PLANNING MINISTER BABAN'S BUDGET AND ICI CONCERNS

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003476 SIPDIS E.O. 12958: DECL: 10/26/2018 TAGS: PREL ECON EAID EFIN IZ SUBJECT: PLANNING MINISTER BABAN'S BUDGET AND ICI CONCERNS Classified By: EMIN- Marc Wall, reason E.O. 12958 1.5 (B,D) ¶1. (C) EMIN and Minister of Planning and Development Cooperation (MoPDC) Ali Baban met October 26 and discussed Baban's concerns about the 2009 budget, the International Compact with Iraq (ICI),and future assistance. Baban believes that the GOI's favoring the operational portion of the pared-down 2009 budget at the expense of capital expenditures will leave Iraq vulnerable to oil price swings and hamper its economic development. He has asked the PM to revisit the issue. Baban said that the ICI is not sufficiently supported or understood by line ministries. He deferred until a later meeting discussion of his assistance priorities, focusing instead on the need to pass the bilateral security agreement and Strategic Framework Agreement and his own efforts to "educate" Iraqis of their importance. He closed by telling us he had received a misguided letter from the PM's office instructing him to close down the USG-funded Procurement Assistance Center (PAC),which he intends to fight. End Summary. -------------- Baban's Budget Concerns -------------- ¶2. (C) In a spirited discussion of his concerns over the looming problems facing the 2009 Iraqi budget, Planning Minister Ali Baban told EMIN October 27 that the draft budget, as it currently stands, spends far too much on salaries and social payments, and not enough on capital improvements. This, he said, perpetuates Iraq's dangerous reliance on oil income, with the potential for wild swings in revenues, and jeopardizes Iraq's ability to foster broad-based development. Decrying the absence of a diversified economy, Baban said "Iraqis don't produce things -- only oil. We should be working hard to develop our agriculture and industry." ¶3. (C) Forecasting that as much as fifty percent of the originally forecast oil income may not be realized in 2009, Baban said he had sent an MoPDC analysis of the budget challenges to PM Maliki. He does "not know how the PM and the Finance Minster feel about this, but I have to communicate our concerns." Baban insisted that the GOI is committed to paying social needs, but he said that in his letter he had asked the PM to put off the proposed January increase in salaries. Baban was very worried that Iraq's bloated civil service ranks are unsustainable given its singular reliance on unpredictable oil revenues. Far better would be to develop other sources of government revenue - but that would require a different budgeting priority, with more funds for the capital budget. He lamented that "nobody listens to (the MoPDC)." -------------- ICI Going Nowhere -------------- ¶4. (C) Recalling that he and EMIN had just both attended a meeting of the Baghdad Coordinating Group of the ICI, Baban volunteered his concern that the ICI is still not widely appreciated nor understood in the Iraqi government. He said he was disappointed that there still has been "no real action" on the ICI. He fears that there is insufficient political will among line ministries to sustain the newly reformed structures. Baban confessed that there are many other political issues, including the SOFA/SFA discussions and elections which crowd out ICI issues within the GOI, and said he has been getting signals from other ministries that they are not interested in spending time on the ICI. -------------- - SFA will Determine our Assistance Relationship -------------- - ¶5. (C) In response to EMIN's query, Baban held off discussing his assistance priorities. The "Big Question" of the future relationship between Iraq and the United States will be determined by the bilateral security agreement and SFA, and these must be concluded first. Baban told us the Iraqi people don't fully understand the implications of not having these agreements with the USG, and so, he said, he had been conducting a media campaign to try to focus them on some of the issues. Baban said he is particularly concerned that feared the possibility that Iraqi assets in the United States would be at risk without an SFA. Moreover, he feared that a new U.S. administration might not be as open to Iraqi concerns as the current one. He predicted that the final passage of the SFA would occur "in weeks." -------------- PM Office tries to Kill the PAC -------------- BAGHDAD 00003476 002 OF 002 ¶6. (C) Touching on the theme of effective USG assistance, Baban told us there remain great capacity gaps in the GOI, and our support for ministerial capacity development is key. However, even here there is misunderstanding among other elements in the GOI. Waving a letter in the air, Baban said he had just received an instruction from the PM's office to cease any MoPDC support for the "unofficial" Procurement Assistance Center. Baban said the PM's counsel had tried to explain to the PM's office that the PAC was not an Iraqi official body, but an independent donor-funded organization that provides valuable services to the GOI. Baban called it "perhaps the most effective and successful program." He said he would respond to the PM that the instruction was misguided, particularly as there are have been thousands of internationally funded programs over the years that have provided good service to Iraqis, and "we can't stop these too!" ¶7. (C) Comment: Baban appeared to be beleaguered, and apparently is looking to build a closer relationship with EMIN, who is his main point of entry to the U.S. Mission. Baban's views on the ICI are consistent with what we've heard from other MoPDC staff, in particular his senior advisor Dr. Faik Abdul Rasool. Additionally, we learned recently from contractors working on a World Bank project to operationalize the MoPDC's Economic Development Fund for SME lending that they planned to draw up an ICI coordinating plan that would put MoPDC in the coordinating role, because "the current ICI structures just aren't working." Baban's dismissal of the GOI's commitment to the ICI reflects an institutional, and personal, desire for greater influence on development cooperation. We are surprised to hear the PM's office has instructed MoPDC to cease cooperation with the PAC, which is one of our key mechanisms to enhance Iraqi budget execution. We will determine what the PM's office was thinking and where the misunderstanding took place. End comment. CROCKER