Deputy Secretary Negroponte's October 22, 2007

C O N F I D E N T I A L SECTION 01 OF 02 STATE 150510 SIPDIS SIPDIS E.O. 12958: DECL: 10/22/2017 TAGS: OVIP EFIN EPET PGOV PREF IZ RS IT JO LE SY SUBJECT: Deputy Secretary Negroponte's October 22, 2007 conversation with Iraqi Minister of Finance Bayan Jabr ¶1. (U) Classified by: NEA DAS LAWRENCE E. BUTLER FOR REASONS 1.4 (B) AND (D) ¶2. (U) October 22, 2007; 3 P.M; Washington, D.C. ¶3. (SBU) Participants: U.S. The Deputy Secretary Under Secretary Reuben Jeffery, E Amb. Lawrence Butler, NEA Aaron Jost, D Andrea Tomaszewicz (NEA Notetaker) Iraq Bayan Jabr, Minister of Finance Karim al-Musawi, Islamic Supreme Council of Iraq Representative ¶4. (C) SUMMARY: Iraqi Finance Minister Bayan Jabr flagged positive economic signs while admitting to budget challenges in his meeting with Deputy Secretary Negroponte. The Finance Minister also emphasized the need to bring Sunnis into the political process and not risk reconciliation efforts by passing the hydrocarbons law package without the Sunni community's support. Jabr also promised to disburse the Iraqi Government's $25M pledge to neighboring states for refugee assistance efforts as soon as possible. END SUMMARY. -------------- Positive Economic Signs, -------------- ¶5. (C) Jabr proudly reported that Iraq had successfully completed its first IMF Stand-By Arrangement (SBA) -- a set of economic reforms -- and was discussing the next SBA with the Fund. Although Jabr stated that the GOI had implemented SBA-required fuel price increases twice in the past year, with positive results, he was pleased that the IMF did not include such a stipulation in this follow-on SBA. He said that the 2007 fuel price increases had closed the gap between official fuel prices and the black market and led to a decrease in fuel smuggling across Iraqi borders. ¶6. (C) The Finance Minister highlighted other positive trends with the Iraqi economy: six-percent economic growth, appreciation of the dinar, reduction of inflation, and passage of the pension law. He also noted he was heading to Rome after his U.S. trip to finalize a $600M soft loan package from the Italians for workers, farmers, and small industries. While in Italy, Jabr said he may meet with Putin's advisor about Russian debt reduction, underscoring his intent to keep debt forgiveness separate from investment, despite Moscow's attempts to link the two. -------------- �0A;Yet Fiscal Challenges Remain, -------------- ¶7. (C) Jabr confirmed that budget execution was improving but noted "it's still my problem." Highlighting the difference a few years can make, Jabr contrasted the prior atmosphere in which ministries were afraid to spend money without the Finance Ministry's permission with the current environment in which the Finance Ministry is pushing spending and budget execution. When Jabr suggested the USG, in addition to the GOI, should spend some of its money on big construction items -- "no more tanks, but hospitals" -- the Deputy Secretary said the United States preferred to create the conditions for Iraq to take advantage of its own resources. ¶8. (C) Jabr sent the 2008 Iraqi budget, with $10B for investment and $8B for security, to the Cabinet before coming to the United States. Increasing the security budget to $10B will directly affect investment, he argued, adding he would look into what could be done when he returned to Iraq. The Deputy Secretary countered that without security, it would be difficult to achieve anything else. STATE 00150510 002 OF 002 -------------- As Well As the Need to Integrate Sunnis and Move Forward Politically -------------- ¶9. (C) Jabr asserted that the problem with the package of oil laws is political, not technical. If Iraq goes forward now with only Shia and Kurdish support, it would have a deleterious effect on reconciliation efforts, he said. In response to the Deputy Secretary's suggestion to seek out Sunnis to publicly support the laws, Jabr thought it a good one. He added that he thinks Deputy President Tariq al-Hashimi can support the law (Note: this appeared to mean that al-Hashimi did not have substantive disagreement, regardless of political differences). Jabr noted that "ex-ministers" were unhelpfully holding conferences in Amman against the hydrocarbons laws. Jabr also said improvements in the security situation in predominantly Sunni areas will only be temporary unless the GOI integrates tribal fighters into the national political dialogue. He highlighted as a problem the large divide between the Iraqi Islamic Party and the tribes. ¶10. (C) Jabr proposed, briefly, a "special, small conference" of Iraqi leaders and U.S. representative to discuss the way forward now that al-Qaida had been degraded. -------------- And Take Care of the Refugees -------------- ¶11. (C) In response to the Deputy Secretary's query about the GOI's monetary pledge at UNHCR's Iraqi refugee conference last April, Jabr stated the funds were ready and he would disburse them on his return to Baghdad. The Council of Ministers (COM) allocated approximately $16M for Syria, $8M for Jordan, and $2-3M for Lebanon (NOTE: more than the $25M pledged, if accurate). He added the COM agreed to give the money directly to the foreign governments or the International Committee of the Red Cross (COMMENT: as opposed to giving the money to UNHCR, as we recommended). He emphasized that no Iraqi institution, or the UN, would receive any of the funds. RICE