QATARI OFFICIALS DISCUSS CURRENCY, SOVEREIGN

C O N F I D E N T I A L SECTION 01 OF 03 DOHA 000422

SIPDIS

E.O. 12958: DECL: 06/03/2018
TAGS: EFIN EINV PREL QA IR
SUBJECT: QATARI OFFICIALS DISCUSS CURRENCY, SOVEREIGN
WEALTH FUNDS, INVESTMENT, AND IRAN WITH SECRETARY PAULSON

Classified By: Charge d'Affaires Michael A. Ratney,
for reasons 1.4 (b) and (d).


1. (C) Treasury Secretary Henry Paulson visited Qatar May 31
) June 1 for meetings with Prime Minister/Foreign Minister
Sheikh Hamad bin Jassim Al Thani, Finance Minister Yousef
Hussein Kamal, and Central Bank Governor Sheikh Abdulla bin
Saud Al Thani. All three officials told Secretary Paulson
that Qatar has no plans to abandon the dollar peg or to
revalue its currency; expressed concern about IMF-developed
guidelines for Sovereign Wealth Funds; and discussed Qatar's
primary economic challenge - dealing with an high rate of
inflation. Secretary Paulson was joined in the meetings by
Under Secretary for International Affairs David McCormick,
Under Secretary for Terrorism and Financial Intelligence
Stuart Levey, Chief of Staff Jim Wilkinson, and Charge.

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FINANCE MINISTER YOUSEF KAMAL
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2. (C) On the dollar peg, MinFin Kamal said Qatar is not
going to change anything ) "not today, not tomorrow, and not
in the coming years." Kamal noted that Qatar is not going to
change its mind. In the past, he added, there had been
arguments about the desirability of revaluing or abandoning
the peg. But Kuwait switched to a basket of currencies while
Qatar did not, yet there has been no significant difference
in inflation levels between the two countries.


3. (C) Kamal remarked that most of the products imported into
Qatar, even Japanese cars, are priced in dollars, and there
has been no change in those prices over the past year. He
considers the dollar's depreciation a short-term phenomenon.
Secretary Paulson concurred with Kamal,s view that the peg
had little impact on inflation.


4. (C) On inflation, Kamal said it was imported building
materials, such as aggregate, that was now really driving
Qatar's inflation, which he put at 13.7 percent. The
shortage of jetties at the port was slowing imports and
driving up prices. Kamal said the cost of building an LNG
liquefaction train has tripled in the past four years. What
used to cost USD one billion and take 26-28 months now costs
$3 billion and takes 36 months to build. For raw materials
that are produced in Qatar, such as sand, steel, the
government is planning to fix the producers' margins in order
to control the prices.


5. (C) Kamal said food prices remain a serious problem. GCC
trade ministers met last week to formulate a strategy to
stabilize food prices, particularly for staples like wheat
flour, rice, cooking oil, and baby milk. Qatar, he said, is
also considering subsidies for certain commodities; the only
alternative is to increase salaries, but that puts more cash
into the banking system and fuels inflation further.


6. (C) Looking to the longer term, Kamal said he had
personally been traveling to Vietnam, Cambodia, Yemen, Sudan,
Tajikistan, and elsewhere to look into investing in
agricultural production for the Qatari market. Qatar is also
looking at establishing a company with Brazil and other
investors to develop technology to grow vegetables with
limited soil and water. The system is expensive, but it
could be used to supply the hotel and catering market in
Qatar, which already resells the food at much higher prices,
and take the pressure off the local market. Qatar is also
thinking about fish farming.


7. (C) On Sovereign Wealth Funds (SWFs),Kamal said he
believes the IMF-proposed rules are "not for everyone," that
they don't necessarily benefit either the investors or the
receivers of the investments. He singled out transparency
requirements as a particular concern for the Qatar Investment
Authority (QIA). The QIA, he said, cannot disclose its asset
allocation ) this is against GOQ regulations. Only five or
six people in Qatar know this information, he explained, and
even to the IMF, it is only "whispered."


8. (C) Paulson responded that the U.S. doesn't see SWF
investments that come to the United States as a threat, but
as a vote of confidence. Ultimately, every enlightened
country will want investment, but everywhere in the world
there is irrational protectionism and sometimes a backlash
directed at SWF investments. What the IMF has put out are
guidelines, not rules, and the most important aspect of them
is governance. Some funds, such as Norway, have a great deal
of transparency. But while there will be countries that do
not disclose their asset allocation, they can still show how
they are run.

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9. (C) Kamal said some countries don't want SWF investments
in certain sectors for national security reasons. If that's
the case, he said, "just tell me" which sectors or companies
those are. U/S McCormick explained that the U.S. worries
that these sort of restrictions are a way for countries to
put up barriers for economic reasons, but claim this is for
national security reasons.


10. (C) Secretary Paulson said that in the two years since
the Dubai Ports issue, the number of investments from the
Gulf in the U.S. has doubled, and the dollar value of these
investments has quadrupled. We want to continue to encourage
investment and hope that OECD countries aren't going to be
listing a lot of industries as strategic.


11. (C) Kamal closed by telling Secretary Paulson that Qatar
was starting a USD 2 billion fund to invest in real estate in
the U.S., using some of the excess liquidity in Qatar's banks
) a development Paulson welcomed.

