FINMIN JABR DISCUSSES DEBT, BUDGET AND BANKING

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002402 SIPDIS SIPDIS E.O. 12958: DECL: 07/18/2017 TAGS: EAID ECON EFIN IZ PREL SUBJECT: FINMIN JABR DISCUSSES DEBT, BUDGET AND BANKING REFORM WITH EMIN REF: A. STATE 88875 ¶B. CAIRO 1825 ¶C. CAIRO 1258 ¶D. CAIRO 1125 ¶E. MOSCOW 3433 Classified By: Economic Minister, Coordinator for Economic Transition i n Iraq, Ambassador Charles P. Ries for reasons 1.4 (b) and (d) ¶1. (C) Begin Summary: In a meeting with Finance Minister Bayan Jabr, Economic Minister Charles Ries discussed a wide range of economic issues including the status of an agreement on the extension of a credit line between the Trade Bank of Iraq and JP Morgan, an update on Kuwaiti diesel fuel imports, ongoing GOI debt negotiations with Russia and Egypt, the way ahead on financial reform, pension reform, ways to improve the banking sector, and an update on tenders for the provision of cellular networks in Iraq. Jabr reported that the line of credit for the Trade Bank of Iraq from JP Morgan was extended. Finger pointing between the MinOil and MoF continues regarding which ministry is responsible for the continuing delay in diesel fuel imports from Kuwait. Jabr identified a potential secure location for the USAID-funded Financial Management Information System (FMIS) project in the International Zone (IZ). New efforts aimed at improving security for currency convoys to Anbar were also discussed. Jabr updated EMIN on pension reform legislation and the status of mobile phone carrier tenders. End Summary. -------------- The Letter's in the Mail -------------- ¶2. (C) On July 18, Ambassador Charles Ries, Economic Minister, accompanied by Economic Minister-Counselor Daniel Weygandt, Treasury Attache George Smith, and Econoff notetaker, met with Minister of Finance Bayan Jabr to discuss a range of economic issues, including the status of a letter required for the extension of a line of credit between the Trade Bank of Iraq and JP Morgan. The one-year agreement expired June 30, and without it, letters of credit could not be executed, putting the GOI's capital spending program in jeopardy. Jabr confirmed the delivery of a signed letter (the only remaining hurdle for the credit line extension) to the Trade Bank of Iraq a few days earlier. ¶3. (C) Moving on to the status of Kuwaiti diesel fuel imports, Jabr claimed that the delay was not his responsibility, but that of MinOil. He stated his belief that the only pending item holding up the much needed delivery of fuel for electricity generation in Baghdad was a signed letter from the Minister of Oil instructing Finance on the modalities of paying the approximately 9.9 million USD in MoF funds the Iraqi cabinet had just approved to settle demurrage charges. The letters of credit were not an issue here, Jabr said. TreasAtt promised to look further into the issue. -------------- Debt Negotiations -------------- ¶4. (C) EMIN encouraged Jabr to take a trip to Moscow in order to conclude debt negotiations with Russia. In order to maintain the trip's focus on debt negotiations, EMIN suggested including debt advisors on the trip instead of MinOil officials to avoid potentially conflating debt negotiations with oil on the Russian side (reftels A and E). Jabr noted that in his last two meetings with the Russian FinMin in Paris and Singapore, the subject of debt relief was never raised. Jabr stated that he welcomed USG assistance in arranging a meeting to conclude debt negotiations with the GOR and could be ready to go to Moscow "in two days." ¶5. (C) Asked by TreasAtt regarding the status of Egyptian debt negotiations (see reftels A-D),Jabr noted that the GOI was prepared to resolve the outstanding issue of embargoed wages of Egyptian guest workers by offering to repay 100% of the principal with no interest. Once this issue was resolved, he believed the GOE would have sufficient political cover to move forward with concluding 100% forgiveness for all GOI debts to the GOE. In fact, Jabr claimed that agreement to repay 50% of the embargoed wages had been reached previously, but the GOE later changed its mind, likely due to changing political currents. -------------- Budget Reform: The Way Ahead -------------- ¶6. (C) EMIN praised the GOI for its progress on executing its capital spending budgets, but underscored the need for BAGHDAD 00002402 002 OF 002 continued improvement. EMIN made clear that he wanted to work with Jabr to identify a new way forward. Specifically, he discussed the need to accelerate budgetary data reporting; identification of a secure location to house the FMIS program; and most critically the need for a sense of GOI "ownership" of whatever replaces the information technology portion of the suspended FMIS project. Jabr agreed and noted his preference to house the FMIS program in a building currently occupied by MNSTC-I within the IZ, with a second choice being several rooms in the Adnon Palace (also in the IZ). He stated that he understood the preferred building would be vacated in "a few weeks," but requested USG assistance to lobby LTG James Dubik in reappropriating the proposed site. ¶7. (C) TreasAtt inquired whether a new chart of accounts called for in the IMF Stand-by Arrangement (SBA) had been formally adopted, which Jabr noted would be completed during a conference call with the IMF later the same day. TreasAtt reaffirmed the need for an official letter from Jabr to formalize the adoption. -------------- Status of Pension Reform Law -------------- ¶8. (C) TreasAtt informed Jabr that progress would be needed on pension reform for the IMF to begin negotiations for a new SBA. Jabr agreed that the amendments to the Pension Reform law (formally Law #27/2006),which has been pending in the Council of Representatives (CoR) since last October, were problematic. CoR members in favor of the amendments, which would make pension rights substantially more generous than originally proposed to the extent that the system would not be sustainable on a long-term basis, were mounting a media campaign painting him as an intractable opponent of responsible pension reform. DPM Barham Saleh and VP Adel Abd al Mehdi would continue to lobby the Shi'a Coalition in the CoR to drop the amendments, but Jabr added that additional support from the USG would also be helpful. -------------- Bank Security -------------- ¶9. (C) Referring to a Baghdad bank robbery a few days earlier which was originally erroneously reported in the media to involve 282 million USD, EMIN flagged the need for improved bank security to spur economic growth throughout Iraq. EMIN noted that MNF-I had reported an acute shortage of cash in now more peaceful Anbar province. It would be important to get cash to the province to alleviate economic recovery, he added. Jabr agreed, and cited the extreme difficulty the GOI faced in transporting currency to other provinces. A U.S. Marine escort has been required for any currency convoys to Anbar, he stated. To address this particular problem, Jabr said that he requested a list of vetted names from the Governor of Anbar to transport and provide security for currency convoys. He added that he would support establishment of a regional Anbar office of the firm the Central Bank is using to protect cash shipments. EMIN stated he would follow up on this with MNF-I. -------------- Mobile Phone Carrier Licenses -------------- ¶10. (C) Jabr updated EMIN on the status of the bids for the mobile phone carrier licenses in Iraq. According to Jabr, the GOI was operating under the advice of Price Waterhouse to solicit bids for all four licenses (Note: This is contrary to the USG recommendation that they put only the fourth license out for bid and require the three companies with the remaining licenses to comport to the terms agreed by the successful bidder. End note). The current terms for the licenses include an 18% tax on revenue, a 20% stake in the company for an Iraqi strategic partner, and a 25% ownership stake for the Iraqi public. The GOI intends to use the Price Waterhouse bidding process for the licenses to conduct a public, transparent "Dutch auction" in Amman in mid-August, Jabr added, and a USG presence at the event would be welcomed. CROCKER