INSTRUCTION: USUN TO SOLICIT P3 VIEWS ON DRAFT

C O N F I D E N T I A L STATE 126923 SIPDIS USUN FOR GERMAIN AND KUJAWINSKI E.O. 12958: DECL: 12/01/2033 TAGS: PREL UNSC IZ SUBJECT: INSTRUCTION: USUN TO SOLICIT P3 VIEWS ON DRAFT RESOLUTION CONCERNING UN ARRANGEMENTS FOR THE DEVELOPMENT FUND FOR IRAQ (DFI) REF: A. STATE 123985 ¶B. CATALANO-GERMAIN EMAIL OF 11/26/08 Classified By: IO PDAS James Warlick. Reason 1.4 (b) and (d). ¶1. (C) This is an action request. Department requests USUN present to French and British representatives no later than December 3 the proposed draft UNSC resolution to extend arrangements and immunities associated with the Development Fund for Iraq (DFI),Iraq's oil and gas exports, and revenues in para 14 below. USUN should draw from the background in paras 4-12 in delivering this demarche. OBJECTIVES -------------- ¶2. (U) Objectives: USUN should pursue the following objectives: -- Share draft resolution in para 13 below with the Missions of the UK and France in NY. -- Urge UK and France to support the resolution to maintain progress in Iraq's economic development and reconstruction, and help preserve the fragile security gains. -- Discuss a strategy for introducing this resolution to the Council drawing on the background in para 4 below. REPORTING DEADLINE -------------- ¶3. (U) USUN should report the results of this demarche by December 4. BACKGROUND -------------- ¶4. (C) Department understands that the GOI will soon produce a letter requesting an extension of arrangements and immunities associated with the Development Fund for Iraq, Iraq's oil and gas exports, and subsequent revenues. While we have not yet received this letter, we expect it shortly and, considering the USG commitment under Article 26 of the U.S.- Iraqi Security Agreement to assist in connection with such a request, think it prudent to begin discussion of a possible UNSC resolution to continue arrangements and protections for such Iraqi assets. ¶5. (C) Continued stability in Iraq is in part reliant on the GOI's ability to provide its citizens with basic services. This, in turn, is directly related to the success of Iraqi efforts to continue reconstruction and economic recovery activities. ¶6. (C) Because of a significant diminution in Iraqi oil revenues, with export prices falling 60 percent since July, the amount of funds becoming available to the Iraqi government for reconstruction activities has markedly 
decreased. The amount is further restricted by a rapid expansion of the Iraqi security budget (now in excess of 11 billion USD). These factors suggest that petrocarbon-based reconstruction funding, in and of itself, will be insufficient to build the infrastructure necessary to sustain the gains achieved to date in Iraq. Increasing Iraq's exposure to legal attachments or asset seizures would hinder Iraq's ability to address reconstruction and economic development issues in support of stability. ¶7. (C) Iraq currently holds financial reserves in DFI accounts in the United States totaling roughly 50 billion USD. Of this amount, about 30 billion USD represents Iraq's official foreign exchange reserves, which must remain available to Iraq's central bank in order to combat inflation and stabilize Iraq's currency (the Dinar). The remainder of about 20 billion USD represents a fiscal or budgetary reserve. This amount is equivalent to less than six months of governmental operating costs and would be barely enough to finance the projected Iraqi budgetary shortfall for 2009. ¶8. (C) Thus, continuing the DFI arrangements (including immunities) is necessary for Iraq to build upon its reconstruction efforts, develop its still fragile economy, and consolidate gains in security to sustain national and regional peace and stability. ¶9. (C) The Department assesses that other states, including Costa Rica, Indonesia, and France, will predicate their support for a DFI extension only if it is characterized as temporary and transitional. Iraq will need to make a persuasive case as to how potential asset seizures could threaten reconstruction and thus stability. ¶10. (C) Support will also certainly rest on the GOI's ability to generate good will among UNSC members. This would include: (1) Iraq making a full and fair contribution to the costs of UNAMI's new Baghdad compound; (2) settling all outstanding Oil-for-Food claims; and (3) meeting Kuwait under the auspices of the UN Compensation Commission (UNCC) on the future of the remaining UNCC claims and payments. ¶11. (C) The Department also thinks that overcoming Russian concerns will be crucial. The Russians signaled informally last June their discomfort with a Chapter VII resolution for DFI only. The Iraqi Government has, however, told Embassy Baghdad recently that Russians will be supportive. Because of the high involvement of Russian firms in the Oil-for-Food program, resolving outstanding Oil-for-Food claims will likely be of great interest to the Russian government. ¶12. (C) The Department believes that COUNCIL members should also look at an extension of DFI arrangements as a way of maintaining transparency and accountability for Iraqi national finances. The GOI's request will include continuation of the International Advisory and Monitoring Board to oversee and audit the DFI. Extending the requirement that Iraq's oil and gas revenues (and any stolen Saddam-era assets recovered) be deposited into the DFI provides an essential mechanism for ensuring that Iraq continues to meet its obligation to pay five percent of oil revenues to the UNCC. ¶13. (SBU) Our preferred timeline follows: -- 2/3 December: Introduce draft resolution to P3 (Action: USUN) -- 4 December: GOI request letter to UNSC (Action: GOI) -- 5 December: Demarche to P5 capitals (Action: State) -- 5/8 December: Introduce draft to full P5 and rest of Security COUNCIL Members (Action: USUN) -- 8 December: Possible demarche to other Member capitals (Action: State) -- 8-12 December: