MINISTER OF FINANCE SUPPORTS JOINT ECONOMIC PLAN

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000096

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/09/2017
TAGS: ECON EFIN IZ
SUBJECT: MINISTER OF FINANCE SUPPORTS JOINT ECONOMIC PLAN

REF: A. BAGHDAD 31

B. BAGHDAD 26

Classified By: Deputy Chief of Mission Daniel V. Speckhard for reasons
1.4 (b) and (d).


1. (C) Summary: The Treasury Attache and the Economic
Minister- Counselor met with the Minister of Finance, Bayan
Jabr (Shi'a - SCIRI) on January 8 to discuss the Joint
Economic Transition Plan. Senior staff at the Ministry of
Finance also attended the meeting. Minister Jabr said he
supported the plan as long as the Iraqi contributions were
based on the allocations in the draft budget already
submitted to the Council of Representatives. He agreed that
joining military and economic efforts was important, as was
the coordination of Iraqi and US activities. The Minister
also discussed steps for improving budget execution, the 2007
draft budget and the $1B soft loan from Iran.

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Support for the Joint Economic Transition Plan
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2. (C) Minister Jabr received the draft Joint Economic
Transition Plan from Barham Salih on the night of Sunday,
January 7. He had reviewed it, and wanted to confirm that
all of the Iraqi contributions were already included in the
2007 budget, which has already been submitted to the CoR (ref
A). Once we assured him that all of the numbers were based
on the Iraqi budget, he agreed with the overall framework of
the plan. He agreed with the importance of addressing
security and economic problems at the same time, and noted
that he would be saying the same thing in his speech on
January 9 at the Council of Representatives (CoR).


3. (C) Executing the Iraqi budget is the core Iraqi
contribution in the Joint Plan, and Minister Jabr said that
it was his top priority. He said that he has ordered
separate accounts for capital projects for each ministry in
order to track the monthly spending. Currently, all funds,
both operating and capital, are deposited in a single
account. He expects a first report on budget execution rates
in March 2007. The Ministry of Finance (MoF) will hold
seminars for officials on tracking capital budget spending.
The draft budget law also stipulates that any under-spending
ministry will lose the unspent portion of 37.5 percent of the
budget after six months. While Jabr described these funds as
to be reallocated in a supplemental budget, the draft budget
law appears to contemplate the reallocation being
accomplished through MoF action. Post will seek further
information. Minister Jabr said that a major problem with
budget execution in 2006 was the ministers' lack of
experience. He welcomed post's assistance and instructed his
staff to provide regular access to information.

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The 2007 Budget: Speech at the CoR, Fuel Prices, and SOEs
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4. (C) During the meeting, one of the senior ministry staff
left to continue working on Minister Jabr's speech at the
plenary session of Council of Representatives on January 9.
This speech is part of a series of meetings held by ministry
officials to present and explain the budget to the CoR.


5. (C) As requested by the IMF, there is no allocation for
fuel import subsidies in the 2007 budget. The only budget
item for fuel imports was $300M for kerosene for the poor,
and an allocation for fuel imports for electricity generation
of roughly $150M. The Ministry of Oil will import and sell
the fuel at market prices and there should be no net affect
to the budget. Minister Jabr said that he was committed to
removing the subsidies from domestic fuel production and
increasing fuel prices. He said that Minister of Oil Husayn
al Shahristani was resisting the change, but in the end he
would have to accept the new prices.


6. (C) Both the minister and his senior staff noted that
State Owned Enterprises (SOE's) are a drain on the national
budget. Deputy Minister Dr. Azez said that $1B dollars is
wasted every year on SOE's, and he supported giving SOE's to
the employees at each company. The Minister of Finance
mentioned the Brinkley Initiative, and reiterated his promise
to provide $5M in low interest loans to the initiative.

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$1 Billion Loan from Iran
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7. (C) The Minister of Finance raised the $1B loan from Iran
without prompting, saying that we might be interested in it.
When he went to Iran to sign the Memorandum of Understanding,

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the Iranians tried to get him to agree to pay for the Iranian
extension of roads and electrical lines to the border with
Iraq, but he refused. In the end they still agreed to the
low-interest loan, which will be spent on a highway from the
Iranian border to Kut, electricity for Sulaymaniyah, Diyala
and Basrah, and schools and hospitals. The relevant
ministries will be responsible for selecting and implementing
projects. This funding agreement is subject to approval by
the CoR, and a request is included in the budget law (ref B).
KHALILZAD