SCENE-SETTER FOR THE SECRETARY'S MAY 28-30 VISIT

S E C R E T SECTION 01 OF 04 STOCKHOLM 000368

SIPDIS

FOR THE SECRETARY FROM AMBASSADORS WOOD AND CROCKER

E.O. 12958: DECL: 05/19/2018
TAGS: PREL PGOV EAID ECON SENV IZ SW
SUBJECT: SCENE-SETTER FOR THE SECRETARY'S MAY 28-30 VISIT
TO SWEDEN AND INTERNATIONAL COMPACT WITH IRAQ CONFERENCE

Classified By: Ambassador Michael M. Wood for reasons 1.4 (b) and (d).


1. (U) This is a joint Embassy Stockholm/Embassy Baghdad
message.

SWEDEN


2. (C) Madame Secretary, welcome to Sweden. You are the
first sitting Secretary of State to visit Stockholm since
Lawrence Eagleburger in 1992. The occasion is historic:
Sweden's hosting of the first post-Saddam meeting on Iraq to
be held in Europe. It marks a new era in Europe's
relationship with Iraq. Hosting the ICI conference
represents a major political and financial commitment for the
Swedish government. In meetings with Reinfeldt and Bildt,
you will have opportunities to thank them. We recommend you
also thank them for heading a PRT in Afghanistan, preview
priorities for Sweden's EU presidency the second half of 2009
-- including climate change -- and urge Sweden to make a
contribution to the Clean Tech Fund.

Reinfeldt's Government
--------------

3. (C) Prime Minister Reinfeldt leads a four-party
center-right governing coalition that, in 2006, turned out
the Social Democrats who had governed Sweden for most of the
20th century. The jockeying has already begun for the next
parliamentary elections taking place in 2010, with the
governing coalition lagging the Social Democrats. The focus
will remain on economic and job issues, although immigration
will also be on the docket. Most foreign policy issues,
including NATO relations, are not on the front burner.
Sweden is a strong NATO partner, with troops under NATO
command in Kosovo and in Afghanistan, where Sweden has 365
troops and leads a PRT. Reinfeldt has made clear that NATO
membership is not on the agenda for this electoral period and
would only be considered after 2010 if the Social Democrats
joined a broad consensus in favor.


4. (C) Reinfeldt has presided over a sea-change in our
bilateral relations, and your visit to Sweden is seen here as
one of the benefits of this change. Reinfeldt routinely
defers to Bildt on foreign policy issues. Following Bildt's
September 2007 trip to Iraq, Bildt said there was "a real
national and European interest in a stable and democratic
Iraq," adding that he believed "that the UN and the EU have a
more important role to play than we have seen so far." The
decision for Sweden to host the ICI was taken thanks to
Bildt, and over internal objections within the MFA and the
Swedish International Development Agency (SIDA). Several
retired Swedish diplomats have asserted that in hosting the
conference Sweden is legitimizing a U.S. "war of occupation,"
but the media and the leading opposition parties seem to be
withholding judgment until they see how it actually turns
out. We should thank Reinfeldt and Bildt -- and ask them to
do more. Sweden's foreign policy is assistance-driven, and
they can step up efforts in Iraq, putting a national flag on
key projects, as well as fostering broader involvement and
greater contributions from the EU and the UN.


5. (C) Sweden holds the EU Presidency during the last half
of 2009, and intends to focus on climate issues. Sweden
agrees with us on tightening U.S./EU positions in the UNFCC
negotiations, and advocates two goals for the COP-14 meeting
in Poznan: agreement on a longer-term (2050) aspirational
goal; and financing technology transfer, e.g., Clean Tech
Fund. Reinfeldt's office has indicated that he will raise
climate change during your May 29 meeting. Sweden strongly
supports the Kyoto Protocol, and cap and trade schemes for
limiting emissions, but recognizes that an effective
post-2012 agreement will require that the U.S. and China both
participate. Reinfeldt recently visited China and Japan and
urged both to support the next international climate change
agreement.

One Big Thing, Alternative Energy Cooperation
--------------

6. (C) My focus as Ambassador has been on cooperating with
Sweden to achieve a breakthrough in alternative energy -- an
effort that resonates here and has become positively branded
as One Big Thing. This cooperation has yielded many
benefits, including a USD five million investment by the
Defense Advanced Research Projects Agency (DARPA) in a
promising Swedish biofuel technology, the creation of a new
Fulbright Professor position in alternative energy
technology, and increased U.S. private capital investment in
Sweden's green technology sector. In June 2007, we signed a
bilateral Science and Technology cooperation agreement that
has become a framework for identifying promising alternative

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energy projects in both countries and matching them with U.S.
or Swedish government funds. Alternative energy cooperation
has also had a halo effect, changing the tone of the
conversation and making it easier for the Swedish government
to cooperate with the U.S. on other issues, such as Iraq.