Lobby Members/possible briefing (Action: USUN and GOI) -- 17 December: Resolution scheduled for adoption by UNSC (Action: USUN) -- 19 December: Drop dead date for resolution adoption at the UNSC. ¶14. (C/REL GBR, France) Draft resolution text follows: The Security Council, Welcoming the progress of the democratically elected, constitutionally based, national unity Government of Iraq in fulfilling its detailed political, economic, and security agenda, Recalling all of its previous relevant resolutions on Iraq, Reaffirming the independence, sovereignty, unity, and territorial integrity of Iraq, Reaffirming also the right of the Iraqi people freely to determine their own political future and control their own national resources, Recognizing that international support for security and stability is essential to the well-being of the people of Iraq as well as the ability of all concerned, including the United Nations, to carry out their work on behalf of the people of Iraq, and expressing appreciation for Member State contributions in this regard under resolution 1483 (2003), resolution 1511 (2003),resolution 1546 (2004),resolution 1637 (2005),resolution 1723 (2006),and resolution 1790 (2007); recognizing also that Iraq, building on such efforts, is in the process of entering into bilateral mechanisms and arrangements, through which the Government of Iraq will, in the future, be assisted in providing security for the people of Iraq; Recognizing continuing progress under the International Compact with Iraq, an initiative of the Government of Iraq that has created a new partnership with the international community and is building a strong framework for Iraq's continued political, security and economic transformation and integration into the regional and global economy, as reaffirmed in the Stockholm Declaration of May 29, 2008, and welcoming the important role that the United Nations is playing by jointly chairing the Compact with the Government of Iraq, Calling upon the international community, particularly countries in the region and Iraq's neighbors, to support the Iraqi people in their pursuit of peace, stability, security, democracy, and prosperity, welcoming the expanded Neighbours Conference on April 22, 2008, working groups and the establishment of a secretariat on regional engagement with support from the UN, and noting that the successful implementation of this resolution will contribute to regional stability, Recognizing the significant role of the Development Fund for Iraq and the International Advisory and Monitoring Board and the provisions of paragraph 22 of resolution 1483 (2003) in helping the Government of Iraq to ensure that Iraq's resources are being used transparently and equitably for the benefit of the people of Iraq, Recognizing the request conveyed in the letter of (X) December 2008 from the Prime Minister of Iraq to the President of the Council, which is annexed to this resolution, to retain the arrangements for the Development Fund for Iraq and the International Advisory and Monitoring Board, recognizing also the objective set forth in that letter of resolving its outstanding legacy of international debts and claims stemming from the previous regime, Recalling the establishment of the United Nations Assistance Mission for Iraq (UNAMI) on 14 August 2003, and affirming that the United Nations should continue to play a leading role in supporting the efforts of the Iraqi people and Government to strengthen institutions for representative government, promote political dialogue and national reconciliation, engage neighboring countries, assist vulnerable groups, including refugees and internally displaced persons, and promote the protection of HUMAN RIGHTS and judicial and legal reform in accordance with resolution 1770 (2007) and resolution 1830 (2008), Recognizing that the Government of Iraq will continue to have the leading role in coordinating international assistance to Iraq and reaffirming the importance of international assistance and development of the Iraqi economy and the importance of coordinated donor assistance, Recognizing that terrorists and insurgents continue to threaten the peace and stability of the Iraqi people and the broader region, destabilize economic reconstruction and humanitarian assistance, and undermine the concerted efforts of the Iraqi government to promote reconstruction and stability, Determining that the situation in Iraq continues to constitute a threat to international peace and security, Acting under Chapter VII of the Charter of the United Nations, -- Decides to extend until 31 December 2009 the arrangements established in paragraph 20 of resolution 1483 (2003) for the depositing into the Development Fund for Iraq of proceeds from export sales of petroleum, petroleum products, and natural gas and the arrangements referred to in paragraph 12 of resolution 1483 (2003) and paragraph 24 of resolution 1546 (2004) for the monitoring of the Development Fund for Iraq by the International Advisory and Monitoring Board and further decides that, subject to the exception provided for in paragraph 27 of resolution 1546 (2004),the provisions of paragraph 22 of resolution 1483 (2003) shall continue to apply until that date, including with respect to funds and financial assets and economic resources described in paragraph 23 of that resolution; -- Decides further that the provisions in the above paragraph for the deposit of proceeds into the Development Fund for Iraq and for the role of the International Advisory and Monitoring Board and the provisions of paragraph 22 of resolution 1483 (2003) shall be reviewed at the request of the Government of Iraq or no later than 15 June 2009; -- Decides to remain actively seized of the matter. End resolution text. POINT OF CONTACT -------------- ¶15. (U) Please contact Michael Garuckis at (202) 647-0044 or via e-mail for any necessary further background information or with questions. RICE