IRAQ - 2010 BUDGET ISSUES: INITIAL VIEW FROM THE

UNCLAS BAGHDAD 003049 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN ECON IZ SUBJECT: IRAQ - 2010 BUDGET ISSUES: INITIAL VIEW FROM THE COR REF: BAGHDAD 3028 ¶1. (SBU) Summary: On November 16, the Chairman of the Council of Representatives' (CoR) Finance Committee discussed issues in the draft 2010 budget with Emboffs. She confirmed the Committee is trying to get final CoR passage of the budget before mid-December so it can be signed by the Presidency Council and published in the Gazette by the end of the year. Contrary to the Committee's preliminary report, she stressed that the Finance Committee agrees that the Ministry of Finance (MoF) should be authorized in the budget law to borrow from the International Monetary Fund (IMF) and World Bank if necessary to cover a financial gap. The passage suggesting that this authority be deleted was inserted by a consultant as the report was rushed to the CoR for its second reading. She would like to use the Committee's report on the legislation to inform CoR members of the conditions under which the MoF would borrow and the policy measures required under these programs. While the KRG share of budgeted expenditures will remain at 17 percent, she suspects that certain KRG-related issues in the proposed budget are likely to spark debate. The Chair recognizes the need for the CoR to pass the 2010 budget in early December so the GOI will have a new budget in 2010 rather than operating on a continuing resolution. As the second reading was concluded on November 17, the next step will be the final vote. End Summary 2010 Budget and IMF ¶2. (SBU) Emboffs and the local World Bank manager of the Public Finance Management project met with the Chair of the Finance Committee, Ms. Ala'a A. Alsadon, to gain her views on potential issues with respect to the 2010 proposed budge. She immediately raised the commentary in the Committee's preliminary report to the CoR proposing deleting the provision that would authorize the MoF to borrow from the IMF and World Bank. She claimed that the provision had been inserted by a consultant as the report was rushed to the floor for the CoR's second reading of the budget. The Committee does not agree with the language and it will not be included in the Committee's final report. Ms. Ala'a said that she had discussed the issue with the Finance Minister and the Deputy Governor of the Central Bank and that the Committee would retain the original language as submitted by the MoF to authorize the borrowing. The Minister assured her that the MoF would borrow only if needed to finance the programmed 2010 budget deficit. ¶3. (SBU) Ms. Ala'a reported that some CoR members were concerned about possible conditions for the loans that could adversely affect the Iraqi people, such as terminating the public distribution system (PDS). The World Bank rep assured her that measures envisaged with respect to the PDS were not different from the Committee's own objectives, e.g. a political statement about the need for the PDS to be more targeted to meet the needs of the truly poor. The World Bank rep suggested that she obtain the list of policy measures from the MoF, noting that the measures are set but would not be considered final until the loan agreement is signed with GOI authorities. The Chair said that her idea is to include the policy measures and the conditions under which the MoF would borrow from the Bank and the Fund in the Committee's final report. This, she thought, would assuage concerns of some of the parliamentarians. KRG in the Budget ¶4. (SBU) Ms. Ala'a confirmed that the proposed 2010 budget provides for 17 percent of expenditures to be transferred to the KRG, net of national expenses, as last year. The 2010 Qthe KRG, net of national expenses, as last year. The 2010 proposed budget contains some provisions that are likely to draw the attention of the Kurdish CoR members. For example, the budget proposes that the Minister of Finance be permitted to deduct the cost of damages caused by a region or province as a result of not delivering crude oil to the Ministry if Oil for export or domestic consumption. In addition, the MoF includes the cost of the Bakhman dam in KRG's expenditures even though the dam will benefit the entire country, not just the Kurdish areas. According to Ms. Ala'a, the first measure is already being studied in another context and should not be included in the budget. With respect to dam costs, she believes those should be included as a national expenditures, not KRG expenditure. (Comment: Her strategy seems to be to avoid these controversial issues in the CoR as they could delay the final vote on the budget.) Timing ¶5. (SBU) The Chair still has the goal of having the budget published in the Official Gazette by the end of the year. She is disappointed that the relevant CoR committees have not yet met with the ministries for which they have oversight and sent reports to the Finance Committee. Nonetheless, the CoR concluded the second reading of the budget on November 17. The upcoming Eid holiday will delay work on the budget until early December. Ms. Ala'a recognizes that passage of the proposed budget would need to take place in the first two weeks of December since by mid-month CoR members will drift away to begin campaigning. Passing the proposed 2010 budget would allow the GOI to increase expenditures in areas important to the people of Iraq. Operating on the basis of a continuing resolution would mean using 2009's lower expenditures and priorities. ¶6. (SBU) Getting the final vote on the budget by mid-December will be a close call. The Finance Committee recognizes the need to pass the legislation. The Chair senses a 'positive' atmosphere in the CoR about the budget, particularly since they are considering on schedule. If the budget is passed by the CoR, signed by the Presidency Council, and published in the Official Gazette so it becomes law by the end of the year, it would mark the first time this GOI had passed a budget before the beginning of a new fiscal year. HILL