FINANCE MINISTER JABR ON BUDGET ISSUES, GE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003956

SIPDIS

E.O. 12958: DECL: 12/16/2018
TAGS: EFIN ECON IZ
SUBJECT: FINANCE MINISTER JABR ON BUDGET ISSUES, GE
GENERATORS AND THE DFI

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


1. (C) Summary: At an informal dinner on December 12 with
CETI and the newly-arrived Treasury Attache, Finance Minister
Jabr described a "shadow budget" that would trim expenditures
by USD 8 billion by noting that "we are in a crisis." He
noted that while he would facilitate the sale of General
Electric (GE) generators this year, next year the budget will
be extremely tight, and he does not want to overburden it and
lose gains in re-establishing Iraq's creditworthiness. He
offered ideas on the extension of the development fund for
Iraq and announced that he is having the Trade Bank of Iraq
organize a banking conference in Baghdad in mid-January. End
summary

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"We are in crisis"
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2. (C) With these words Finance Minister Jabar began a
discussion of Iraq's budget difficulties. With the sharp
decline in the price of oil, well below the USD 62.5 used for
the 2009 budget, and a further decline in oil exports to 1.7
million bpd in November, the 2009 budget as approved by
Ministers increasingly looks unrealistic. Jabr explained
that to prepare for the discussion in the Council of
Representatives (CoR),he has gone over the budget, cutting
"a bit here and a bit there." What he called his "shadow
budget," would reduce expenditures to about USD 59 billion,
USD 8 billion less than originally planned. Expenditures on
investment (USD 14 billion according to Jabr) and salaries
were not cut. Reducing the latter would spark "riots like in
Greece," he remarked. The budget assumes oil exports of 2.0
million bpd, based on securing 300,000 million bpd from
Kurdistan, priced at USD 50 a barrel. The exchange rate
would be the same as in the original budget, IQD 1180 Iraqi
to the USD, according to Jabr. The Minister does not intend
to submit this shadow budget to the Council of
Representatives, but keep it in reserve and use it as the
debate unfolds. He noted that the CoR has the authority to
revise the budget, but only by cutting expenditures, not
increasing them.


3. (C) Jabr railed against the inability of the Oil Ministry
to increase production. Inviting international oil companies
would be the best way to step up production, admitting that
this would take some time to bring on stream. The Oil
Minister initiated a bidding round for development of oil and
gas resources, but this will come too late to help next years
budget. Moreover, while more oil will be pumped, the
infrastructure to process and transport it is fragile.

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GE Generators
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4. (C) When asked about whether he would authorize funds for
the GE generators, Jabr responded that once the Council of
Ministers approves the purchase it would be "no problem"
(with a snap of the fingers). However, he went on to explain
that the MOF could release the USD 400 million for down
payment quickly and then perhaps issue Treasury bills to the
Central Bank of Iraq for one or two billion dollars. The
Ministry of Electricity's budget for 2009, however, would be
very limited, in the USD 800 million-USD 1 billion range. He
said that he did not want to over commit the budget, running
the risk of non-payment. Doing so, in his opinion, would
risk losing the gains Iraq has been making to re-establish
its creditworthiness.


5. (C) Jabr complained that the Minister of Electricity
should not have brought three large contracts (GE, Siemens,
and another contract) at the same time at year's end. These
should be spaced, so that they can make the necessary
Qshould be spaced, so that they can make the necessary
purchase of one before committing resources for the next one.
Trying to do them all at once risks not being able to do
any, he added.

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Banking Conference
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6. (C) Jabr would like to hold a banking conference in
mid-January, to stimulate interest in investing and doing
business in Iraq. He has asked the Trade Bank of Iraq to
organize the conference. He asked the USG to assist in
attracting U.S. banks to participate in the event.

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DFI
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BAGHDAD 00003956 002 OF 002




7. (C) Jabr declined the Prime Minister's invitation to
attend the UN's discussion on extension of the immunities for
the development fund for Iraq (DFI). However, he said that
he would send two suggestions to the Iraqi Foreign Minister
who is in New York. One would be to have the extension for
three rather than one year. This timeframe would be
consistent with the Security Agreement and the International
Compact for Iraq. The second would be to enable a DFI to be
placed in Europe for payment of bills denominated in euros.
We explained that the best chances for an extension was to
keep the extension simple, with no added features.
CROCKER