CHALABI OFFERS VIEWS ON IMPROVING IRAQ'S ECONOMY,

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002704

SIPDIS

E.O. 12958: DECL: 10/07/2029
TAGS: PGOV PREL ECON EFIN EINV IZ
SUBJECT: CHALABI OFFERS VIEWS ON IMPROVING IRAQ'S ECONOMY,
THE INA'S PLATFORM OF GOOD GOVERNANCE

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Classified By: Acting Deputy Chief of Mission Gary A. Grappo for reason
s 1.4 (b),(d).


1. (C) Summary. On October 6, A/DCM Grappo discussed with
Iraqi National Alliance (INA) member Ahmed Chalabi the poor
state of Iraq's private economy, the INA's campaign platform
of improving services and taming corruption, and his opinion
about Saudi Arabia and Iran. Chalabi opposed the Amendment
to the National Investment Law currently before parliament,
and offered ideas to spur foreign and domestic investment in
Iraq. He said the Sadrist Trend has moderated its political
views but still lacks competent candidates. Chalabi might
gain a position in the next government, but his checkered
past suggests his own interests will trump any patriotic
calling. End Summary.

Indebted Iraq Lacks Private Economy
--------------


2. (C) Chalabi said the proposed supplemental budget is
irresponsible because it is financed almost entirely by debt
and unrealistic expectations about revenue. He said
electoral politics is pushing the supplemental forward
because the Iraqi National Alliance (INA) is afraid PM Maliki
will blame them for denying additional money to Iraqi
farmers. Chalabi worried that if the Council of
Representatives (COR) passes the supplemental and another
poor budget in 2010, both the IMF and World Bank will deny
the government's request for loans of $5.5bn and $1-2bn,
respectively.


3. (C) Chalabi said Iraq's economy is "entirely socialist"
and the bureaucracy is "totally against private enterprise,"
making Iraq a classic rentier state that gains its wealth
only from hydrocarbons. He claimed that Iraq increased its
exports of oil above 2m barrels a day only because the Bayji
oil refinery mixes fuel oil with its crude, reducing the
overall quality. Iraq "crude" is often discounted in the oil
markets by as much as 20 percent, said Chalabi, because the
poor quality is well know among traders and buyers.


4. (C) Asked about the current investment bill the COR is
deliberating, Chalabi predicted the law will not work because
it falsely assumes foreign investment is eager to flow into
the domestic housing sector. (NOTE: If passed, the amendment
to the existing investment law would allow foreign land
ownership in Iraq for residential housing development. The
amendment would create a central land committee, led by the
National Investment Commission Chairman, that would identify
land designated for sale or lease and determine the terms of
remuneration for the controlling ministry. The amendment
would not allow foreign entities to engage in long-term land
ownership or speculation. End Note.) Instead, Chalabi
proposes stronger personal property rights coupled with a
government-funded commission that will offer guaranteed
subsidized housing loans from Iraqi banks. He noted that the
GOI owns 90 percent of Iraq's land--especially the Ministry
of Finance, Ministry of Municipalities and Publics Works, and
the Baghdad Mayor's Office--and Iraqi banks hold deposits but
make very few loans. The loan-deposit rate is only about 10
percent, he claimed. He further asserted that the government
controls more than 90 percent of the country's capital
available for financing.

INA to Focus on Services and Anti-Corruption
--------------


5. (C) The INA will campaign on a platform of anti-corruption
and providing services to contrast itself with the current
government's failures, Chalabi said. Forcing the corrupt
Trade Minister Sudani to resign was a positive step, but
QTrade Minister Sudani to resign was a positive step, but
Chalabi said he saw Sudani at a social function recently, an
indication that these charges are not taken seriously.
(COMMENT: Chalabi's emphasis on anti-corruption was ironic
given that he remains wanted by a Jordanian court for a
35-year sentence for fraud and embezzlement. End comment.)


6. (C) Chalabi warned that the old themes of advancing the
Shia faith will not work during the upcoming campaign because
the long-oppressed Shia no longer feel their religion is
threatened, as was the case in 2005. The INA has learned
that the long-term interest of the alliance is to demonstrate
it can govern well. Chalabi said the alliance has not yet
decided upon internal powersharing or leadership positions.

The Sadrists Have Moderated
--------------


7. (C) Chalabi said his new coalition partner, the Sadrist
Trend, have come to understand the damage they caused Iraq
through the Jaysh al-Mahdi (JAM). One example of how the
Sadrists have changed is that they have accepted an alliance

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with former archrival the Islamic Supreme Council of Iraq
(ISCI). However, the Sadrists will never forgive PM Maliki
for "systematically" routing the JAM in 2008 in Basrah,
Maysan and Sadr City, he said. When asked whether the
Sadrists have capable leaders, Chalabi flatly said "no" and
recalled that Sadrists ruined the Heath and Transportation
ministries. The Sadrists offshoot Asa'ib Ahl al-Haq (AAH)
led by Qais al-Khazali (currently in U.S. detention) and
brother Layth al-Khazali unsuccessfully tried to form a
competing party, but are now trying to make amends with the
Sadrists, Chalabi said. Chalabi also advised that the
Sadrists still are not prepared to meet with U.S. Embassy
officers. Most would actually want to meet but are fearful
of angering Muqtada al-Sadr. After A/DCM emphasized the
Embassy's continuing interest in meeting with Sadrist
representatives, Chalabi chortled, "Don't worry, you're not
missing much."

Outlook on Iran and Saudi Arabia
--------------


8. (C) Chalabi predicted that the Iranian government is about
to ease its position on nuclear enrichment because it wishes
to avoid confrontation with the United States. Tehran is
largely motivated by the need to loosen economic sanctions
that have crippled its domestic industry. Chalabi added that
after a series of catastrophic air accidents over the last
few years, the Iranian public is increasingly frightened that
its domestic airplanes are unable to receive the parts needed
to fly safely. He told A/DCM that relations with Saudi
Arabia were unlikely to improve in the near term because
Riyadh holds out hope that Iraq could once again be "ruled by
a Sunni-dominated Army." Chalabi denied that under an
INA-led government, relations with Arab states would worsen
because the INA and governments like Saudi Arabia share a
common enemy--terrorism inspired by takfiris (extremist
Muslims claiming others to be non-believers).


9. (C) Comment. Since faring remarkably poorly in the 2005
national election, Chalabi has managed to survive through
bureaucratic skill and acknowledged intelligence. But he has
also tried to ingratiate himself to the Iranian government in
the hopes of finding a patron for his political future since
he has no domestic political base on which to rely. Iraqi
colleagues might utilize him in the next government because
of his technocratic and economic insights, but the
controversial Chalabi will likely look after his own
interests first, not Iraq's. End comment.
HILL