WFP LOOKS TO TAKE ON CORRUPTION IN THE IRAQI

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 001378 SIPDIS E.O. 12958: DECL: 05/25/2019 TAGS: ETRD PREF KCOR EAID EAGR ECON WFP IZ SUBJECT: WFP LOOKS TO TAKE ON CORRUPTION IN THE IRAQI PUBLIC DISTRIBUTION SYSTEM REF: A. BAGHDAD 1308 ¶B. BAGHDAD 1176 ¶C. 08 BAGHDAD 3680 BAGHDAD 00001378 001.2 OF 002 Classified By: Ambassador Christopher R. Hill for reasons 1.4 (b,d). ¶1. (C) SUMMARY: The GOI has asked the World Food Program (WFP) to help it devise a plan to reform its inefficient and corrupt Public Distribution System (PDS). But what the GOI may not have bargained for in making the request is WFP's intention to challenge the PDS's intensely corrupt procurement chain. END SUMMARY. The GOI's Plan for WFP -------------- ¶2. (SBU) WFP Country Director Edward Kallon called on Ambassador May 23 to request USG policy support for WFP's efforts to help the GOI reform its bulky and inefficient food ration program, the Public Distribution System (PDS). PDS reform -- to include means testing beneficiaries, reducing the rolls, and eventually monetizing the program -- has long been a key component of Iraq's commitments to the international community. PDS now consumes USD 5.3 million (or 10 percent) of the GOI's budget. It also distorts domestic commodity markets and offers myriad opportunities for corruption (Reftel A). However, the GOI -- in particular the Ministry of Trade (MOT),which manages PDS -- has been dragging its feet on reform for years, citing the sensitive political issues that would accompany tampering with delivery of a very visible social benefit, as well as the important role the food commodities plays in stemming food insecurity among vulnerable Iraqis (Reftel C). ¶3. (SBU) According to Kallon, the GOI made three specific PDS-related requests when WFP began to revitalize its programs here a year ago: (1) help realign the PDS to better serve vulnerable Iraqis; (2) devise a system to integrate PDS into a broader social safety net program; and (3) help Iraq re-establish its agricultural base. Based on these requests, WFP is already providing food assistance to internally displaced persons (IDPs) who cannot access their PDS rations; is exploring the possibility of "topping up" food rations to widows, female-headed households and other vulnerable Iraqis; and is looking into offering limited school feeding in some areas. Tackling Supply Chain Corruption -------------- ¶4. (C) While WFP is pleased to be once again offering its "traditional" programs, Iraq still faces two very serious institutional challenges. First, there is no GOI disaster response agency designated to respond to crises and to manage international donor assistance. Second, the PDS is "enormously corrupt," and rather than showing a real willingness to reform, the Iraqis are actually "very arrogant about it," Kallon said. The wider grouping of UN agencies and donor countries needs to address the former challenge with the GOI, but WFP feels itself well-placed to tackle the latter. ¶5. (C) Corruption schemes are rampant at all levels of the PDS's distribution network, which includes procurement, transport, grain milling, warehousing and delivery to small shop owners for final distribution to families; However, within this cumbersome process, Kallon identified the procurement chain as the point at which the most egregious abuses take place. WFP is aware of examples in which PDS procurement officials purchase high quality commodities (such as U.S. or Canadian wheat) and then substitute it with rotten or sub-standard products -- in some cases actually swapping the products at sea, Kallon said. They subsequently sell the quality products, and provide the unfit goods to the public. Qquality products, and provide the unfit goods to the public. Another scheme involves simply procuring inedible products directly and receiving KICKBACKS from the suppliers. (NOTE: We reported on this scheme in Reftel A. END NOTE.) ¶6. (C) One means of stemming this corruption, Kallon suggested, would be to institute WFP's Institutional Procurement Mechanism (IPM),a program used in several countries whereby WFP takes over the main procurement chain functions. Currently, WFP does not have the resources to implement IPM for the entire Iraqi PDS, which is widely believed to be the world's largest food ration program. In addition, WFP expects MOT and perhaps other GOI officials to staunchly oppose WFP's involvement, recognizing that an added measure of transparency might prove embarrassing -- and directly impact certain officials' standard of living. ¶7. (C) For these reasons, Kallon proposed starting small. Initially WFP would take on only the procurement of BAGHDAD 00001378 002.2 OF 002 commodities destined to Iraq's most vulnerable beneficiaries -- roughly 30 of the procurement chain. Focusing on vulnerable Iraqis would not only fall directly within WFP's mandate, it would also make it easier to sell the concept to skeptical senior GOI officials -- especially during an election year. Then later, Kallon predicted, once elected officials began to see the improved efficiency and transparency the IPM can bring, they might become more willing to expand its use -- and perhaps even get more serious about broader PDS reform. Comment: The Time Could be Right -------------- ¶8. (C) WFP's plan to take on the entrenched corruption within the PDS is ambitious, to say the least. But the time may indeed be right. The recent spate of arrests within the MOT, the Minister's grilling before the Parliament and his subsequent May 25 resignation have focused public and GOI attention on PDS corruption. In the wake of these developments, WFP's intervention could give Prime Minister Nouri Al-Maliki something concrete to point to as he increases his anti-corruption rhetoric (Reftel B). Still, WFP will need strong political support from donors for this initiative. Maliki's challenge will be to put an Iraqi face on a multi-lateral donor's program, at a time when he is telling the world that his government is up to the challenge of running the country. END COMMENT. HILL