TREASURY DEPUTY SECRETARY KIMMITT'S MEETINGS WITH

C O N F I D E N T I A L SECTION 01 OF 03 DOHA 000782

SIPDIS

E.O. 12958: DECL: 11/05/2018
TAGS: EFIN EINV ECON QA IR IZ
SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT'S MEETINGS WITH
QATARI FINANCE OFFICIALS

REF: A. DOHA 781

B. DOHA 505

DOHA 00000782 001.2 OF 003


Classified By: Amb. Joseph LeBaron for Reasons 1.4 (b) and (d).

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(C) KEY POINTS
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-- Deputy Treasury Secretary Kimmitt met Oct. 29 with Qatar's
Finance and Economy Minister and Deputy Central Bank Governor
to explain USG actions in response to the global financial
crisis and to solicit Qatar's views.

-- The Finance and Economy Minister welcomed the USG rescue
package and noted that Qatar would like to see stability for
energy prices and cross-border investments as agenda items
for the upcoming G-20 summit.

-- Qatar is monitoring the health of local banks closely and
is prepared to intervene as needed to shore up any banks
facing problems, according to the two Qatari officials,

-- The Central Bank has not found it necessary to take any
major action in response to the financial crisis. It is
watching Iranian Bank Saderat's activities closely but the
bank's presence in Qatar remains minimal.

-- On Iraqi debt, Qatar's USD 3 billion of outstanding Iraqi
debt is a "political issue" which needs to be addressed with
Qatar's senior political leadership.

END KEY POINTS.


1. (C) Deputy Treasury Secretary Robert Kimmitt met October
29 with Finance and Economy Minister Yousef Hussain Kamal and
Qatar Central Bank (QCB) Deputy Governor Shaykh Fahad Bin
Faisal Al Thani. Also participating in the meetings from the
U.S. side were Ambassador, Treasury Deputy Assistant
.Secretary for the Middle East Andy Baukol, Treasury Attach
Matt Epstein, Press Spokesperson Rob Saliterman, and Econoff.
(See septel for a readout of the delegation's meeting with
Qatar Investment Authority Executive Board Member Dr. Hussein
Al-Abdulla).

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Qatar's "Boutique" Financial System Faring Well
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2. (C) Deputy Secretary Kimmitt began by explaining to
Minister Kamal that he felt it was important to come to Qatar
to share U.S. perspectives on the financial crisis and obtain
Qatar's views as the USG prepares to convene the G-20 summit
next month. He emphasized that recent USG actions have taken
the fear of a financial system collapse out of the market and
laid the foundation for a recovery. While confidence has
been restored, there is continued concern about future
growth, even though long-term prospects are good and
investors see opportunities. Deputy Secretary Kimmitt noted
positive moves in the credit markets and said he remains very
optimistic about the long-term strength of the U.S. economy
despite the current difficult period.


3. (C) Kamal responded that despite the crisis there are
"lots of people making money all over the world, including
here in Qatar." However, the Qatari markets have been
affected because of the inter-connected nature of the modern
financial system, while rapid media dissemination of problems
in the U.S. and elsewhere spreads fear to Qatari investors.
He added that most Qatari banks and companies only operate
locally but are still affected by global markets, as
international credit lines have been cut. As a result, the
GOQ decided to extend lines of credit locally and has assured
banks that it will increase its own deposits, if needed, as
foreign investors withdraw money. Kamal portrayed Qatar as a
"boutique" financial market and asserted that the small size
of the banking sector allows the government to manage any
problems. Moreover, Qatar has placed more stringent
requirements on its banks than the U.S. or Europe by not
allowing leverage to exceed 10 times their assets.


4. (C) Kamal was generally optimistic about long-term global
growth prospects, saying he thinks the USG rescue package
will work. He noted the GOQ is planning to maintain or
increase its budget next year, especially for infrastructure
projects and related imports. Underscoring that "we're going
to help ourselves and others," he said Qatar's recent
purchase of larger stakes in European banks is in part
intended to inject cash into the system to help unstick the
markets.

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GOQ Wants Energy, Cross-Border Investment
on Agenda for G-20 Summit
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5. (C) Explaining the genesis and rationale for the upcoming
G-20 summit, Deputy Secretary Kimmitt noted that the idea of
holding the meeting originated with the Europeans. The U.S.
has since embraced it and agreed to act as host.
Acknowledging that Prime Minister/Foreign Minister Shaykh
Hamad Bin Jassim Al Thani (HBJ) contacted the USG and
encouraged Qatar's participation, the Deputy Secretary said
the U.S. believed limiting participation to the G-20 - which
was formed after the Asian financial crisis - seemed to be
the right group for a summit that needed broad geographical
representation but also needed to be prepared quickly. He
emphasized that he was in Qatar to listen to views and that
part of the agenda for the first summit is to develop a way
to take others' views into consideration in future meetings;
it will be important for Qatar to give its input and play a
substantive role in the emerging global process.


6. (C) Kamal noted that he has not discussed the issue with
Shaykh Hamad but since Saudi Arabia is participating expected
that the Saudis would represent the views of Qatar and the
GCC at the summit. He said oil, gas, and cross-border
investments are Qatar's main concerns. Specifically, oil
should be stabilized at a reasonable price, which in Kamal's
view is less than USD 90 per barrel, but not too low that it
would discourage long-term investments. Qatar seeks balance
and market stability. For the summit outcome, Kamal noted he
would like to see "reasonable ideas, not just beautiful
wording," arguing that a major goal should be reaching
agreement on specific objectives as opposed to general ideas.
Deputy Secretary Kimmitt responded that he will take that
message back to Washington, agreeing that we also seek
specific results. This is important because the markets want
to see forward movement.


