Ambassador's Meeting with Afghan Finance Minister

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SENSITIVE

SIPDIS

E.O. 12958 N/A
TAGS: EFIN ECON EAID AF
SUBJECT: Ambassador's Meeting with Afghan Finance Minister
Zakhilwal

SUMMARY


1. (SBU) Ambassador Eikenberry and Finance Minister Zakhilwal June 8
discussed joint visits to Afghan provinces, including a June 17 trip
to open a US-financed border crossing post in Islam Qala, Herat.
Zakhilwal welcomed the preliminary, positive assessment by a USAID
team that examined the Finance Ministry's financial management
system and said the GIRoA would welcome direct budget support. The
Ambassador said the USG was considering channeling more of its
assistance through the Afghanistan Reconstruction Trust Fund. He
urged formation of joint USG-GIRoA teams to monitor increased
development funding flows through RC-East and RC-South. Zakhilwal
touted recent progress on revenue generation and complained about
alleged fraud involving duty-exempt import goods ostensibly bound
for Coalition forces. Zakhilwal said the GIRoA was prioritizing the
aid requests in the Civilian Surge Technical Assistance plan it
presented in April. An updated plan would be presented to the next
meeting of the Joint Coordination and Monitoring Board in early
July. End Summary


2. (SBU) The Ambassador, accompanied by Mission staff, met June 8
with Afghan Finance Minister Omar Zakhilwal. The minister welcomed
the Ambassador's plans, already in train, to travel often to Afghan
provinces and expressed interest in joining occasional trips. The
two agreed to travel together to Herat for the opening of the
USG-financed border crossing post at Islam Qala on June 17. The
Ambassador said the USG would not object if the GIRoA invites the
Iranian Consul General in Herat to the ceremony. They also
discussed a possible trip to Badakhshan in the next month.

BUDGET PLANNING; POSSIBLE ARTF SUPPORT


3. (SBU) Zakhilwal noted that a recent USAID mission had reviewed
MOF's financial management system. He hoped the team had a positive
impression and undertook to work on any problems detected. USAID
Mission Director Frej said the team reached a favorable conclusion
and that the USG was considering possible increased budget support
in the future. Zakhilwal welcomed this news. MOF would start work
in October 2009 on the 2010-11 budget (beginning in March 2010).
The Ambassador said the USG would be working in October on the
Administration's FY-2011 budget request. The US is considering
increasing the assistance it channels through the Afghanistan
Reconstruction Trust Fund (ARTF),and the two governments should
strive to align their plans.


4. (SBU) Zakhilwal welcomed this suggestion and said such US efforts
would also encourage other donors to increase their alignment with
Afghan priorities. He also hoped donor projects funded outside the
Afghan budget could at least be reflected in the budget, so that
Parliament gets a fuller picture of total development spending. The
GIRoA, he said, also seeks joint implementation, management and
oversight of donor-funded projects.

PRIORITIZING TECHNICAL ASSISTANCE NEEDS


5. (SBU) Zakhilwal said MOF is working on an improved version of the
Civilian Surge Technical Assistance Plan delivered to the USG in
mid-April (reftel). The new paper would prioritize TA needs,
highlighting the top 50 advisor positions required, and elaborate on
mechanisms for delivering TA. The GIRoA would use the Joint
Coordination and Monitoring Board (JCMB) to seek donor support for
the revised plan, presenting it to a Standing Committee meeting on
June 20 and a JCMB plenary in early July. The Ambassador delivered
his letter to Zakhilwal dated June 8 expressing USG support for the
GIRoA's original civilian technical assistance proposal and its
intention to update and refine it. He said the US and other donors
should try to meet Afghanistan's needs, and UNAMA should take the
lead in improving donor coordination.


6. (SBU) The FinMin said he would also seek donor support at the
JCMB for a Revenue Action Plan and an Anti-corruption Action Plan,
both now being developed. On revenues, Zakhilwal touted the "very
impressive results" of his efforts so far: average monthly customs
revenues of Afs 1.7 billion ($34 million) last year have increased
to Afs 2.8 billion ($56 million) so far this year and can be raised

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above Afs 3.0 billion ($60 million). He said other types of revenue
have also increased but by less, reflecting the bigger challenges of
generating greater income tax. The Anti-corruption Action Plan
would also be focused on revenue generation. Both plans would
highlight areas where the GIRoA needs donor assistance.

MINISTER'S CONCERN WITH FUEL IMPORT FRAUD


7. (SBU) Zakhilwal raised concerns about duty-exempt goods,
especially fuel, imported for Coalition forces, alleging that much
ended up on the black market, skewing market competition and
reducing GIRoA revenues. The minister sought the Ambassador's help
in facilitating meetings with US military commanders and proposed
establishing a Customs Office outside Bagram AFB to assess goods
leaving the base for possible tax liability. Zakhilwal estimated
that 30-40 percent of the goods entering Afghanistan duty-exempt do
so fraudulently and end up on the black market.


8. (SBU) Without endorsing Zakhilwal's estimate, the Ambassador
acknowledged the problem and said the USG would look into it and
collaborate with MOF on a solution. (Comment: In fact, US military
buyers closely cooperate with Afghan Customs officials to minimize
fraud. Systems are in place to document that legitimate,
duty-exempt imports actually reach their intended destinations.
Leakage is estimated at only 2-3 percent, some of this occurring
outside Afghanistan. Forgery of duty-exemption documents by
unscrupulous importers, often associated with bribery of Customs
officers, is a separate issue requiring stronger Afghan law
enforcement. Goods imported in this way are obviously never
intended to reach US military buyers. Nevertheless, further
cooperation and collaboration between NATO-ISAF/Coalition and MOF
will be promoted. End comment)

COORDINATING AID FROM REGIONAL COMMANDS


9. (SBU) The Ambassador noted that the ongoing expansion in US
military forces in the East and South would be accompanied by
increases in development spending through these regional commands.
He said the two governments should discuss the implications of these
financial flows and the resource allocation decisions being made at
command level. The Ambassador suggested establishing integrated
teams at each RC, including relevant US civilian and military staffs
and Afghan officials from the ministries of Finance, Agriculture,
Rural Rehabilitation and Development, and the Independent
Directorate for Local Governance. He noted that MOF should be
involved wherever there are such large resource flows, as this would
give us confidence that increased funding through the ARTF is being
properly managed. Zakhilwal welcomed the suggestion and said the
two sides could discuss a mechanism for such integrated teams. The
Ambassador urged early follow-up and noted the planned establishment
of Civilian Coordinators at the RCs.


10. (SBU) In closing, Zakhilwal said a feasibility study for the
Gambiri dam project near Jalalabad had been completed and he hoped
USAID would consider funding it. The project would produce 25 MW of
electricity, irrigate 10,000 ha, and have little impact on water
supplies in Pakistan.

EIKENBERRY