CHANGE AT THE TOP OF AFGHANISTAN'S FINANCE MINISTRY

UNCLAS SECTION 01 OF 02 KABUL 000323

DEPT FOR SCA/FO, SCA/RA, AND SCA/A
DEPT PASS FOR AID/ANE
DEPT PASS USTR FOR DELANEY AND DEANGELIS
DEPT PASS OPIC
DEPT PASS FOR TDA FOR STEIN AND GREENIP
USOECD FOR ENERGY ATTACHE
CENTCOM FOR CSTC-A
NSC FOR JWOOD
TREASURY FOR MHIRSON, ABAUKOL, BDAHL, AND MNUGET
OSD FOR SHIVERS
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH

SENSITIVE

SIPDIS

E.O. 12958 N/A
TAGS: EFIN PGOV PREL EAID ECON EAIR AF
SUBJECT: CHANGE AT THE TOP OF AFGHANISTAN'S FINANCE MINISTRY

REF: A) Kabul 317 B) Kabul 259 C) 08 Kabul 3334

KABUL 00000323 001.4 OF 002



1. (SBU) Summary. Finance Minister Ahadi has resigned to run for
president and been replaced by acting Transport Minister Zakhilwal,
a technocrat whose political star has been rising since he rescued
the Haj-flights operation late last year. Zakhilwal, a strong
proponent of private sector development, is a good choice but
inherits the top job at Finance at a tough time. Among other
things, he must ensure Afghanistan does not fall off its IMF program
and guide the FY 2009-10 budget into law. End Summary


2. (U) As anticipated Ref B, Afghan Finance Minister Anwarulhaq
Ahadi February 5 submitted his resignation, and President Karzai
accepted it. This followed endorsement of Ahadi by some members of
his Afghan Millat party last week as candidate for president in this
year's election. Karzai has named Dr. Omar Zakhilwal as the new
Finance Minister.


3. (SBU) Zakhilwal has been wearing three hats in the government.
Since November he has been acting Minister of Transport and Civil
Aviation, a job Karzai named him to after dismissing the last
minister for alleged corruption and mishandling the Haj flights to
Saudi Arabia. Having spent most of his first month as Transport
Minister focused on Haj operations, Zakhilwal was just settling into
other aspects of the job, for which he had little background, and
had made plain that his tenure would be temporary. Throughout this
time, Zakhilwal retained his other two positions, Chief Economic
Advisor to the President and President of the Afghanistan Investment
Support Agency (AISA). As Finance Minister, Zakhilwal is expected
to retain only the former position.


4. (SBU) Zakhilwal (see bio note below) is a staunch proponent of
private sector development and is widely considered - including,
importantly, by Karzai - to be very competent. That said, Ahadi's
will be large shoes to fill at the Finance Ministry, and with a
number of economic policy issues on the front burner, this is
arguably not the best time for turnover at the top of this key
department.


5. (SBU) IMF program. Ref A describes the state of play in
Afghanistan's relations with the IMF. In brief, Afghan performance
under the PRGF program has slipped, and the government must fulfill
several prior actions by June at the latest to put the program back
on track. Failure to do so could have significant financial
consequences for a government already unable to pay its own bills.
Zakhilwal will be keenly aware of the importance of good relations
with the IMF. But he is mainly a technocrat; his political skills
will be required with Parliament and other ministries to ensure the
GIRoA meets Fund conditions, and these remain largely untested.
Once through this immediate challenge, Zakhilwal will need to
improve on Ahadi's efforts to generate more revenue and work toward
medium-term fiscal sustainability.


6. (SBU) Afghan budget. The government's proposed budget for FY
2009-10 has just been presented to Parliament. Ahadi did the hard
work of preparing the budget, imposing necessary spending restraint
on fellow ministers. Zakhilwal must now guide it into law, working
with MPs, many of whom are famously unschooled in market economics
but likely to be certain the government is not doing enough for
their districts. He must also manage the government's finances
under circumstances of very low cash balances.


7. (SBU) ARTF benchmarks. MOF has been donors' main interlocutor in
efforts to establish an "economic reform window" in the Afghan
Reconstruction Trust Fund (Ref C),with Ahadi making key decisions.
Specific benchmarks still need to be agreed, against which Afghan
performance would be assessed for eligibility to tap funds from this
window.


8. (SBU) Regional economic cooperation. MOF often chairs the Afghan
delegation to international economic meetings, even when the agenda
includes topics where other ministries have the lead. This was the
case with the Pak-Afghan Joint Economic Commission in November,
despite the Commerce Ministry's supposed lead on trade policy, and
could be for negotiations, not yet firmly set, on a new Pak-Afghan

KABUL 00000323 002.6 OF 002


Transit Trade Agreement. Coordination with Commerce will be
required to finalize a new Tariff and Trade Policy and launch the
WTO accession process, both priorities of Commerce Minister
Shahrani.


9. (SBU) Karzai has named Noorullah Delawari, Advisor to the
President on Banking and Private Sector, to head AISA. A USAID
consultant, Delawari is well and favorably known to the U.S. Mission
and was the first President of AISA. He has told EconCouns that one
of his early priorities will be to re-energize the moribund,
cabinet-level High Commission on Investment, to lend high-level
support for promotion of foreign investment.


10. (SBU) Zakhilwal's departure leaves veteran civil servant
Engineer Raz Mohammad Alami as acting Minister of Transport and
Civil Aviation until a permanent replacement is named. Alami knows
the aviation business and is considered competent but as an acting
minister is unlikely to launch new reform initiatives despite the
serious need for such at this ministry.


11. (SBU) Bio Note. Prior to becoming President of AISA, Omar
Zakhilwal served as the Chief Policy Advisor at the Ministry of
Rural Rehabilitation and Development. He has been a member of the
Supreme Council of Afghanistan's central bank and teaches economics
at Kabul University. Zakhilwal is a Canadian citizen, has family in
Canada, worked previously as a Senior Research Economist for
Statistics Canada, and holds a Ph.D. in economics from Carleton
University in Ottawa, where he also lectured in economics.

WOOD