TRADE MINISTER: WE CAN FUND PDS IN 2008 WITH A USD

C O N F I D E N T I A L BAGHDAD 002104

C O N F I D E N T I A L

SIPDIS

STATE PASS TO DEPT OF AGRICULTURE

E.O. 12958: DECL: 07/07/2018
TAGS: ECON EAGR EFIN POL
SUBJECT: TRADE MINISTER: WE CAN FUND PDS IN 2008 WITH A USD
2 BILLION SUPPLEMENTAL

REF: A. BAGHDAD 1480

B. BAGHDAD 789

Classified By: Economic Minister Charles P. Ries for reasons 1.4 (b) an
d (d).


1. (C) SUMMARY: Trade Minister Abdul Falah al-Sudani told
Emboffs July 1 that the Ministry of Trade (MoT) would be able
to fund 90 percent of the Public Distribution System (PDS)
for the remainder of 2008 with the USD 2 billion in
supplemental appropriations Finance Minister Bayan Jabr
indicated he would allocate for the program. Regarding plans
to reform the PDS, Sudani said the MoT would likely
means-test the list of PDS beneficiaries for 2009, but said
nothing about monetizing benefits. Sudani was receptive to
Emboffs' suggestion that he hire a public relations firm to
help the MoT educate Iraqis about the reform plans. Iraqis
are generally inured to the PDS functioning poorly, but this
year PDS beneficiaries may feel more acutely any marginal
reduction in rations, with rising costs for non-PDS foods
consuming a greater share of Iraqis' income. We will
continue to encourage the MoT to forge ahead with PDS reform,
including a public education plan, to preempt a politically
costly end-of-the-year dustup. END SUMMARY.


2. (C) Trade Minister Sudani told Emboffs July 1 that the MoT
would be able to fund the PDS for the remainder of 2008 with
the USD 2 billion in supplemental appropriations Finance
Minister Bayan Jabr indicated he would allocate for the
program. (NOTE: Sudani had requested USD 4 billion in
supplemental funds for the PDS; the MoT had obligated by June
30 all of the MoT's roughly USD 3.3 billion 2008 budget
allocation for the program (reftel A). END NOTE) Sudani
said USD 2 billion, managed properly, would be sufficient to
purchase and supply 90 percent of the program's projected
demand, despite increased costs for commodities and shipping.
"The people will accept a 10 percent reduction in their
rations," he said confidently.


3. (C) Sudani noted that the MoT still had roughly USD 500
million remaining from the line item in its 2008 budget
allocation originally destined for domestic purchases of
commodities. The MoT had intended to purchase 1.5 million
metric tons (MT) of wheat from Iraqi farmers, but diminished
crop yields resulting from Iraq's drought means it will only
buy roughly 600,000 MT domestically. "But don't tell Jabr we
have this money. He doesn't know," Sudani said smiling
sheepishly. (NOTE: The Treasury Attache notes that FinMin
Jabr does know the MoT has unspent funds, but he is unsure of
the amount. Jabr's reluctance to allocate more to the PDS is
largely due to International Monetary Fund concerns about the
fiscal ramifications of increased GOI current spending in the
2008 supplemental. Jabr said the MoT would need to provide
the Council of Ministers a more detailed description of its
PDS reform plans (reported reftels A and B) in order to
receive even the USD 2 billion. END NOTE.)


4. (C) Sudani said, regarding the reform plans, that
implementation would take time and be difficult. He
expressed confidence that the MoT would means-test the list
of PDS beneficiaries for 2009, but said nothing about
monetization of benefits. Emboffs stressed that a well
crafted public education campaign regarding the reform plans
would be essential to allay beneficiaries' fears and to
advertise to the private sector the opportunity for it to
import and supply food agents with PDS commodities. Sudani
agreed with Emboffs that the MoT should consider contracting
the services of a private sector public relations firm to
assist with such a campaign and asked if we could provide him
with a list of reputable outfits. Post intends to identify
U.S., regional, and Iraqi firms that could do the work and
provide a list of names to the MoT.


5. (C) COMMENT: Iraqis are generally inured to the PDS
functioning poorly, so Sudani has some basis for his belief
that PDS beneficiaries will quietly tolerate a 10 percent
reduction in rations in the second half of 2008. But this
year beneficiaries may feel more acutely such a marginal
reduction, with rising costs for non-PDS foods, e.g., fresh
produce and meats, consuming a greater share of Iraqis'
income. As a result, the GOI may, as it did last November,
find itself under pressure to allocate more to the program in
the face of public complaints and pressure from some corners
of the Council of Representatives. We will encourage the MoT
to forge ahead with its PDS reform plans, and to educate the
public about them in advance, in order to preempt another
politically costly end-of-the-year dustup.
CROCKER