7. (C) We should take the opportunity to seek broader
cooperation with the Swedes on climate change, which is at
the top of their agenda and where they can also be a positive
influence within the EU, the UN, and elsewhere. I recommend
asking Prime Minister Reinfeldt to have Sweden contribute to
the Clean Tech Fund.

The Swedish Connection to Iraq
--------------

8. (C) Sweden has a connection with Iraq -- over one percent
of Sweden's population of 9.1 million are Iraqis. Of these
more than 100,000 Iraqis, nearly 19,000 of them arrived as
asylees in 2007, representing about half of all Iraqis who
immigrated to Europe that year. This has led to criticism of
the U.S. for allegedly causing and then not doing enough
about the refugee problem, and of other European nations for
not taking in more refugees. Foreign Minister Bildt's visit
to Baghdad in September 2007 led to an agreement with Iraq on
repatriation, although repatriations are just a tiny fraction
of the total number of asylees. Some Iraqi-Swedes who
represent an earlier generation of refugees from Saddam,s
regime have returned to Iraq voluntarily; the Swedes tell us
they hear much Swedish spoken in the Kurdish areas. Iraqi
Foreign Minister Zebari has relatives in Sweden. Sweden
seeks to foster reconstruction efforts by the EU and UN that
will make return more attractive. Sweden has preparations
underway to open an embassy in Baghdad by August/September.

IRAQ

Political Climate in Iraq
--------------

9. (S) PM Maliki is still riding high following security
operations in Basra and Sadr City, in which he was able to
claim success in forcefully confronting the Jaysh al-Mahdi
and the Sadrist Trend (and by extension, Iran). While the
realities are far more complex, Maliki's image as a strong
and nationalist leader has been burnished, resulting in
new-found support from the majority of Iraq's other political
party leaders. The PM continues to trade on this new
positive atmosphere, recently launching an operation against
extremists in Mosul and pushing to secure Baghdad from armed
Shia militias. He is also working to capitalize on slowly
warming relations with Turkey and the Arab neighbors, who
fear growing Iranian influence in the region. Despite an
incipient sense of optimism, many challenges remain to ensure
effective national governance.


10. (S) Maliki has yet to return the Sunni Tawafuq bloc and
others to his government, leaving 17 of 36 ministries with
Acting Ministers. The Executive Council ("3-plus-1"),
including the 3 Presidency Council members and Maliki, has
met only sporadically and has yet to formalize a secretariat,
by-laws, or a list of key objectives drafted in January.
Nevertheless, continued support by the Kurdish bloc allows
Maliki to continue operating as normal, focusing foremost on
security issues. Focus in Parliament has turned to passage
of an elections law, a hydro-carbons framework law, and
internally disputed boundary issues. Recent passage of a
national budget, a De-Baathification law, and a general
amnesty have buoyed the political process somewhat, though
implementation issues remain contentious. In all, as PM
Maliki heads to Stockholm, he will be able to convey some
encouraging news on the home front, despite many enormous
remaining problems to be addressed.

Progress on ICI Benchmarks...
--------------

11. (U) Much work remains to be done to transition Iraq to a
fully secure, democratic country enjoying a functioning
market-based economy. But the GOI has made substantial
progress across many reform areas captured in the ICI's Joint
Monitoring Matrix (JMM). In Stockholm they will report
progress on internal reconciliation, noting in particular the
creation of a new National Commission for Reconciliation and
Dialogue, and passage of the de-Baathification law. They
will point to PM Malikis' successes generating government
wide consensus against militias as an example of promoting
reconciliation. They can rightly point to stepped up
international engagement over the last year, with
Iraq-related "Neighbors" meetings garnering good attendance,
the opening of the OIC office in Baghdad, and the convening
in Irbil of the Arab Parliamentary Union conference.

STOCKHOLM 00000368 003 OF 004


Unfortunately, no Gulf Cooperation Council states have yet
established Embassies here, despite numerous high level
approaches from the GOI and USG. In addition, the GOI has
made progress in developing new structures for the Defense
and Interior ministries, but progress professionalizing those
services has been slow.


