DEPUTY SECRETARY KIMMITT,S MEETING WITH SAUDI

C O N F I D E N T I A L SECTION 01 OF 03 RIYADH 001663 SIPDIS E.O. 12958: DECL: 10/25/2018 TAGS: EFIN ECON EINV PREL EPET KIPR SA SUBJECT: DEPUTY SECRETARY KIMMITT,S MEETING WITH SAUDI FINANCE MINISTER IBRAHIM REF: RIYADH 1630 Classified By: CDA David Rundell for reasons 1.4 (b) and (d) -------------- Summary -------------- ¶2. (C) In a meeting with Treasury Deputy Secretary Robert Kimmitt on October 25, Saudi Finance Minister Ibrahim al-Assaf predicted growth in the Saudi economy through 2009; requested details about the progress and effectiveness of the USG Emergency Economic Stabilization Act (EESA); thanked the USG for working to broaden participation at the November 15 Summit on Financial Markets and the World Economy; and, expressed concerns about omens of capital controls emanating from Europe. Ibrahim also stressed the importance of IPR protection and sketched the Kingdom,s economic/aid relations with various developing countries. The DepSec said that United States, strong fundamentals like low inflation and productivity gains augur well for the mid- to long-term, but short-term liquidity problems demand immediate attention. Kimmitt stressed the need to avoid 'soft spots' in the financial system that could be exploited by illicit financiers. He urged Pakistan,s friends to help if Pakistan seriously implements an IMF package and advised keeping sovereign wealth fund (SWF) and state-owned enterprise (SOE) investments separate. End Summary. -------------- Saudi Economy in Good Shape -------------- ¶3. (C) Saudi Arabia Finance Minister Ibrahim faces challenges but expects healthy growth throughout 2009, albeit at a somewhat lower rate than 2008 because of decreased oil sector revenues. The financial sector, including the mortgage and debt markets, is in good shape. Credit is getting tight, due partly to the demands of huge infrastructure projects that the Kingdom has launched. The Saudi stock market (Tadawul), however, has not been spared. Ibrahim opined that this outline holds for the other Gulf economies as well, but to different degrees. -------------- Ibrahim,s Three Questions -------------- ¶4. (C) The Finance Minister raised three chief questions: -- When does the USG,s credit from the EESA start reaching the real economy? -- How does the DepSec assess the impact of the financial turmoil on the real economy? -- What issues are on the agenda for the G-20 Leaders Conference? 
 ¶5. (C) The DepSec said that the first funds, under strict conditions, should reach the largest nine banks by the end of October, with another tranche going to large regional banks and financial service firms in November, followed by a purchase of troubled assets. As for the real economy, the DepSec said that strong fundamentals like low inflation and productivity gains augur well for the mid- to long-term, but short-term liquidity problems demand immediate attention. Regarding the proposed Leaders Conference, agenda items might include establishing principles for future action. The idea for the meeting came from the Europeans, who originally proposed a narrow G-8 plus O-5, but eventually agreed to a G-20 format after USG calls for broader representation. -------------- Representation at the G-20 -------------- ¶6. (C) Ibrahim thanked the USG for broadening participation in the Conference. He expressed surprise at what he called European capitals, 'colonial' reaction to global issues. He agreed that participation in future conferences should be a topic in November. Ibrahim indicated he would convey the need for patience in the GCC Finance Ministers meeting later that day. Drawing an analogy with decisions on IMF quotas, RIYADH 00001663 002 OF 003 Ibrahim said representation in such international fora should go to those that show their willingness to bear an active contributory role. -------------- Capital Controls -------------- ¶7. (C) Ibrahim expressed his concern about omens of capital controls coming from Europe. The French, German, and Italian Economic Ministers recently dismissed various nascent pieces of legislation as just 'guidelines.' Ibrahim noted pointedly that Saudi Arabia has other investment options, including India, China, and Africa. He beamed about Africa,s improved investment climate, 'especially in the agricultural sector.' ¶8. (C) Ibrahim said he was 'upset' by the one-sided nature of the 'Santiago Principles,' which put the onus on fund donors, while overlooking the duties of fund recipients. More balance is needed. The DepSec agreed on the need for balance and pointed to the OECD principles for recipient countries in June. He will address this point in remarks to be delivered in Dubai. ¶9. (C) Ibrahim said Saudi Arabia is considering a Sovereign Wealth Fund starting with about $6.3 billion in capital. He said it would be managed by the Ministry of Finance Public Investment Fund (PIF) and would invest both abroad and domestically. It would channel investment to areas of added value like high technology. It is still undecided where the funds would be situated. Ibrahim said he welcomed the DepSec,s advice to keep SWF and SOE investments separate and was happy that Saudi Basic Industries Corporation (SABIC) had been able to acquire GE Plastics without serious difficulty. -------------- IPR Protection -------------- ¶10. (C) The Finance Minister praised the 'First Arab Consumer and Brand Protection Forum' that was held in Jeddah October 19 - 21 (Reftel). Ibrahim said he would instruct the Customs Authority to hold such conferences on an annual basis. He agreed fully with the DepSec and Ambassador that strong IPR protection, including for patents, is essential to spur innovation and attract investments. Saudi products, Ibrahim noted, are also pirated in China. -------------- Sound Financial System -------------- ¶11. (C) When the DepSec stressed the importance of keeping money launderers, terrorists, and other illicit financiers from exploiting 'soft spots' in the financial structure, Ibrahim concurred but suggested engaging on such issues at the Saudi Monetary Authority (SAMA) and the Ministry of Interior. -------------- Pakistan -------------- ¶12. (C) The DepSec said Pakistan,s friends like the United States and the Kingdom, following the lead of international development banks, should consider helping if Pakistan agrees to, then seriously begins implementing, an IMF program. Ibrahim decried the 'confusion' over the six billion dollar assistance package, which the Saudi leadership never agreed to. Rumors in the Pakistani press to the effect that Saudi Arabia wants 'land concessions' in Pakistan are 'ridiculous,' and reflect poorly on Pakistan,s leadership. -------------- Iraq -------------- ¶13. (C) Saudi Arabia is watching Iraq very closely, Ibrahim said. The MoF needs to reach an understanding with Iraq on a precise breakdown on what is owed and 'will leave the politics to others.' The Kingdom will be flexible. The MoF point man for Iraq is Deputy Finance Minister Dr. Hamad Al-Baz,y. Ibrahim noted darkly that Iraq needs to 'watch out for the East' and ferment in its own population. RIYADH 00001663 003 OF 003 -------------- -------------- Lebanon, Palestinian Authority, Afghanistan -------------- -------------- ¶14. (C) Turning to other regions of common interest, Ibrahim said Saudi Arabia is working on its commitments in the power sector in Lebanon. As for the Palestinian Authority, the Kingdom provided the equivalent of $100 million three to four months ago, and also disburses roughly $7.7 million per month under the auspices of the Arab League to a PA government account. Tony Blair has been in contact regarding small projects. The DepSec said some U.S. firms are eager to invest in the West Bank, and he noted that technology could reduce delays at transit points to help speed commerce but also address Israel,s legitimate security concerns. Ibrahim said the Ministry of Finance is not directly involved in Afghanistan. ¶15. (U) Deputy Secretary Kimmitt,s delegation has cleared this cable. RUNDELL