IRAQI BUDGET: "DIFFICULT YEAR" SAYS MINISTER OF

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000751

SIPDIS

E.O. 12958: DECL: 03/16/2019
TAGS: EFIN ECON CVIS PGOV IZ
SUBJECT: IRAQI BUDGET: "DIFFICULT YEAR" SAYS MINISTER OF
FINANCE

REF: A. BAGHDAD 643

B. 2008 BAGHDAD 4005

C. 2008 BAGHDAD 3537

Classified By: Economic Minister Counselor Marc Wall for reasons 1.4(b)
and (d)


1. (C) Summary: Finance Minister Bayan Jabr told EMIN on
March 16 that the USD 59 billion FY 2009 Budget as passed by
the Council of Representatives was lower than the government
had requested and that Iraq faces "a difficult year." Cuts
to operational budgets are expected in every ministry. Jabr
hopes to access some Central Bank of Iraq reserves for
capital expenditures through the issuance of T-bills. Jabr
said that he had just returned from IMF meetings in Amman and
anticipates some sort of ongoing relationship with the IMF
following the current Stand-By Arrangement. Funds for GE and
Siemens generator purchases would be found in the capital
expenditures budget, though this meant cutting other
projects. More problematic is funding for Sons of Iraq (SOI)
payments since the Council of Representatives had both cut
funds from the SOI budget and reduced the overall operational
budget by USD 4 billion. Tunisia and Iraq have fully
resolved their USD 170 million sovereign debt; Iraq has
agreed to pay Tunisia about USD 17 million in cash. Jabr
plans on attending the Spring IMF/World Bank meetings in
Washington provided his visa is issued in time for him to
make plans. End summary.


2. (C) Minister of Finance Bayan Jabr said that FY 2009
budget realities mean that Iraq faces a "difficult year,"
during a meeting with EMIN on March 16. The USD 59 billion
budget that passed the Council of Representatives (CoR)
called for IQD 5 trillion (USD 4 billion) cut from the
government's spending proposal and Jabr was preparing for a
March 17 Cabinet meeting that would decide where those cuts
would be made. Jabr noted that the CoR was well within its
constitutional rights to cut the budget and seemed resigned
to having fewer funds to work with. Jabr anticipated that
the Cabinet meeting would be contentious as each Minister
attempted to defend its own spending priorities and plans.
Reductions to Ministry of Interior and Ministry of Defense
budgets would "leave the country in a dangerous position," he
said, and he "hopes" to avoid making cuts to those ministries.


3. (C) Jabr, who had just returned from meetings with
International Monetary Fund officials in Amman, said that the
IMF was "happy to hear there had been a reduction" to Iraq's
budget. Jabr was joined at the meetings by Minister of Oil
Shahristani and Central Bank (CBI) Governor Shabibi.
Together with the IMF, they recalculated Iraq's revenue
assumptions in 2009 basing their expectations that Iraq would
export 2 million barrels per day (mbd) at an average price of
USD 38.5 per barrel. (Note: This would equal about USD 28
billion in oil revenue. Despite these calculations with IMF
on revenue projections, the budget as passed still assumes
oil revenues of USD 36.5 billion. End note.) Jabr said that
despite the fact Iraq has yet to actually average exports of
2 mbd in 2009, Shahristani has maintained this export target
and his presence at the IMF meetings meant they had to use
his number.


4. (C) Jabr said that Iraq "must cooperate with the IMF"
beyond the current Stand-By Arrangement (SBA) that is about
to end. Whether this relationship would take the form of
another SBA, which would require both Council of Ministers
and CoR approval, or a memorandum of understanding, which
would only require Council of Ministers approval, Jabr did
not know -- but expects the relationship will continue. He
has asked the IMF to come up with several different options
Qhas asked the IMF to come up with several different options
that he plans to discuss further during the April World
Bank/IMF meetings in Washington, should he get a visa to
enter the U.S. (Note: See paragraph 11. End note.)


