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
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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
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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
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15. (U) Please contact Michael Garuckis at (202) 647-0044 or
via e-mail for any necessary further background information
or with questions.
RICE