SRAP HOLBROOKE' AUGUST 17 MEETING WITH FINANCE

C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 002115 SIPDIS E.O. 12958: DECL: 09/02/2019 TAGS: ECON EAID PGOV PHUM PREL PK SUBJECT: SRAP HOLBROOKE' AUGUST 17 MEETING WITH FINANCE MINISTER TARIN Classified By: Ambassador Anne W. Patterson for reasons 1.4 (b, d). ¶1. (C) Summary: In their August 17 meeting, Finance Minister Shaukat Tarin told Special Representative for Afghanistan and Pakistan Richard Holbrooke that the Ministry of Finance had missed budget targets because of large outlays for IDPs and the military, as well as a large unexpected withdrawal by the Punjab provincial government. Tarin noted the need to speed up payments from Coalition Support Funds. He also requested U.S. help in encouraging donors to follow through on their Tokyo Pledges and asked that more U.S. assistance pass through the GOP budget. Tarin supported Holbrooke's plan for a U.S.-Pakistan energy dialogue as well as a "signature" energy project. Tarin said the GOP had consulted with Balochistan and NWFP provincial governments, and had prepared a draft concept paper for a Border Trust Fund managed by the World Bank. Ambassador Holbrooke hoped the Border Trust Fund would be in place by the September 24 summit between POTUS, UK Prime Minister Brown and Pakistan President Zardari. End Summary. GOP Budget Shortfalls and International Assistance -------------- -------------- ¶2. (C) Tarin said the GOP had been hitting its budgetary goals and IMF benchmarks until recently when it became necessary to spend $120 million in unbudgeted funds to support internally displaced persons (IDPs); close the gap created by late payments from Coalition Support Funds (CSF) to the military; and transfer $500 million to Punjab's provincial government. Holbrooke explained that $500 million in CSF support was being held up because the Pakistani military had not properly accounted for its spending. Tarin said that he had explained to Chief of Army Staff Kayani the need to properly account for CSF funding, but that Kayani wanted to account for it following UN standards. Holbrooke noted that the use of UN standards was not possible and said Congress required stricter accounting for CSF monies. Holbrooke further commented that increased fighting and military expenditures were obvious so a better system for accounting was needed to prevent systemic bottlenecks on the transfer of CSF funds. Holbrooke asked Tarin is it would be helpful for CENTCOM Commander Petraeus to meet with Finance Ministry officials directly to discuss the issue and signal the importance of CSF accounting to the Pakistani army. ¶3. (C) Tarin said bilateral donors had not committed enough funds to support IDPs and that the funding pipeline was too slow. Many donors were reprogramming funds from the Tokyo pledgesto assist IDPs rather than bringing new money to the table. Holbrooke agreed that some donors had diverted funds to the IDP situation, but recognized that the United States had allocated an additional $330 million for IDPs. ¶4. (C) Tarin said the GOP had incorporated $2 billion-worth of Tokyo Pledges for health, education and poverty reduction into the FY 2010 budget, but that there had been little donor follow through received to date. According to Tarin, "the credibility of the Friends of Democratic Pakistan" depended on countries honoring their commitments and the GOP receiving the money soon. Holbrooke noted that US budgetary cycles had prevented the transfer of U.S. money pledged in Tokyo thus far but indicated that money should soon start to flow. Holbrooke also said the USG would do a follow up demarche with donors but urged the GOP to be more active on this front as well -- the U.S. was in the awkward position of being a more active fundraiser for Pakistan than Pakistan is for itself. ¶5. (C) Tarin appealed for greater international assistance incorporated as budgetary assistance for GOP social programs and requested a meeting with USAID to investigate how to encourage such support (Comment: Post is following up. End ISLAMABAD 00002115 002 OF 002 Comment). However, Tarin also noted that USAID projects that did not go directly through the GOP were also acceptable if they augmented GOP programs. He said both the GOP and USG wanted to ensure that assistance money was not siphoned off. Prospects for an Energy Dialogue and Signature Project -------------- -------------- ¶6. (C) Holbrooke said during his trip to Karachi on August 19 that he would announce a U.S.-Pakistan energy dialogue and that The U.S. was considering enhanced energy projects to possibly include a large energy infrastructure project if funding permitted. Holbrooke noted that PM Gilani and PML-N head Nawaz Sharif supported the idea of a large infrastructure project that could generate goodwill towards the United States. ¶7. (C) Tarin agreed that the dialogue would be a good step in trying to sort priorities in the energy sector. He said rental power plants had become a "dirty word" and should be used as little as possible, adding that he was also looking at how to structure the holding company for debt accrued in the energy sector. Other non-energy projects -- such as increased trade through the lowering of U.S. tariffs; U.S. support for micro-finance through the State Bank of Pakistan (SBP); and support for the Benazir Income Support Program (BISP) -- could also be used to demonstrate U.S.-Pakistan cooperation and improve the U.S. public image. World Bank Border Trust Fund -------------- ¶8. (C) Tarin said the GOP had consulted with the NWFP and Balochistan provincial governments and they strongly supported the creation of a trust fund managed by the World Bank for projects in the two provinces (to include the Federally Administered Tribal Areas also). Tarin confirmed that the GOP prepared a draft concept paper for the Border Trust Fund which they submitted to the World Bank. Holbrooke said the GOP should work to ensure that the groundwork for the fund is in place in time for it to be announced at the September 24 summit meeting between POTUS, UK Prime Minister Brown and President Zardari. ¶9. (U) Participants: Special Representative for Afghanistan and Pakistan Richard Holbrooke Ambassador Anne Patterson Ambassador Robin Raphel SRAP Senior Advisor Vali Nasr SRAP Senior Advisor Barney Rubin SRAP Economic Advisor Mary Beth Goodman SRAP USAID Advisor Sepideh Keyvanshad ECON Robbie Marks (note taker) Finance Minister Shaukat Tarin Minister of State for Economic Affairs Hina Rabbani Khar Finance Secretary Salman Siddique Commerce Secretary Salman Ghani Economic Affairs Division Secretary Farrukh Qayyum ¶10. (U) This cable was cleared by Special Representative Holbrooke,s staff. PATTERSON