IRAQ READY TO PAY $300 MILLION TO SETTLE KUWAIT

C O N F I D E N T I A L BAGHDAD 003175 SIPDIS E.O. 12958: DECL: 10/01/2018 TAGS: ECON EFIN PGOV IZ SUBJECT: IRAQ READY TO PAY $300 MILLION TO SETTLE KUWAIT AIRLINE CLAIM REF: BAGHDAD 2944 Classified By: CETI Ambassador Marc Wall, reasons 1.4(b,d) ¶1. (C) Summary: On September 29, EMIN and Treasury Attache met with Finance Minister Jabr to discuss Kuwait's efforts to attach GOI assets, transfer of assets from the USG to the GOI, and the 2009 budget. Jabr said the GOI was willing to pay $300 million to settle claims by Kuwait Airways, not the $500 million Kuwait had demanded. Jabr also said he wanted asset transfers from the USG to proceed "as soon as possible." Jabr reported that formulation of the 2009 budget was "very hard." He is worried that debate over the allocation to the Kurdish region would once again delay the budget. End summary. ¶2. (C) EMIN told Jabr the USG was concerned about Iraq's relationship with Kuwait following Kuwait's recent efforts to put liens on aircraft and real estate in CANADA owned by the GOI. Jabr said the GOI's Council of Ministers (COM) had discussed a proposal to pay $500 million to Kuwait's airline to settle its claims against Iraqi Airways (reftel). But the idea did not find much support. Instead, the COM decided to instruct the GOI's lawyers in CANADA to continue working on the problem. Jabr said Kuwait's attempt to place liens on the ambassador's residence and embassy in CANADA was "a bad sign" for relations between Kuwait and Iraq. "We need your help," Jabr said, to find out why the Kuwaitis have chosen to pressure Iraq in this way. ¶3. (C) In response to EMIN's question on what the USG could do to help, Jabr said the USG could urge the Kuwaitis not to expand the controversy by going after official government assets. The Kuwaiti prime minister had said he would visit Baghdad after Eid. Jabr said he hoped the prime minister would come with a proposed solution. The GOI would not accept Kuwait's demand for payment of $500 million within two months. "This is not possible," Jabr said. But payment of $300 million would be acceptable to the GOI. ¶4. (U) EMIN also told Jabr the Embassy was working on an exchange of diplomatic notes to accomplish the transfer of assets from USG control to the GOI. In reply Jabr said the COM would review the issue. Jabr recommended that the Embassy go directly to the prime minister on asset transfers rather than to the deputy prime minister. This would make it easier for the PM to give instructions to ministries. The DPM could follow up if there were problems. Jabr said he was eager to see all of the assets transferred to GOI control "as soon as possible." ¶5. (C) In response to EMIN's question on the current state of deliberations over the 2009 budget, Jabr said, "This budget is very hard." He said the preliminary budget document was now in its tenth draft. The next problem is the 17-percent of expenditure demanded by the Kurds. Debate over this had delayed the 2008 budget for four months -- "and for nothing, just talk." (Comment: Members of the finance committee of the Council of Representatives (COR) say one reason the 2008 budget was delayed is that the Finance Ministry refused to answer questions the COR raised. End comment.) Jabr said he had prepared the preliminary budget based on the established 17-percent rule. But there were many in the COR who wanted to revisit the issue. The idea is to allocate funds to each of the 18 provinces according to population, after funding sovereign expenses. As before, the Kurds say any change in the formula should come only after there has been a new census. "We will wait for Talabani to return to discuss it further," Jabr said. "Our coalition and the Arab Sunnis feel that Kurdistan is taking from their revenues and get more than their share." Under Saddam, Jabr said, the Kurds got 13 percent. CROCKER