DPM SALIH REVIEWS COMPACT DEALS

UNCLAS SECTION 01 OF 02 BAGHDAD 001464

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PREL IZ
SUBJECT: DPM SALIH REVIEWS COMPACT DEALS


1. (SBU) Deputy Prime Minister Barham Salih described to
Treasury Attache on April 29 the results of a number of GOI
efforts to engage the international community in advance of
the launch of the International Compact on May 3 in Sharm
el-Sheikh. These efforts have produced good progress
securing agreements to send ministerial-level delegations
from most of the countries targeted apart from Russia (and
Japan, because of a prior commitment to meet with Russia on
May 3). Some progress lining up specific commitments to debt
relief or new concessional lending that can be announced on
May 3 has also been made. During the last week, Prime
Minister Maliki visited Egypt and Kuwait (King Abdullah of
Saudi Arabia declined Maliki's request for a meeting),
Central Bank Governor Shabibi and UN Special Representative
Gambari visited the UK, Kuwait, Bulgaria and Brussels and
Foreign Minister Zebari visited Iran and Turkey. Deputy Prime
Minister Barham Salih made calls to or met with ambassadors
from the EU/EC, Italy, Russia and Turkey, among others.
Finance Minister Jabr met with China's ambassador, directed
Iraq's ambassador to Russia to engage Russia's Ministry of
Foreign Affairs and wrote to Egypt's Minister of Finance.
The status of these key countries and institutions is now as
follows:


2. (SBU) Russia: Despite some potentially encouraging
signals reported by Iraq's ambassador in Russia, Foreign
Minister Lavrov has most recently indicated that he will not
attend the May 3 meeting, nor has Russia signaled any greater
willingness to sign a long completed bilateral debt agreement
implementing its agreement to the November 2004 Paris Club
Agreed Minute.


3. (SBU) China: In a meeting on Saturday with DPM Salih,
China's ambassador to Iraq confirmed that newly named Foreign
Minister Yang Jiechi will attend on May 3. Apart from a
suggestion last week that China might be willing to cancel
100% of "governmental" debt claims totaling only $3-7
million, China has not given any indication that it is
prepared to accept debt reduction consistent with Paris Club
terms (i.e., 80%) for the estimated $7 billion in
"commercial" debt claims.


4. (SBU) Turkey: Following his trip this week to Ankara,
Foreign Minister Zebari reported that Foreign Minister Gul
told him that while he will not be able to attend due to the
upcoming elections, another minister will lead Turkey's
delegation. (In light of this, Zebari also asked Gul to
persuade Syria to also send a minister.) Although DPM Salih
told us that Zebari's briefing materials included points on
debt relief, we have not been able to confirm if Zebari
raised the issue or what Turkey's response was. However, DPM
Salih reports receiving generally cooperative signals on 80%
debt relief.


5. (SBU) Egypt: The Foreign Minister's attendance has been
known for some time. On debt relief, Iraqi Minister of
Finance Jabr sent Egyptian Minister of Finance Boutros-Ghali
a letter seeking to confirm agreement on a proposal the two
discussed the previous week in Washington by which Egypt
would agree to cancel 100% of its debt claims in exchange for
Iraq agreeing to repay 50% of the principal of some non-debt
claims stemming from the Saddam regime's theft of remittances
by Egyptian laborers working in Iraq. As of April 29, Jabr
had not been able to reach Boutros-Ghali to follow up, and
reporting from other channels indicates that the deal Jabr
and Boutros-Ghali discussed in Washington may not be
supported at higher levels of the Egyptian government. Jabr
told Treasury Attache that he will now ask DPM Salih or Vice
President Abdul Mahdi to follow up on the matter. Jabr
indicated that the GOI is prepared to make a make a more
generous offer on the worker remittance claims (perhaps
agreeing to pay up to 100% of the worker remittance claims)
in the interest of reaching agreement with Egypt on a
settlement that could be announced on May 3.


6. (SBU) Bulgaria: Ambassador Crocker confirmed in a
separate meeting that Bulgaria's Foreign Minister will
attend. DPM Salih reports that he has received generally
positive signals on debt relief consistent with Paris Club
terms, and the Ministry of Finance's debt advisers have
confirmed that in technical discussions Bulgaria has appeared
seriously interested in an arrangement by which they would be
able to sell a bilateral agreement granting 80% debt relief
for cash. However, we have no specific information at this
time about the commitment that Bulgaria intends to announce.


7. (SBU) Poland: Following a meeting with Poland's
ambassador to Iraq, DPM Salih reported that Poland's Foreign
Minister will attend. He reported positive signals on debt
relief but could not say whether Poland is prepared to
announce debt relief consistent with Paris Club terms.


BAGHDAD 00001464 002 OF 002



8. (SBU) Saudi Arabia: The Foreign Minister's attendance has
been known for some time. Saudi Arabia's willingness to
cancel 80% of its debt claims was reported in the press last
week and subsequently confirmed through other channels.
However, on Friday it emerged that one or more officials
within the Finance Ministry were raising questions about
whether Saudi Arabia had in fact offered to cancel 80% of all
debt claims, what the total size of those debt claims is and
whether Iraq was prepared to accept a Saudi offer to cancel
80% of its debt (vs. the 100% cancellation that Iraq has long
asked for). When these questions were brought to DPM Salih's
attention by TreasAtt, DPM Salih reaffirmed that Prime
Minister Maliki had overruled those within the GOI arguing
for holding out for debt relief more generous than Paris Club
terms and taken the decision to accept an 80% offer from
Saudi Arabia. Salih said he would make sure that all of the
relevant parties within the GOI understood that the PM's
decision was authoritative. TreasAtt received a similar
assurance from an adviser to Vice President Adil Abdul Mahdi.
As for the amount of the debt, press reporting suggests that
Saudi Arabia's current estimate of the Saudi claims is $15-18
billion, which is broadly consistent with the Iraqi technical
team's belief that the amount is $15.7 billion. (A Saudi
announcement of 80% debt relief at Sharm el-Sheikh can be
made subject to more detailed reconciliation of the debt
claims.)


9. (SBU) Arab Fund for Economic and Social Development: In
their initial meeting with the Arab Fund in Kuwait, Governor
Shabibi and UN Special Advisor Gambari received general
statements of support but were told that the Arab Fund would
not announce a specific amount for a new concessional lending
program until Iraq agreed in writing to a plan to repay its
arrears to the Arab Fund. The Prime Minister subsequently
announced publicly that Iraq will honor its obligations to
the Arab Fund. Shabibi now plans to go back to the Arab Fund
with the Prime Minister's statement. TreasAtt has also asked
DPM Salih if it is possible to have the arrears clearance
agreement signed before May 3.


10. (SBU) EU/EC: Governor Shabibi reports that Solana will
attend. While he believes they will make a supportive
statement on May 3 (possibly including encouragement for
creditors to consider converting some or all of the 20%
remaining debt into equity),he did not have any specific
information about the commitments that will be announced.


11. (SBU) Information on key messages for the International
Compact and suggested follow-on actions will be included in
septel.
CROCKER