ROYAL COURT CHIEF AND PM DISCUSS IRAN, ECONOMY,

ROYAL COURT CHIEF AND PM DISCUSS IRAN, ECONOMY, AND POLITICAL REFORM WITH STAFFDEL Class: SECRET//NOFORN Date: Wed Mar 19 17:46:00 2008 Key: 08AMMAN872 Tags: PGOV, EFIN, KWBG, ECON, IR, IS, JO S E C R E T SECTION 01 OF 02 AMMAN 000872 SIPDIS NOFORN SIPDIS E.O. 12958: DECL: 03/19/2018 TAGS: PGOV EFIN KWBG ECON IR IS JO SUBJECT: ROYAL COURT CHIEF AND PM DISCUSS IRAN, ECONOMY, AND POLITICAL REFORM WITH STAFFDEL REF: A. AMMAN 869 ¶B. 07 AMMAN 4885 ¶C. AMMAN 535 AMMAN 00000872 001.2 OF 002 Classified By: Ambassador David Hale for reasons 1.4 (b) and (d). ¶1. (C) Summary: In separate meetings with a visiting Senate staffdel (whose trip was arranged by the Jordanian MFA), Royal Court Chief Bassem Awadallah and Prime Minister Nader Al-Dahabi addressed Jordan's place in the regional political order, political reform, and economic issues. Awadallah reiterated the connection between the Israeli-Palestinian conflict and the spread of Iranian influence, and pointed out the dangers both of confrontation and detente with Iran. On political reform, Awadallah indicated that Jordan is still looking for an effective counterweight to Islamist influence. PM Dahabi said that discussions about un-pegging the dinar from the dollar were premature, but the Central Bank was diversifying its reserves. End Summary. Iran -------------- ¶2. (C) In a meeting with Royal Court Chief Bassem Awadallah, the staffdel heard an expansion of the views on Iran expressed by the King the previous day on the subject of Iran (Ref A). Awadallah asserted that the Israeli-Palestinian conflict is the "central issue" in the region, and has a direct impact on all the other simmering conflicts in which Iran now has a stake. Pointing out that "half of Al-Qaeda statements have to do with Palestine" and that Saddam Hussein's last words were focused on the issue, Awadallah said that Iran will continue to milk the issue for political gains on the Arab street. ¶3. (S/NF) Addressing the question of conflict or engagement with Iran, Awadallah expressed wariness of both. Saying that Arab moderates are "frightened" by the prospect of military action against Iran, Awadallah raised the fear that Iran will use its proxies against Israel and the Gulf states, particularly Bahrain, in the event of confrontation. "Iran will portray this war as the liberation of Jerusalem, and people aren't going to be unhappy. We would end up paying the price with our street," Awadallah remarked. On the other hand, a "de facto understanding" between the U.S. and Iran, especially in the absence of coordination with its Arab allies, would be equally worrying. "People here are obsessed with history," he noted. They fear that backroom negotiations would lead to "a new Sykes-Picot agreement which would carve up the region into spheres of influence" and empower Iran to talk about the Palestinian issue. "We don't want Iran to hijack the Palestinian issue because of American engagement," Awadallah cautioned. "Compromise could very well come at our expense." Political Reform -------------- ¶4. (C) Transitioning to internal politics, Awadallah outlined the challenges Jordan faces in creating a more open political system while maintaining the security that the country has so far enjoyed. He reminded the staffdel that until 1989, the Islamic Action Front (IAF) "had a monopoly on the political scene." When parliaments were re-instituted after Jordan's disengagement from the West Bank, the "liberal" parties had to start from scratch, while the Islamists simply pushed off from their previous dominant position. "What we need now is a level playing field," Awadallah asserted. The IAF has the advantage of its presence in the religious sphere - "the mosque is more important than media outlets. Any message from the mosque is very effective." ¶5. (C) Discussing the political parties law which will go into effect in April, Awadallah said, "I'm not comfortable with what I see." The IAF still has a strong grip on the youth and has "penetrated the Palestinian refugee camps", while Jordan's other parties remain "fragmented and unrecognized" in spite of high-level efforts to unite them under a moderate, pro-government agenda (Ref B, C). Awadallah hoped that the moderate, liberal parties would "force themselves onto the political scene," but saw little evidence of their doing so. Unfortunately, past efforts at unifying the liberal parties devolved into tribal contests, in which parties were formed for the purposes of "personal aggrandizement at best." Comment: This is a backhanded swipe at xxxxxxxxxxxx. End Comment. Awadallah conceded that the political elite in Jordan often AMMAN 00000872 002.2 OF 002 act to protect the status quo rather than following the King's lead when it comes to political reform. "The political will is there at the level of the King. 'We' at the political level need to work on reform in our own areas," he commented. The Dollar-Dinar Peg and the Economy -------------- ¶6. (SBU) Awadallah insisted that Jordan has come a long way in its economic development since King Abdullah took the throne, but indicated that the situation still poses many challenges. With an ever-expanding population, Awadallah said that Jordan must create around 60,000 new jobs per year just to maintain its current unemployment rate, which ranges from an official thirteen percent to an unofficial thirty percent in some rural areas. Expanding employment opportunity to keep up with demand will require investment from the public and private sectors. Awadallah noted that aid money is primarily being directed towards education, which will ultimately allow Jordan to expand and diversify its economy, making it less susceptible to external shocks such as rises in the price of oil. ¶7. (C) In a separate meeting on March 17, Prime Minister Nader Dahabi told the staffdel that his economic team met on Saturday to review the dollar-dinar peg. They concluded that abandoning the dollar-dinar peg was "not in our interest at this time," but did agree to start hedging a little more. The Central Bank was instructed to increase its holdings of Euros and gold. Dahabi said that de-pegging would increase the value of debt owed by the state, and indicated that seventy percent of Jordan,s imports are denominated in dollars at any rate. He cited the example of Kuwait, saying that the restructuring of its dollar peg helped to control inflation in the short term, but had long term consequences that Jordan would find unpalatable. Dahabi said that Jordan,s financial community is against abandoning the dollar peg for now; the Central Bank conducted a survey which found that most banks and businesses believed that the state should stick to its current exchange rate regime. Even so, Dahabi said that the shadow of the dinar,s devaluation in 1989 still looms large - it is not an experience that anyone is looking to repeat. HALE