12. (U) On the economic front, Iraq can point to a number of
solid advances, despite obvious setbacks such as the
assassination of the Finance Ministry DG responsible for
budgeting, and the burning of the Iraqi Central Bank.
Advances can be noted in monetary policy - the Central Bank
has brought core inflation down from 63 percent in 2006 to
about 12 percent today. Capital budget execution improved
throughout 2007, reaching at least 63 percent by the end of
the year, versus 22 percent executed in 2006. The GOI
managed the greatly improved 2007 execution rate despite
facing obstacles such as imposing an IMF-compliant Chart of
Accounts half way through the year and the continued absence
of the comprehensive financial management tool (the Financial
Management Information System -FMIS) which was put on the
back shelf when contractors implementing it were kidnapped
from the Ministry of Finance in early 2007. (Note: The
project was revived earlier this year by USAID and could be
ready to go live for all government transactions by the end
of the year. End Note.) The GOI is making progress
developing plans for careful, phased reform of the Public
Distribution System which provides most of the food and basic
commodities for poorer Iraqis. Oil revenues are up with
record-high world prices, which will give Iraq a budgetary
cushion to continue to step up its reconstruction while
reforming the hangover of state subsidies from the Saddam
era.

...Despite Tenuous Support for the ICI Across the GOI
-------------- --------------

13. (C) We like to say that the ICI is an "Iraqi owned and
operated process." However the reality on the ground is that
support for, and even understanding of the ICI within the GOI
is spotty at best. Many Iraqi government officials, when
they know anything at all about the ICI, simply view it as
another donor mechanism. As a result, for these people
buy-in to the ICI is contingent on the ICI continuing to
provide financial benefits for Iraq. In our efforts to
broaden GOI support for the ICI, rather than focusing on
additional donor pledges, we have worked with the GOI to use
the debt reduction commitments reiterated at the Sharm
el-Sheik meeting in May 2007 to generate further debt relief
agreements. Looking down the road, as more countries reach
such debt relief agreements we will need to demonstrate that
the ICI continues to provide utility to the GOI by ensuring
that foreign support for necessary Iraqi reforms is directed
at Iraqi priorities, as reflected in their National
Development Strategy, and that it makes most efficient use of
donor resources.


14. (C) To date, the Maliki government has not provided the
ICI structures with the level of support needed to ensure
that the GOI can fully live up to its ICI-related
commitments. Symptomatic of this is the incomplete
institutionalization of the ICI Secretariat, which is
currently a part of DPM Barham Salih's office. The
Secretariat remains hampered by limited personnel -- only
seven of a planned complement of 42 have been assigned; two
seconded from other offices. The Secretariat's current
office space is in a trailer adjacent to the parking lot of
the DPM's main office. Only one of three proposed
internationally funded advisors has been deployed, primarily
because local UNAMI staff (correctly) seek to encourage the
GOI to take real ownership of the ICI processes.
Notwithstanding that, the single UN-funded advisor drafted
the entire Annual Report, with inputs from the donor
community after a series of meetings convened by UNAMI in
January, complemented by limited inputs from the GOI itself
(see below). This does not reflect much progress in GOI
ownership of the process since last July, when a local World
Bank staffer drafted virtually the entire mid-term report.


15. (C) Many of Iraq's needed reforms are reflected in the
benchmarks of the ICI Joint Monitoring Matrix (the JMM). Yet
the political and personal rivalries that slow or block
progress in so many areas of Iraqi governance and reform are
also reflected in poor GOI support for ICI structures and
processes. The ICI Secretariat reports to DPM Barham Salih.
However virtually all of the activities reflected in the JMM
are implemented by other ministries. When Barham issued
instructions in January 2008 for ministries to convene the
ICI Thematic Working Groups (TWGs),to review progress and
begin drafting the Annual Report on Progress, only two TWGs

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met. The critical economic reform TWG, chaired by Finance
Minister Jabr, never met. By late March it was clear that
the Ministries were not going to convene the TWGs, so an
official at the Ministry of Planning and Development
Cooperation (MOPDC) took the initiative to convene an
informal inter-ministerial meeting to try to extract some
useful information to inform the Annual Report. Yet we
cannot count on the MOPDC for consistent support to the ICI,
since it manages the current funding streams under the IRFFI
trust funds. MOPDC staff at IRFFI meetings in Bari and
Naples as recently as December 2007 downplayed the
effectiveness of the ICI Secretariat and encouraged donors to
continue to use IRFFI mechanisms for their support.


16. (C) If the ICI is to succeed fully, a reinvigorated GOI
effort to stand up effective ICI support structures will be
necessary. It is not clear that the ICI Secretariat will
ever be effective if it is located in DPM Barham Salih's
offices. UNAMI Deputy Guy Siri told us recently that the UN
will propose a "structural realignment" of the ICI within the
GOI -- which we should support. The UN proposal is to embed
the ICI Secretariat in the Council of Ministers' Secretariat
(COMSEC). ICI Secretariat Dir. Dr. Hadi Hussein told us on
May 14 that "the GOI does not support the UN's proposed
structural alignment." It remains to be seen however whether
that was simply a Barham staffer's view or if it is a
considered GOI view.
WOOD