TREASURY DEPUTY SECRETARY KIMMITT APPLAUDS GOJ

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 004820 SIPDIS SIPDIS FOR NEA/ELA, NEA/I, AND EEB E.O. 12958: DECL: 12/04/2017 TAGS: ECON EFIN EAID JO IZ SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT APPLAUDS GOJ FINANCIAL REFORMS; ENCOURAGES DEBT RELIEF FOR IRAQ REF: AMMAN 4758 AMMAN 00004820 001.2 OF 002 Classified By: Ambassador David Hale for reasons 1.4(b) and (d) ¶1. (C) SUMMARY: During a December 5 visit to Jordan, Treasury Deputy Secretary Kimmitt emphasized that Jordan's economic reform program made it possible for the U.S. to support the GOJ proposal to the Paris Club to buy back some of its debt. He encouraged continued reforms, especially elimination of the subsidy programs. The GoJ officials whom he met confirmed that subsidies were not part of the 2008 budget, and would be replaced by a cash transfer program to Jordan's neediest citizens. Kimmitt also encouraged Jordan to assist Iraq in resolving its debt issues. Jordanian Finance Minister Kasasbeh reported a binational committee had been established to resolve Iraqi debt to Jordan, and Chief of the Royal Court Awadallah said the GOJ was willing to consider investments, oil, export agreements, and other avenues to retire the debt as long as there was no negative impact on the GoJ treasury. Kimmitt also stressed the importance of a strong anti-money laundering regime, praised GoJ passage of an AML law, and offered continued U.S. technical assistance. END SUMMARY. Jordan's Model Economic Reform Plan -------------- ¶2. (C) During a December 5 courtesy call on new Finance Minister Hamad Kasasbeh, Treasury Deputy Secretary Robert Kimmitt emphasized the strong, historic bonds between the United States and Jordan, commenting that these ties have facilitated cooperation on political, economic, and regional issues. This foundation, along with Jordan's commitment to reform, had made it possible for the U.S. to support Jordan's Paris Club proposal to buy back its debt, and would hopefully encourage Congress to take the steps necessary for the U.S. to participate in the buyback operation. He noted it was important that the GoJ had decided to use ESF for the buyback, and was also preparing to implement other economic reform measures including the elimination of subsidy programs. Kasasbeh, who led the GoJ delegation to the Paris Club, was appreciative of U.S. support, and commented that the buyback would not have been possible without the U.S. He said the U.S. position was key to the participation of �00A;France, Canada, and the United Kingdom, and that Japan had also been swayed and recently informed the GOJ it would seek other means of compensation since it could not legally participate in the buyback. ¶3. (SBU) Kasasbeh explained the buyback operation would enable Jordan to pursue long overdue reforms such as liberalization of the fuel sector and elimination of the barley subsidy, and to launch programs to assist Jordan's neediest citizens. These measures were necessary to further lower the current public debt ratio of 69 percent, but in order for them to be successful, a public information campaign was needed. He said the GoJ had begun the process by introducing to parliament a new public debt law with a much lower ceiling, and by making an effort to explain prevailing economic conditions and the law's provisions to the MPs. Kimmitt noted that such an effort to reduce public debt was good news and urged the GoJ to get that news to the American Congress, so that they were aware of the government,s efforts. ¶4. (C) In a separate meeting with Kimmitt on the same day, Chief of the Royal Court Bassem Awadallah said the subsidies -- an annual expense of $1.2 billion -- represented one-fifth of the budget, and their continuation would be "suicide." The GoJ would initiate a cash transfer program to help the poor, but it also needed to increase public sector wages. Awadallah said the new cabinet was committed to reform, but rising inflation would make some changes difficult. He was also concerned about the peg of the Jordan Dinar to the dollar, noting that the dollar's drop made it difficult to use monetary tools to fight inflation. Nevertheless, Jordan had no plans to remove the dollar peg, and Awadallah commented that the drop was helping Jordanian exports and tourism. Awadallah added that he had traveled to Saudi Arabia and the United Arab Emirates to solicit grants, and the UAE had proposed a debt-equity swap program, a concept worth considering because it would create much needed jobs in Jordan. He was also planning a trip to Kuwait. Iraqi Debt -------------- ¶5. (C) Kimmitt congratulated both Kasasbeh and Awadallah on Jordan's efforts to manage its debt, and encouraged Jordan to AMMAN 00004820 002 OF 002 be creative and generous in its treatment of Iraqi debt, remarking that on his recent visit to Baghdad, he learned of the productive meetings in Amman between Kasasbeh and Iraqi Finance Minister Bayan Jabr. Iraq, like Jordan, was eager to reduce its debt burden, and had already concluded a deal with Bulgaria to retire $3.8 billion. Because of income generated from oil sales, Iraq was now in a position both politically and financially to address its debt, and Kimmitt encouraged the GoJ to engage its neighbor. Kasasbeh agreed with Kimmitt's assessment, and said he had been tasked by new Prime Minister Dahabi and the Royal Court to deal with Iraqi debt; a follow-up meeting with his Iraqi counterpart had been scheduled for after the Eid holiday. He continued that the GoJ understood Iraq's need for a clean balance sheet in order to attract private investment, and said Jordan had similar concerns and needed the $1.3 billion in debt removed from the ledgers of the Central Bank. ¶6. (C) Awadallah reiterated Jordan's commitment to assist Iraq. Calling Iraq a "great country," he said it was rich in mineral and human resources and poised to become a powerful player in the region. Jordan was hopeful that assistance to Iraq now would provide valuable, future dividends. He explained that in 2005, the GoJ had lobbied Iraq to resolve the bilateral debt issue, and was hopeful that upcoming talks would yield success. Through the bilateral mechanism, Jordan was prepared to consider investments, oil, export agreements, as well as other avenues to retire the debt as long as there was no significant adverse effect on its treasury. Combating Money-Laundering to Attract Investment -------------- --- ¶7. (C) Kimmitt applauded passage of the Anti-Money Laundering (AML) Law, and said it was important that both banks and governments do their utmost to thwart misuse of international financial networks. He added that strong AML enforcement gave countries a competitive advantage in attracting foreign investment. He commended Jordan's interagency approach to combating money laundering and terrorist financing, and offered the continuation of U.S. technical assistance. Awadallah shared U.S. views that a strong AML environment helped to attract investment, welcomed the offer of training, and appealed to the U.S. to resolve the Arab Bank case, commenting that as Jordan's biggest bank and an influential player in the economy, "it was important to rectify the situation." ¶8. (U) Deputy Secretary Kimmitt cleared this message. Visit Amman's Classified Web Site at http://www.state.gov.sgov.gov/p/nea/amman Hale