PRIME MINISTER'S ECONOMIC GATEKEEPER ON GOVERNMENT

C O N F I D E N T I A L RABAT 000201 SIPDIS SIPDIS E.O. 12958: DECL: 03/03/2018 TAGS: ECON EFIN PGOV ASCH MO SUBJECT: PRIME MINISTER'S ECONOMIC GATEKEEPER ON GOVERNMENT PRIORITIES Classified By: Ambassador Thomas T. Riley for reasons 1.4 (b) and (d). ¶1. (SBU) Summary: Minister-Delegate for Economic and General Affairs Nizar Baraka set out an ambitious governmental economic agenda in his first public speech at the end of February. The government, he said, would focus on increased and "qualitatively different" growth through increased investment and intensification of the country's improvement of its basic infrastructure. Separately, during a courtesy call by the Ambassador, Baraka spoke frankly about other challenges facing Morocco, including corruption and the increasing cost and widespread misuse of government subsidies for basic commodities. In response to the Ambassador's request, Baraka also agreed to weigh in on our efforts to secure an agreement governing the five State Department-supported American schools in Morocco. End Summary. ¶2. (U) A "New" Economic Policy: In a February 26 address, his first since entering the cabinet, Baraka outlined a "new" economic policy that seeks to bring increased and "qualitatively different" economic growth, support economic actors in Morocco, and spur job creation. Means to these ends include a "new impulsion" to Morocco's large infrastructure projects, a doubling of investment, and continuation of improvements to Morocco's transportation infrastructure. Other priorities include continued emphasis on "social housing," increasing the public's purchasing power through tax reform and lowering of both Morocco's high marginal tax rates on income and its value-added tax. He pledged that the government would continue to support the price of basic commodities, but added that the system requires extensive reform. Implicitly recognizing Morocco's lack of competitiveness, Baraka argued that increasing attention needs to be given to Moroccan exports, and not to "internal demand." He called for commercial and tariff reforms, as well as a more flexible exchange rate regime. ¶3. (C) During a courtesy call by the Ambassador earlier on the same day, Baraka elaborated on several of these points, stressing that Morocco is in a "take-off" period when it needs to support small and medium-sized enterprises and build confidence in the economy. In response to a question from the Ambassador, Baraka also explained in detail the government's plans to combat the widespread problem of corruption. He conceded that corruption has "always" been a problem in Morocco. Societal tolerance of the phenomenon, he argued, stems both from the "sense of impunity" that exists in the public sector, and more generally from the fact that despite recent economic gains, "the country's social elevator" is not working, and people see no other way to get ahead. He likened corruption to other social ills, as when a poor taxi driver "lets his wife prostitute herself" by accepting money she brings into the household without asking about its source. ¶4. (C) Baraka outlined a multi-pronged governmental approach to tackling the issue. Legislation will force all Ministers and other high-ranking officials to set an example by declaring their personal assets on entering public service, and thereafter at two-year intervals. These declarations will be followed-up through the Cour des Comptes (Morocco's General Accountability Office). A new anti-corruption agency will be set up in the next two months, which will collect and pursue complaints. The government will also simplify and streamline administrative procedures and reduce the bureaucracy's "discretionary power." Thus the new national identity card will be used for multiple administrative functions, and Moroccans will no longer need to obtain separate birth certificates, voting cards, or residence papers. In addition, requirements will be better publicized, so that applicants know upfront what is required in order to carry out specific operations. The final step, Baraka concluded, will be a shift in focus from the payer of bribes to the recipient, so that in future whistleblowers will no longer expose themselves to potential punishment. ¶5. (C) In response to the Ambassador's inquiry about whether the government plans to increase civil service salaries, another widely perceived factor in corruption, Baraka conceded the problem. He said, however, that the need to maintain macro-economic stability limits what the government can do, since significant progress has been registered in recent years in better balancing expenditures and receipts, and that success cannot be jeopardized. He said that the government is looking at a long-term strategy that will permit gradual salary increases on a regular basis, so that it can both reduce the incentive towards corruption and avoid past cycles of no increases, followed by strikes and significant hikes. ¶6. (C) On other topics, Baraka confirmed that the government is studying the question of reform of Morocco's Compensation Fund, which subsidizes the price of basic commodities, including sugar, bread and wheat, fuel, and butane gas, given that the expense of the Fund has ballooned to 20 billion MAD in this year's budget. Baraka argued that the key is to ensure that these subsidies are properly targeted, and he cited the example of butane gas tanks intended for poor households that an increasing number of industries now use, given the fact that the government subsidizes over half their cost. Baraka contrasted the shortcomings of the system with the "effectiveness" of housing subsidies for low-income families, which hold down housing costs through a limited government investment. He also stressed that this support, like the Compensation Fund, functions as an "indirect salary" support, so that those who complain that their salaries have not kept up with inflation are not telling the whole story. ¶7. (C) Regarding overall coordination of government economic policy, Baraka described a system where the Primature has worked with Ministries to set targets in specific program areas, and is now developing a monitoring and implementation system to ensure that those priorities are realized. The Prime Minister meets monthly with all economic ministers, he said, for an udpate on their progress. The goal, he said, is to enable Ministers to set the pace and prevent them from becoming hostages of their respective administrations. ¶8. (SBU) Bilateral Priorities: During the meeting, the Ambassador and Baraka also reviewed two key U.S. priorities: conclusion of an agreement governing the status of the five State Department-supported American schools in Morocco, and implementation of the U.S.-Morocco Millennium Challenge Account Compact. Baraka, who was deputy head of the Moroccan team that developed the Compact in his earlier incarnation at the Ministry of Finance, said the government is moving swiftly to recruit a director for its implementing agency. Once this is completed, he expected other actions to fall into place. On the schools, he agreed to review the Embassy's revised proposal, and to engage with his ministerial colleagues to help move the dossier forward. He noted the complications that have resulted from differences among the schools, and from a desire to avoid setting a precedent that would touch other schools, particularly private Moroccan institutions and the French and Spanish school systems. ¶9. (C) Comment: Baraka is one of Istiqlal's rising political stars, his status helped by but not entirely dependent on the fact he is the Prime Minister's son-in-law and trusted confidant. In the meeting, he displayed impressive familiarity with the range of issues confronting the government in the economic sphere, essentially confirming his role as the PM's "gatekeeper" on such matters, with responsibility for coordinating and monitoring the government's economic policy. The challenge for him and for the El Fassi government is to show that it can produce before political pressure forces a change in government. End Comment. ***************************************** Visit Embassy Rabat's Classified Website; http://www.state.sgov.gov/p/nea/rabat ***************************************** Riley