IRAQI DEFENSE MINISTRY DEAL WITH UKRAINE RAISES

S E C R E T SECTION 01 OF 02 BAGHDAD 003294 NOFORN SIPDIS PASS TO PM AND NEA/I/PM E.O. 12958: DECL: 12/12/2019 TAGS: PARM PREL MARR EFIN IZ UP SUBJECT: IRAQI DEFENSE MINISTRY DEAL WITH UKRAINE RAISES EYEBROWS, QUESTIONS ABOUT BUDGET REALITIES Classified By: Acting Political-Military Counselor Walter S. Reid for r easons 1.4. (b, d) ¶1. (S/NF) SUMMARY. The Government of Iraq (GOI) and the Government of Ukraine (GOU) announced an arms deal for armored personnel carriers, light transport aircraft, and helicopter repair. The deal is valued at $560.1 million, but was announced as a $2.5 billion commitment, with the additional money based on potential future deals. The Ministry of Defense (MOD) has recently signed agreements and Letters of Credit with multiple non-US military suppliers, and there are concerns over both the budgetary effects and military inter-operability effects these deals will have on readiness capabilities. Though the GOI has paid a fair share (in excess of $5.1 billion since 2005) of existing USG Foreign Military Sales (FMS) cases, there is concern over their ability to continue to do so in light of both falling budgets and allocation of resources elsewhere. Multi-National Security Transition Command - Iraq (MNSTC-I),which tracks existing FMS cases and advises both the MOD and MOI on the FMS process and budget, also has concerns about the GOI's ability to pay for existing cases in light of recently issued Letters of Credit. END SUMMARY. ¶2. (S/NF) The GOI and the GOU signed the reported arms deal on October 22. The deal is for 420 BTR Armored Personnel Carriers (APCs),six AN-32b light transport planes, and a small Mi-8T repair package. According to MNSTC-I MOD budget advisors, the Iraqi Ministry of Defense has already transferred $99 million for the six AN-32bs and the $3.6 million for the repairs package. The Associated Press has reported that the deal is worth $2.5 billion, to be carried out in stages according to Ukrainian Defense officials. The MOD signed a letter of agreement to purchase 420 BTR APCs for a total cost of $457.5 million payable over three years ($91 million in 2009, $183 million in 2010, $183 million in 2011). The Government of Ukraine is hoping that these purchases will lead to further buys that will account for the remaining $1.94 billion announced in the deal, but there are no further commitments at this time from the GOI. No information on delivery timetables has been announced. ¶3. (S/NF) According to LTG Barbero, MNSTC-I CG, the MOD has 400 million left in its budget to commit this fiscal year. Of this amount, at least 100 million is tied up in existing negotiations. The MOD currently needs to fund the FMS sub-account of the Development Fund for Iraq (DFI) account at the Federal Reserve Bank of New York with a minimum of $285 million to implement five FMS cases required to support future sustainment of already acquired U.S.-manufactured M1 tanks, and an additional $186 million case for sustainment of a future delivery of six U.S.-manufactured C-130J transport aircraft. MNSTC-I is currently pressing the GOI to deposit any end of year unexecuted funds into the DFI account. The MOD recently signed four lesser rotary and fixed-wing aircraft sustainment cases in early November with the USG. Three of these cases were implemented with the amount remaining in the DFI account, but the fourth (for pilot training - $30 million) could not be implemented with the remaining and current balance of $6.8 Million. MOD agreed to add $25 million by November 15 to implement this case, but as Qadd $25 million by November 15 to implement this case, but as yet the funds have not reached the DFI account. (NOTE: The FMS sub-account of the DFI account also has MOI funds in it. That balance is $473.6 million but cannot be used to fund MOD requested cases.) Additionally, there is concern that if the deal is accurate and the GOI truly intends to spend $2.5 billion, the size of the commitment could endanger the IMF Stand-By Arrangement with Iraq, since the size of the GOI's budget will be a pivotal concern to the IMF Executive Board. ¶4. (S/NF) COMMENT - MOD officials have gone on numerous trips for potential acquisition of non-U.S. military hardware and ammunition in recent months. According to MNSTC-I, several Letters of Credit have been offered from MOD officials but their current payout status and quantity is unknown. Including the October 22 Ukrainian deal, the MOD now has deals with French, Ukrainian, Polish, Serbian and South Korean government and private manufacturers for equipment to include training planes, transport aircraft, helicopters and light vehicles, in addition to ammunition and basic equipment such as uniforms and supplies. This has raised concerns by some over the inter-operability of these systems with existing purchases from the USG. If the Ukrainian deal does in fact proceed as is, it meets a number of Iraqi needs for minimum capabilities, but should have been more transparent, BAGHDAD 00003294 002 OF 002 and there are still concerns over corruption in general with regards to international military deals for non-U.S. military hardware outside of FMS. Despite the delays and concerns above, the GOI has contributed a fair share (in excess of $5.1 billion since 2005) to existing FMS cases. According to MNSTC-I numbers, in 2008, the GOI spent $1.62 billion compared to U.S. Iraq Security Force Funding (ISFF) $125 million toward FMS cases, whereas in 2009, the GOI spent $437.2 million to U.S. ISFF $400 million due in part to falling oil prices. END COMMENT. FORD