarding Afghanistan,
Kimmitt regretted that by comparison, the Afghan Compact
lacks clear priorities or measurable targets. As a
consequence, the Afghan experience may not be a good
indicator of how the Iraq Compact might function. He noted
that the U.S. is working to assist the Afghan finance
ministry and Central Bank. The upsurge in the flow of funds
to the Taliban and Al Qaeda networks is a concern. In a
subsequent meeting, Ambassador Nuland suggested that getting
the Gulf Arabs to look again at contributing to the
Afghanistan Compact could breathe new life into the
agreement. For example, Gulf States with funds to donate
could be "married-up" with smaller European countries who are
leading PRT's in Afghanistan. Kimmitt concurred, emphasizing
that a demand side approach, especially for education and
health care facilities, could prove to be successful. He
noted that there are some tricky issues associated with
linking PRTs too closely to third-party donors. Kimmitt also
noted the need to understand better and encourage the
participation of multilateral lending organizations like the
Islamic Development Bank and the Arab Fund for Reconstruction
and Development. Kimmitt noted that in other EU meetings the
potential role of the European Investment Bank was also
discussed.


6. (C) Other PermRep questions to Kimmitt focused on oil
revenues. After describing the Iraqi's current and projected
oil output, Deputy Secretary Kimmitt said that approximately
200,000 barrels/day are being siphoned off to fund terrorism

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and insurgency. He explained that the goal of the Iraq
Compact and related oil legislation is to create transparency
from the well-head to the finance ministry, thereby thwarting
those who would siphon oil off for personal gain or nefarious
purposes. Another goal is to distribute the revenues
throughout the country, with 20% of the revenues going to the
center of the country.


7. (C) Oil output is approaching pre-war levels, although
revenues still lag due to siphoning between the well-head and
the government. Kimmitt indicated that the Iraqis have the
potential to increase production from 2.5 million barrels per
day to 4 million barrels per day over a five-year period, but
this would require much more capital investment and security
improvements, both of which need to come through foreign
investment. Even if the Iraqi budget grows substantially,
the government will need these funds from increased
production to service security needs in the near-term, so
foreign investment will be key to continued growth in output.


8. (U) Deputy Secretary Kimmitt stated that overall, on a
macro economic level, the Iraqis have laid out their plan
well and they have a solid budget.


9. (C) Ambassador Nuland asked Kimmitt to brief PermReps
also on U.S Treasury steps regarding North Korea. In
response, Kimmitt said that Treasury actions are aimed at
specific conduct, not individual countries. He further
explained that Treasury's actions against the Banco Delta
Asia bank branch in Macao were specifically designed to avoid
extraterritorial issues. Treasury's actions do not require,
but often spur other governments or financial institutions to
take action outside the United States. They only cut off
terrorist and other negative world actors' access to the U.S.
financial system, thus impairing their ability to compromise
the U.S. financial system. The process also sends a strong
message to the rest of the world about the importance of
protecting financial systems from abuse. Kimmitt noted that
these are not political actions but law enforcement matters
independent of the 6-party talks. He also noted that the
response to the actions taken by Treasury had been well
received in the region. In their private session, Nuland
asked Kimmitt to ensure visiting Treasury officials stop at
NATO from time to time to keep Allies briefed on terrorist
finance, and the Iraq and Afghanistan Compacts.


10. This cable was cleared by Deputy Secretary of the
Treasury Kimmitt while traveling.
NULAND