COR FINANCE COMMITTEE CHAIR BEGINS 2007 BUDGET

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000064

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/06/2017
TAGS: ECON EFIN IZ
SUBJECT: COR FINANCE COMMITTEE CHAIR BEGINS 2007 BUDGET
REVIEW

REF: A. BAGHDAD 31

B. BAGHDAD 26

C. 2006 BAGHDAD 4746

Classified By: Acting Economic Minister-Counselor Edward Kloth for reas
ons 1.4(b) and (d).


1. (C) Summary: In a January 3 meeting the Finance
Committee Chair at the Council of Representatives Ayad Al
Samarai (Sunni - Iraqi Islamic Party) asked Treasury Attache
and Econoff for post's analysis of the 2007 budget. Al
Samarai also described his reactions to the budget and budget
law: too little support for the private sector, need for more
mechanisms to hold ministries accountable, and too many new
powers to the Minister of Finance. Al Samarai felt that
greater emphasis should be given to development in the
provinces, both in GOI and USG efforts. Some of his ideas
may link well to USG proposals like the Brinkley initiative.
While the Finance and Economic Committees have the lead on
the budget review process, Al Samarai said that every
committee will be responsible for reviewing related budget
allocations. He expects the review process to take as long as
four weeks. End summary.

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Supporting the Private Sector
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2. (C) Al Samarai mentioned that he had met with Treasury
officials during his visit to the U.S. in December 2006, and
reaffirmed his request for technical assistance for the
Finance Committee. The Treasury Attache summarized USG
analysis of the draft budget, noting that Iraq will not be
able to sustain a deficit year after year, although it can be
financed in 2007 from carry-over funds from previous years
(ref B). Al Samarai's first concern with the budget is that
there is not enough support for the private sector.
"Unemployment is a huge problem, and the private sector faces
many obstacles due to security and infrastructural problems,"
Al Samarai said.


3. (C) His ideas on how the government could support the
private sector ranged from providing soft loans, buying
generators in places without steady electricity, raising
tariffs and creating protected business centers. He thinks
that the government plans on supporting State Owned
Enterprises; this is okay, he said, but he also wants
attention focused on the private sector.

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Holding Ministries Accountable
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4. (C) Al Samarai said that none of the ministries has made
a financial report to the CoR, and that in the future the CoR
needs to constructively supervise ministries. "We are not
just trying to put obstacles," he said, "we may have
political differences but the issues of finance and economics
are separate." Al Samarai thinks that there is a role for
the Committees to play in shaping the priorities of the
spending ministries, and ensuring that they execute their
budgets.

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More Power for the Minister of Finance?
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5. (C) In meetings with Ministry of Finance (MoF) officials,
Al Samarai went over each article of the budget law that
accompanies the budget. He is concerned that the Minister of
Finance is trying to take authority from the CoR and from the
other ministers. The budget law gives the Minister of Finance
authority to sign loans and to reallocate money from
under-spending ministries (ref B). Al Samarai thought that
this request needed strong supporting justifications to be
acceptable. Even if the new approach is justified, Al
Samarai would prefer that authority be given to a group of
ministers or similar committee rather than to just one
person. (Note: Deputy Prime Ministers Barham Salih initially
proposed giving these authorities to a committee. End note.)

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Provincial Budget Execution: Don't Blame the Victim
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6. (C) As mentioned by the Minister of Finance and other
members of the CoR, Al Samarai also thinks that the
provincial budgets should be increased (ref A and C). He
does not hold the provincial governments solely responsible
for the low budget execution rates of 2006. Instead he noted
that the central government should provide clear guidelines

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and training sessions on budget execution. "Someone in the
central government needs to be responsible for helping them
understand the rules," Al Samarai said, "I don't care who
does it, but someone must be responsible." The Treasury
Attache agreed with Al Samarai's suggestion of the need for
training, and also noted the importance of having the right
structure for collecting data on budget execution rates.

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USG Assistance, Focus on the Provinces
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7. (C) Al Samarai said that USG assistance has been too
focused on the central government, at the expense of helping
the provinces. He thinks that many of Baghdad's problems are
due to the lack of services and jobs in the provinces. In
response to a question about sending more US personnel to the
provinces, Al Samarai said that security restrictions made it
difficult for people new to Iraq on a one-year contract to
effectively work with local communities. Instead, he
suggested, the US should hire qualified Iraqi expatriates in
economic, engineering, and planning positions in the
provinces.

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The Budget Review Process at the CoR
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8. (C) "First the government was over two months late" in
presenting the budget to the CoR, Al Samarai said, "and then
they sent it to us during the Eid." As a result, the CoR
members have yet to begin the review process in earnest,
although there have been informal meetings (ref A). Al
Samarai will ask each CoR committee to submit comments on the
financial aspects of allocations within its purview. He has
met individually with the Deputy Minister of Finance, and
with the Director General of Budgets at the Ministry of
Finance (MoF); both have been closely involved with the
budget formulation. More meetings are planned now that the
Eid holiday is over. Al Samarai expects the CoR review
process to take up to four weeks.

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Comment
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9. (C) Ayad Al Samarai is taking the budget review process
seriously and recognizes the leverage it gives the CoR over
the Ministries. This process is the first point of control
that the CoR has had over the ministries since the formation
of the government in spring 2006. Al Samarai, a senior
member of the Sunni Iraqi Islamic Party, did not seem to have
strong sectarian views about the budget review, and many
Shi'a members share his emphasis on the provinces. He is
also clearly trying to think of new ideas to address Iraq's
economic problems. Some of these ideas could fit well with
aspects of USG programs such as micro-loans and the Brinkley
Group Initiative. Post will follow up to further explore
these ideas. End comment.
KHALILZAD