IRAQ PARLIAMENTARY COMMITTEE CHAIRS ON CAPACITY

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 002906

SIPDIS

E.O. 12958: DECL: 09/05/2018
TAGS: ECON ELAB EPET PGOV PREL IZ
SUBJECT: IRAQ PARLIAMENTARY COMMITTEE CHAIRS ON CAPACITY
BUILDING AND LEGISLATION

REF: A. BAGHDAD 2830

B. 2006 BAGHDAD 3655

C. 2007 BAGHDAD 64

Classified By: Economic Minister Counselor Marc Wall for reasons 1.4(b)
and (d)


1. (C) Summary: Council of Representatives (COR) Economic
Committee Chairman Haider al-Abadi and COR Finance Committee
Chairman Ayad al-Sammarai told EMIN in separate meetings that
the overall situation in Iraq has greatly improved. Abadi
warned that these improvements have led Iraqis to have higher
expectations, and unless met, these higher expectations could
lead to disillusionment with democracy in Iraq. Lack of
government expertise and technical know-how affects both the
executive and legislative branches of Iraq's government.
This leads to slow budget execution and poorly designed laws
that often have unintended consequences. Passage of the
hydrocarbons legislation will take international pressure to
convince the KRG to compromise. Sammarai is advocating
changes to the budget process to make it more transparent and
to increase the COR's oversight of government spending. The
FY 2009 budget legislation has not yet been submitted to the
COR. Abadi is pushing for a USD 2.2 billion housing
assistance package that will provide low-interest loans and
be funded in FY 2009 to start addressing Iraq's need for
three million new housing units over the next five years.
Consumer protection, customs and tariffs, and labor laws are
also in the works as Iraq seeks to improve its legal and
regulatory framework to strengthen the private sector. End
summary.


2. (C) EMIN and Econ Counselor met with Council of
Representatives (COR) Economy, Investment and Reconstruction
Committee Chairman Haider al-Abadi on September 4 and
separately with COR Finance Committee Chair Ayad al-Sammarai
on September 7. At the September 4 meeting, Abadi outlined
the major executive and legislative challenges facing the GOI
leadership. Abadi is a member of the Dawa Party and prior to
joining the COR was an advisor to Prime Minister Maliki.
From 2003-2005, he was the Minister of Communications. Abadi
has a PhD in Electrical Engineering from Manchester
University in the UK. Sammarai, a senior member of the Sunni
Iraqi Islamic Party, echoed many of Ayad's concerns on
economic issues and outlined a Sunni perspective on several
political issues that will be reported separately. Sammarai
graduated from Baghdad University with a BS in Engineering in
1970, and worked in Baghdad, Jordan, and the UAE.

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Iraq Improving -- But Change Must Come Faster
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3. (C) Abadi said that the overall situation in Iraq has
greatly improved over the past year -- "You can feel it in
the street." With this improvement, however, the
expectations of the Iraqi people have also gone up. "Things
no one thought of asking for before are now considered
essential." These high expectations mean that Iraq needs to
move quickly to take the small, important steps that are
needed to show Iraqis that things are getting better or else
they will "get fed up with democracy." "This could have the
dangerous effect of encouraging some Iraqi army officers to
launch a coup d'etat that would have the support of the
people," he cautioned.

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GOI Needs Help Contracting Projects
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4. (C) According to Abadi, the largest problem facing the
Iraqi Government is its lack of capacity to conceive and
execute government spending projects. Ministry employees
lack the skills necessary to adequately review and implement
procurement and contracting procedures. Iraqi government
employees need capacity-building and training "otherwise they
will continue to end up with projects that are not up to
spec," he said. Abadi noted that GOI ministry employees are
not well-equipped to select appropriate contracting companies
for projects. As U.S. assistance declines over time, GOI
capabilities will need to be increased.


5. (C) Abadi's solution would be to contract this function
out to internationally-reputable companies. "A lot of GOI
officials are not au fait with this notion" due to their
misunderstanding of national sovereignty issues, he noted.
"These problems are serious and they are delaying the
reconstruction of Iraq," he said. Many projects in the 2008
budget have been stalled for six months already. Abadi said
that he is aware that both Turkish and German companies are
"getting involved."


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Laws With Unintended Consequences
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6. (C) As in the executive branch, the COR's legislators
"greatly need to develop our own expertise." Iraq was a
closed, socialist society and most members of the COR "don't
know the how the rest of the world works." As a result,
"many pieces of legislation" passed by the COR "have holes in
them that end up negating the law's intent." Citing the
civil service pay raise as an example, Abadi noted that the
intent was to raise Iraqis' standard of living, but ended up
raising inflation and hurting the standard of living of the
"poorer people." Further, even though the GOI's strategy is
to encourage people to move from the public to the private
sector, the civil service salary increase is "actually
encouraging people to move to public sector jobs."

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HCL: Will Take International Pressure to Get Done
-------------- --------------


7. (C) Abadi was not sanguine about the passage of the
hydrocarbons legislation (HCL) in the current session of
parliament, but noted that "we have talked about this at
political meetings and know that we can not continue on this
ad hoc basis and leave everything up to the Minister of Oil.
Blaming the GOI's "Kurdish partners," for the delays, he said
that since they have their own law and are moving fast to
make their own deals, they are not in any rush to move
forward on national legislation. Abadi also saw the hand of
"neighboring countries" in the legislation's political
problems, saying that they have waged a "negative campaign"
to delay Iraq's ability to compete with their own oil
exports. Further delays in the passage of the HCL are "very
worrying for us" since there has been increasing pressure
from some in Basra who see that the KRG is holding onto and
controlling their oil profits and wonder why Basra should not
receive the same treatment. Passage of the HCL will require
international pressure on the KRG, he said.


