CORRECTED COPY: INAUGURAL IRAQ ECONOMIC CONTACT

C O N F I D E N T I A L BAGHDAD 003006

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/08/2017
TAGS: EAID ECIN ECON EFIN EINT EINV ENRG EPET ETRD
SUBJECT: CORRECTED COPY: INAUGURAL IRAQ ECONOMIC CONTACT
GROUP MEETING IN BAGHDAD

Classified By: Economic Minister Charles P. Ries


1. (U) This is a corrected copy of Baghdad 02976. Previous
transmission sent in error.


2. (C) SUMMARY: On August 21 Economic Minister Charles Ries
convened a meeting of senior diplomatic, military, and
international institution officials in Baghdad interested in
economic issues. EMIN told the group he envisions these
gatherings as an informal "nonmeeting," initially dubbed a
"contact group," where agenda items can be freely discussed
and possible common approaches brokered. Participants agreed
not to discuss the meeting conversation outside of the
Contact Group format. Meetings are to be held on a biweekly
basis, depending on current schedules. This session had
representation from key Embassy economic sections, the MNF-I
DCG, resident foreign Ambassadors or DCMs, the World Bank
Iraq Country Manager, and British Department for
International Development (DFID). The next Contact Group
meeting will be on September 10 and will a) share insights on
the 2008 Iraqi budget formulation process, b) look forward to
the September 22 New York meeting on the International
Compact with Iraq (ICI),and c) review issues likely to be
raised during negotiation of the next IMF Standby Arrangement
(SBA) with Iraq. END SUMMARY.


3. (C) At the August 21 meeting, the group opened discussion
with a lively debate over what economic indicators could be
identified that would really tell us what is happening at
ground level. Outgoing DFID head Dominic O'Neill stressed
that using benchmarks in the ICI) could be a good vehicle to
gain insights, along with the criteria in Iraq's SBA.
Treasury Attach Ged Smith stressed the data available catch
only our outlays and not end results; to really measure the
economy we can't just measure how much we spend on projects
(like x percent of budget allocated; x number of vocational
students passed through aid program). World Bank Iraq
Country Manager Simon Stolp agreed that we should be
measuring outcomes rather than inputs and noted that the
World Bank is at the midpoint of conducting a 12 month
household survey that will generate metrics that could be
used as base economic data.


4. (C) EMIN highlighted the improved situation in Anbar as a
reason for needing better economic indicators because then we
can measure what is making the economy grow again. For
example, once relative security returned, which economic
sectors improved the quickest and how can we measure that?
Could we find proxies for development? Brick sales? Plastic
tubing sales? How could we watch for credit shortages and
move swiftly to inject liquidity? EMIN stressed that this is
why we need to fine-tune our economic indicators so that we
can better calibrate our economic programs to the evolving
situation on the ground. Gulf Region Division (GRD)
Commander BG Michael Walsh said there are some physical
infrastructure indicators of economic activity that GRD could
monitor. These would be reconstruction projects, rail
traffic, leases (in terms of how much real estate costs),
truck transit, and even possibly shipping traffic.


5. (C) EMIN then proposed the group discuss ways to
collaborate to decrease inefficiencies in Iraq's energy
sector and how to proceed together to fix the situation.
DFID head O'Neill added that we needed Iraqi buy-in at all
levels. MNF-I DCG LG William Rollo said we actually need to
lift this out of politics and make it a government issue as a
whole, and to present a solution as something the Iraqis want
to do. He suggested using the ICI as the hook for obtaining
the energy sector strategy. World Bank Iraq Country Manager
Stolp strongly advocated developing a least cost electricity
plan first to be followed later on by a strategy for the oil
and gas sector. He pointed to the immediate need to
ameliorate major electricity shortages, and asserted that the
Minister of Electricity is more amenable than the Minister of
Oil to working with the international community. Stolp
indicated that if we can get the Iraqis to focus on one core
energy element--fixing electricity--then this would drive
progress in other energy areas. (COMMENT: Regardless of the
approachability of different ministries, electricity is only
a slice of Iraq's energy problem. We will continue to
advocate for a national energy strategy that considers all
sectors and players involved in the energy arena; the ICI
Energy Sector Working Group that met for the first time on
September 4 could be a good starting point. Ironically
enough, however, the Ministry of Oil was represented at this
first meeting, and the Ministry of Electricity was not. END
COMMENT.)


6. (C) The meeting ended with participants discussing the
risks of different types of free trade zones in Iraq. EMIN
said we are very interested in helping provinces that were
hotbeds of insurgent activity to now reap the benefits of

stability; free trade zones could be a way to facilitate
economic growth. Treasury Attach Smith stressed that it
will be important to coordinate with the military on these
initiatives, because there already are heavily secured trade
zones being developed. EMIN asked the group for clarity on
who sets up the rules for free trade zones -- is this done at
the provincial level? The national level? DFID head O'Neill
said these zones need some blessing at the center to be set
up, but the infrastructure and land lease decisions are made
at the local level. LG Rollo stressed that for a free trade
zone to be successful, there needs to be Iraqi ownership and
someone with authority to run it; in addition to security,
adequate infrastructure, and communications. EMIN Ries said
that once the National Investment Council develops
implementing legislation, this could provide regulatory
guidance to encourage free trade zones and clarify the rules
of the road.
BUTENIS