5. (C) Jabr was also insistent that the IMF help convince CBI
Governor Shabibi that Iraq did not need all of its USD 44
billion in CBI reserves to defend the Iraqi dinar. Jabr
hopes that the CBI will issue "USD 2-4 billion" in T-bills
that can be used to purchase generators that the Iraqi people
need now. An amendment to the FY 2009 budget as passed by
the CoR contains a provision (Article 46) that requires the
government to get CoR approval for any bond or T-bill
issuance. The CoR added this amendment after lobbying by
Shabibi, "who wants to keep all the money in the CBI", he
said. Jabr believes this amendment to be unconstitutional
("Does your Congress tell the Federal Reserve what to do?" he
asked.) and is having the MoF's legal counsel draft a letter
to that effect.

Money for GE and Siemens
--------------


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6. (C) Jabr said a CoR Budget amendment, Article 47,
requiring the Ministry of Electricity to fund any expenses
for GE and Siemens generators out of the MoE's budget was
worded in such as way that it exceeded the CoR's
constitutional budgetary powers. He has asked the CoR's
Acting Speaker to reword the amendment, but would comply with
the intent of this amendment by redirecting about 11 percent
of the budget's investment (capital expenditures) allocation
to the MoE to cover this USD 1.4 billion expenditure in 2009.
"The money is there," he said.

Sons of Iraq Payments: Budgeted, but Underfunded
-------------- ---


7. (C) Jabr said that the budget as proposed had about USD
190 million for payments to the Sons of Iraq and Awakening
Councils. The budget, as passed by the CoR, however directs
funding for the Awakening Councils and Sons of Iraq (SOI)
from under the Prime Minister's office to the Ministry of
Interior. The budget also redirects USD 85 million of these
funds to the Committee for Implementing Article 140, leaving
only about USD 105 million for paying SOI salaries. When
asked whether the amount required could be fully funded, Jabr
noted that the CoR had called for him to find USD 4 billion
in cuts from the operating budget and protected salaries and
other social welfare funds. This meant that there is very
little money left to go around and that all areas of the
budget were being cut. Moving funds from the SOI budget to
the Article 140 Implementation Committee was a "Kurdish
decision, that I have no right to question since it comes
from the CoR and they are fully in their rights to transfer
funds inside the budget," he said.

Tunisia Debt Done; Algeria and Morocco Next?
--------------


8. (C) Jabr said that he had delegated signing authority to
the Iraqi Ambassador in Tunis and Iraq and Tunisia had
finalized a debt agreement on March 9. He reported that the
debt settled had amounted to USD 170 million and the terms of
settlement were a single cash payment of USD 17 million.
(Note: In previous meetings (Ref B),Jabr had reported that
Iraq owed Tunisia about USD 100 million. End note.) Jabr
said that despite Iraq's budget problems, he was very pleased
to pay cash to settle this debt with Tunisia as it would
encourage other Arab countries to also forgive Iraq's debt.
He noted that both Morocco and Algeria, following Tunisia's
example, were now close to settlement as well.

"We are Not Going to Iran, Iran is Coming to Us"
-------------- ---


9. (C) Returning to a common theme, Jabr again complained
that Arab countries have been slow to come to Iraq's
assistance. "Don't say we are going to Iran, we are not
going to Iran. Iran is coming to us," he said. He
contrasted Iranian assistance to Iraq, its soft loans, and
good trade ties with the slow pace of progress and
integration with its neighboring Arab countries such as Saudi
Arabia and Egypt. "We want closer ties with Egypt, but they
don't care. All of the Arab countries are watching and
waiting for Saudi Arabia.

"Visa Delays For Ministers Don't Make Sense"
--------------


10. (C) Jabr complained about the length of time and
uncertainty involved in applying for a U.S. visa. He said
that while he understood there needed to be security checks,
he has travelled to the U.S. many times. Jabr said that he
was not going to make any plans to attend World Bank/IMF
meetings in Washington until he had his visa in hand. He
also noted that Minister of Oil Husseign Shahristani was so
Qalso noted that Minister of Oil Husseign Shahristani was so
"angry" at the U.S. visa process and delays that he has
refused to go to the United States. Iraqi Ministers that are
travelling on diplomatic visas should not have delays in
applying to travel to the United States, he said.


BUTENIS