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