7. (C) Kamal raised the Bretton Woods system, offering that
it does not need major revisions but fine-tuning. Deputy
Secretary Kimmitt agreed, noting that the rise of new
economies and regional organizations since the establishment
of the World Bank, IMF, and WTO requires updating those
institutions to reflect current global economic realities.
Kamal underscored that the overall concept does not need to
be changed, suggesting merely that the means of governance in
those institutions required adjustment. He warned there is a
danger of making false analogies with the 1930s; and there is
no need for extreme measures in his view.

-------------- -
Political Concerns Over Sovereign Wealth Funds
-------------- -


8. (C) Turning to sovereign wealth funds (SWFs),Deputy
Secretary Kimmitt told Kamal that the USG is trying to guard
against protectionism and was concerned with President
Sarkozy's idea for a new French SWF with a clearly political
and protectionist purpose. This is out of step with the
recently-announced Santiago Principles, which emphasize that
SWF investments are for commercial not political purposes.
He thanked Qatar for its constructive role in the IMF/SWF
working group and noted that the established principles give
governments a tool to respond to political concerns, thereby
facilitating the commercial operation of SWFs. He also
underscored that the USG and others must continue to
emphasize their openness to foreign investment. He lamented
that when people talk about Foreign Direct Investment (FDI)
they hear the word "foreign" twice as loud as "investment."
Kamal concurred with the Deputy Secretary's analysis, and the
conversation then moved into a discussion of a possible
bilateral tax treaty (Ref A).

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Financial Controls as a Competitive Advantage
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9. (C) On anti-money laundering and combating the financing
of terrorism (AML/CFT),Deputy Secretary Kimmitt noted the
USG has taken a multilateral approach on technical issues via
the Financial Action Task Force (FATF),but also recognizes
there are important political aspects to these issues which
are best dealt with bilaterally. He said we had strong
concerns about Qatari funding of Hamas and other groups in
the Middle East, and he encouraged Qatar to think carefully
about the reputational risks of such funding to its growing
financial ambitions. He underscored that a good AML/CFT
system is a competitive advantage for a country like Qatar,

DOHA 00000782 003 OF 003


and U.S. investors often make this point to Treasury in
discussing investment options. Kamal responded that Qatar
has one of the best AML/CFT systems in the world - "because
we are boutique" - and has no shortage of people asking for
licenses. He added that while Qatar is trying to establish
itself as a financial center, the first priority of the Amir
and the GOQ remains education.

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Iraqi Debt a "Political Issue"
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10. (C) The meeting concluded with a brief discussion of
Iraq's debt held by Qatar. Kamal said the approximately USD
3 billion in outstanding loans to Iraq, not counting
interest, is "more a political than a technical issue."
Kamal said this subject needed to be addressed to Shaykh
Hamad. Kamal asked if the USG believes Iraq is using its
money in the right way. Deputy Secretary Kimmitt responded
that the GOI has a strong financial team and the Finance
Ministry and Central Bank are doing well. However, he
observed that Iraq is having trouble on budget execution, in
part because of a centralized legacy and the (good) controls
the Iraqis have put in place to stop corruption.

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No Need for Major Central Bank Actions
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11. (C) In a separate meeting, Deputy Central Bank Governor
Shaykh Fahad Bin Faisal Al Thani told the Deputy Secretary
the Central Bank has not taken any special actions during the
global financial crisis and continues to invest in the U.S.
dollar. In fact, Qatar had increased its holdings of
Treasury notes to 90 percent of reserves. The bank has also
continued to buy GSE mortgage paper, which is performing "ok
so far." Al Thani noted that the Central Bank had met
recently with local bank chairmen, offering to help with
liquidity problems, even though "most are fine and nothing is
wrong here." Still, the Ministry of Finance had increased
its deposits in local banks. Al Thani added that the GOQ is
making the same offer to foreign banks with local branches,
such as HSBC and Standard Chartered, and will help any bank
with liquidity problems as the need arises. Locally, the
main concern is the large drop in prices on the Doha
Securities Market (DSM).

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Monitoring of Iranian Financial Activity
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12. (C) Turning to AML/CFT issues, Shaykh Fahad (who heads
the GOQ's AML/CFT Committee) noted the bank regularly
receives "blacklisted names" (i.e., UN 1267 committee lists)
from Qatar's UN mission and also coordinates closely with the
U.S. embassy on AML/CFT matters. Local banks usually don't
have any relevant assets, but Qatar now has a live, online
bank reporting system in order that the FIU can monitor
transactions in real-time. He added that the QCB is
monitoring Iran's Bank Saderat more carefully than other
banks, including its deposits in other banks. Shaykh Fahad
noted the bank does not have many assets in Qatar and can be
monitored easily. While the QCB did allow the bank recently
to open a second branch based on an old license (Ref B),the
GOQ will not grant the bank a new license. Shaykh Fahad said
he is relatively more concerned about Iranian entities using
real estate investments as a way to hide or transfer money.
However, the Qatari Ministry of Justice recently investigated
these concerns and found no evidence of nefarious Iranian
behavior in the real estate market. He concluded by noting
that banks do not allow accounts for charities and that Qatar
has a separate authority to monitor their behavior (The Qatar
Authority for Charitable Activities).

LeBaron