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PRIME/FOREIGN MINISTER HAMAD BIN JASSIM AL THANI
-------------- ---


12. (C) Qatar's Prime Minister/Foreign Minister Sheikh Hamad
bin Jassim Al Thani (HBJ) told Secretary Paulson that Qatar
would like to "stay with the dollar." He said Qatar had
studied other options, including a transition to a basket of
currencies, and a freely floating GCC currency, but decided
in the end to stick with the dollar. In fact, HBJ said, only
that day Qatar had decided to reduce by 20 percent Qatar's
euro currency holdings and shift them to dollars. He said he
believes the euro had peaked and hopes the dollar recovers.
He nevertheless urged the USG to "do something" quickly to
reverse the dollar's decline.


13. (C) Secretary Paulson told HBJ that the dollar peg is
ultimately a sovereign decision. He agreed Finance Minister
Kamal's analysis that a change in the dollar peg would have
little impact on inflation. Secretary Paulson said that it's
important to look at how the U.S. economy is doing longer
term, adding that he wouldn't bet on the economies of Japan
or the EU to outperform the U.S. economy in the long run and
said he expects to see stronger U.S. growth by year end. A
strong dollar, he added, is in the U.S. interest. The U.S.
is currency experiencing difficulties, but we are working
through them, and that in the longer term the fundamental
economic strength of the U.S. economy will be reflected in
the value of the dollar.


14. (C) Turning to SWFs, Secretary Paulson explained that he
chairs the CFIUS committee in the U.S. and, since the Dubai
Ports issue, there have been no problems with foreign
investments from the Gulf. In fact, the number of
investments in the U.S. from the Gulf has doubled, and the
dollar value of these investments had increased 400 percent.
In the U.S., we regard SWFs as an attractive pool of capital.
While we recognize the temptation of foreign investors to
say "if you don't want our money, we'll go somewhere else,"
Secretary Paulson said he believes SWF guidelines, as
developed by the IMF, give us a tool to fight protectionist
sentiment.


15. (C) HBJ said Qatar wants to use its wealth to build the
country's future. Unlike Russia or China, Qatar has no
political agenda for its SWF, only to make to make money.
HBJ said it is important to obey all the rules in each
country, and Qatar has hired lawyers in the U.S. and
elsewhere to ensure that Qatar's SWF understands all the laws
and regulations.


16. (C) Secretary Paulson raised the FATF advisory on Iran,
noting that after the UN Security Council Resolution, the
U.S. is very conscious of what Iran is doing to access the
international financial system. HBJ said he is sure this is
less of a problem in Qatar than elsewhere in the GCC, adding
that Qatari authorities are monitoring transactions and the
Qatar Central Bank is very tough. He said he knows the U.S.
sends Qatar lists of names and the Central Bank to check, but
they haven't found any suspect accounts yet. U/S Levey
encouraged Qatar to keep checking.


17. (C) Secretary Paulson closed by discussing with HBJ a new
clean technology fund the U.S. is working on with other
governments from the OECD and elsewhere aimed at climate
change and global warming. He explained that it will be
housed at the World Bank and will involve both governmental
donors and the private sector with the objective of

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developing cleaner technologies. HBJ said he would like to
learn more about the fund; Secretary Paulson offered to
follow up.

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CENTRAL BANK GOVERNOR ABDULLA BIN SAUD AL THANI
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18. (C) Secretary Paulson's meeting with Qatar's Central Bank
Governor, Sheikh Abdulla bin Saud Al Thani, focused on
Qatar's struggle with inflation. Sheikh Abdulla said the
major problem is prices for agricultural goods and other
commodities since that hits Qatar's core inflation rate and
CPI. Asked if Qatar had plans to subsidize food, Sheikh
Abdulla said Qatar does control rent prices, but claimed to
have no insights into the Finance Ministry's plans on fiscal
policy. He said the Central Bank is doing its job with
monetary policy, particularly with respect to open market
operations to absorb excess liquidity, including issuing CDs
and increasing reserve requirements.


19. (C) Asked about the dollar peg, Sheikh Abdulla said "this
will not change." Secretary Paulson noted that the Qatari
Finance Minister had earlier told him that his analysis is
that inflation is a result of commodity prices, not the
declining dollar. Sheikh Abdulla said that rents and
construction costs are driving inflation, but Qatar has been
through cycles like this four times before since the 1970s.
The real concern, he said, is food prices.


20. (C) Asked how Qatar planned to deal with the recent UN
Security Council Resolution on Iran, Sheikh Abdulla said the
QCB has a good system in place to monitor transactions. The
QCB is able to trace all activity through the system on a
daily basis, including transactions with other banks in
Qatar, and can determine if anything suspicious is happening.
Sheikh Abdulla said the Central Bank has good cooperation
with U.S. authorities, including the U.S. Federal Reserve, on
money laundering issues.


21. (C) Sheikh Abdulla asked about Sovereign Wealth Funds,
commenting that he didn't completely understand the objective
of the IMF in this regard. Secretary Paulson said that while
there are protectionist sentiments everywhere, the U.S.
welcomes SWF investments. In addition, there is a new CFIUS
law in the U.S. that should be easier to administer. He
explained as well that the primary concern is governance, and
that SWF guidelines are about best practices, and in that
sense Qatar ) which already manages its SWF professionally -
should welcome them. These guidelines should help fight off
protectionism and convince other countries not to create
obstacles to Qatar's SWF investments.


22. (U) Secretary Paulson's delegation has cleared this
message.

RATNEY