8. (C) Sammarai noted that the United States and Europe
appeared far more concerned about the passage of the HCL than
the average Iraqi. The average Iraqi thinks that Iraq is not
able to effectively spend the money it is already earning, so
why be concerned about getting more, he said. Political
leaders do see the importance of passing the HCL. Sammarai
said that Iraq would greatly benefit from the other
investments and businesses that would come along with Western
oil companies.

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2009 Budget Prognosis: "Security is No Longer an Excuse"
-------------- --------------


9. (C) Legislation for the 2009 budget law, is already "very
much delayed," said Abadi, noting that the COR should have
already received the Ministry of Finance's draft annual
budget proposal. "It's been promised, but I haven't seen
it." EMIN described the Embassy's new Public Finance
Management Action Group (PFMAG) initiative and Abadi observed
that this type of assistance is "very, very important."
Abadi supports increasing the size of local governments'
capital budgets; he is anticipating that this will be part of
the 2009 budget. (Note: Planning Minister Baban told
Treasatt in an August 18 meeting that he too expected a
"significant increase" in capital budget allocations to the
provinces in the FY 2009 budget. End note).


10. (C) Sammarai, separately, was less concerned than Abadi
that the Finance Committee had not yet received a draft of
the FY 2009 budget law. While the COR had passed the 2008
supplemental budget with little review, for "political
reasons," Sammarai said that he expected to spend more time
reviewing the details of the 2009 budget (ref C). "We expect
that we will be better informed and we insist that this
budget will be done on time," he said. Sammarai said that
one of his biggest concerns was the "emergency spending"
portion of the budget controlled by the Minister of Finance.
"Of course there will be emergencies, but USD 1 billion is
too much; we plan to decrease it to a minimum," he said.


11. (C) Sammarai noted that how much of the budget allotted
to the Kurdistan Regional Government (KRG),"whether 13
percent or 17 percent" was a political decision and not one
that in which the COR would play a role. "Once political
agreement is made, we are not going to question it," he
added. Sammarai was emphatic, however, that this political
decision be made before the budget was submitted to the COR
so that political squabbling did not end up bogging down the
passage of the budget.


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12. (C) Sammarai also wanted the budget process to be more
transparent and to minimize the Ministry of Finance's ability
to make changes in the budget. The COR will be expecting
regular reports on government spending so that it can conduct
proper oversight. In the past, the Finance Ministry had
blamed security problems to justify budget changes. "This
now is no longer an excuse," he said.

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2009 Housing Bill
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13. (SBU) Iraq needs three million new housing units within
the next five years. Abadi said that he shares the Minister
of Finance's belief that these new houses need to be built by
the private sector with government assistance. Housing
legislation is now moving forward in the COR that would
provide USD 2.2 billion in FY 2009 to fund low-cost loans in
order to jump-start private sector construction. (Abadi sees
the state itself building some housing for the benefit of
low-income individuals.) Abadi wants to be certain that all
segments of society benefit from new housing and not just the
wealthy, as he noted, was the case with "90 percent" of the
new housing in the Kurdish provinces. Abadi noted that
sustaining GOI efforts on housing over the long term is
vital. An additional advantage of a sustained building
program would be to train workers. "We have a real shortage
of trained labor; the wars we have been through have drained
Iraq of trained labor," he said. (Comment: Though
commendable as an effort by the GOI to jump-start this
sector, this plan does not appear to address the difficult
issues of land distribution, sustainable financing
mechanisms, structural inefficiencies in cost of
construction, and lack of contracting- and building-capacity.
End comment.)

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Other Laws in the Works
--------------


14. (SBU) Several other laws that make up key components of
Iraq's Legislative Action Plan for WTO accession are also
scheduled to move to the COR this session. A Consumer
Protection law and an Anti-Monopoly law should both be
submitted to the COR soon. The Customs and Tariffs Law is
also in its final stages of drafting and will be submitted to
COR soon. Abadi said that the tariff structure introduced by
the CPA, despite its "many flaws," has been extended until
the new bill becomes law. However, many COR representatives
have expressed concern about the benefits of Iraq joining the
WTO, a problem that can be solved by increased public
relations work. (NOTE: We have received conflicting reports
from the Ministries of Finance and Trade regarding the
Customs and Tariffs bill, and understand that a vigorous
debate within the Council of Ministers may delay the bill's
advancement to the COR. See ref A and septel. End note.)


15. (SBU) EMIN informed Abadi that labor unions in the United
States have proposed removing Iraq's Generalized System of
Preferences (GSP) protection due to concerns about Iraq's
labor conditions. Abadi noted that new Labor Law is in the
pipeline, but held up by controversy over how "stringent" the
minimum wage should be. The current law was written in the
"socialist era" and no one is following it, Abadi said. A
reformed labor law, with pension and other protections, could
provide Iraqis with a "sense of hope" with regard to working
in the private sector. Iraq does not have a child-labor
problem; "This is not India," he said. There are no children
working in industry, but children do sometimes work in their
parents' shops selling goods.
CROCKER