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.

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Positive Economic Signs,
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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.

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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


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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.

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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