FINANCE MINISTER PUSHES ECONOMIC AGENDA FOR LONDON

C O N F I D E N T I A L SECTION 01 OF 02 KABUL 003975

SENSITIVE
SIPDIS

DEPT FOR S/SRAP AND SCA/A
TREASURY FOR LMCDONALD, MNUGENT, JCASAL, AFKIFAYAT

E.O. 12958: N/A
TAGS: EFIN EAID ETRD PGOV PREL EAGR PTER AF
SUBJECT: FINANCE MINISTER PUSHES ECONOMIC AGENDA FOR LONDON
CONFERENCE

CLASSIFIED BY: CDDEA AMBASSADOR E. ANTHONY WAYNE FOR REASONS FOR 1.4
(b) AND (d).

REF: (A) KABUL 3819; (B) KABUL 3789


1. (C) Summary: In a December 7 meeting with Coordinating Director
for Development and Economic Affairs Ambassador Wayne, Finance
Minister Zakhilwal discussed his goals for the Joint Coordination and
Monitoring Board (JCMB) to be held in mid-January and the 28 January
London Conference, emphasizing that the agenda for both meetings
should be led by Afghans. While the London Conference will have a
focus on security, Minister Zakhilwal called for economic and
development issues to be included in the agenda. The Minster also
outlined his plans for a rapid and targeted reform package aimed at
increasing revenue, improving service delivery, and reducing
corruption. Zakhilwal agreed that the appointment to a new Afghan
Commerce Minister before the next round (19-21 December) would
complicate conclusion of the Afghanistan-Pakistan Transit Trade
Agreement. On contractor abuse of tax exemptions, Minister Zakhilwal
said he has instructed his revenue collecting office not to disrupt
shipments of key companies supporting ISAF but to continue to collect
information and to try to work out problems. The Minister expressed
support for a total ban on ammonium nitrate. End Summary.

LONDON CONFERENCE TO INCLUDE ECONOMIC ISSUES
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2. (C) Minister Zakhilwal told Ambassador Wayne that he is working
with the Ministries of Foreign Affairs, Defense, and Interior to
develop a GIRoA-led agenda for the London Conference. While the
initial UK agenda focused on security, GIRoA is pushing to include
economic development and governance issues, he said. Minister
Zakhilwal outlined four issues he would like to discuss at the next
JCMB and London Conference. These include:

--(C) 1) Improving GIRoA development coordination: Minister
Zakhilwal will advance the existing proposal to create "clusters" of
ministries, or "Super-ministries," to improve inter-agency
coordination. Potential ministry clusters include Agriculture,
Finance, and Governance. In a separate conversation, Agricultural
Minister Rahimi told Wayne that there could be a separate Rule of Law
cluster and one on security.

--(C) 2) Addressing GIRoA capacity to "deliver development": The
Minister has established a team of Afghan analysts to conduct a study
of the 10 ministries responsible for 90% of development budget
expenditures. The team will work on determining to what extent slow
delivery of services is due to a lack of coordination among donors
and what is due to inefficiencies, corruptions, etc. He stressed
that improving the ability of GIRoA to deliver services and projects
will increase the confidence of donors to put more funds through the
development budget.

--(C) 3) Using Civilian Technical Assistance Plan (CTAP) to hire
advisors: Minister Zakhilwal will reiterate GIRoA's desire to use
CTAP funds to finance high-priority Technical Assistance positions.
The CTAP plan would fund GIRoA to hire directly regional, qualified
advisors from neighboring countries with appropriate language skills.
He and Wayne noted that so far only the U.S. has put money toward
the program. (Note: The USG intends to support the latest versions
of the Ministry of Finance's CTAP by transferring $30 million over
two years directly to the Ministry. Other countries have pledged
funds, such as U.K., Canada, but not yet delivered. End Note)

--(C) PTER, AF
SUBJECT: FINANCE MINISTER PUSHES ECONOMIC AGENDA FOR LONDON
CONFERENCE

negotiations is set for December 19-21 in Islamabad. Minister
Zakhilwal agreed that losing lead GIRoA negotiators would present
difficulties but did not indicate whether he thought Shahrani would
stay on as Minister of Commerce. (Separately, we have heard Shahrani
will stay on, Septel.)

LIMITED TAX EXEMPTIONS ON FOREIGN FIRMS
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5. (C) Ambassador Wayne addressed Minister Zakhilwal's concerns
raised in previous meetings that large international contractors
hired by U.S. and ISAF have sought unwarranted and excessive tax
exemptions. Zakhilwal stated that he believes many shipping
contractors are not reporting sales from non-assistance-related
activities, thereby exploiting their tax-exempt status, and mentioned
Supreme, Global Logistics, and FedEx, in particular. He also cited
the interception of a Global Logistics shipment of expensive mobile
phones brought into Afghanistan for sale on the black market.
Ambassador Wayne reassured the Minister that ISAF is focused on this
issue at the top levels and is treating GIRoA concerns with urgency.
ISAF is aware of the concerns and is working directly with GIRoA,
particularly the Attorney General's office, on a solution. Minister
Zakhilwal noted that he has instructed his revenue collecting office
not to disrupt ISAF shipments but to continue to collect information
and to look for opportunities to work out problems.

SUPPORT FOR TOTAL BAN ON AMMONIUM NITRATE FERTILIZER
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6. (C) Minister Zakhilwal said he would strongly support a total
ban on ammonium nitrate fertilizers in Afghanistan (the core
ingredient of improvised explosive devices),were one to be issued,
adding that he would soon review a Draft Inter-Ministry Paper calling
for such a step. Note: Finance oversees Customs which will be
essential in enforcing an import ban.

RICCARDONE

KABUL 00003975 002 OF 002


negotiations is set for December 19-21 in Islamabad. Minister
Zakhilwal agreed that losing lead GIRoA negotiators would present
difficulties but did not indicate whether he thought Shahrani would
stay on as Minister of Commerce. (Separately, we have heard Shahrani
will stay on, Septel.)

LIMITED TAX EXEMPTIONS ON FOREIGN FIRMS
- - - - - - - - - - - - - - - - - - - -


5. (C) Ambassador Wayne addressed Minister Zakhilwal's concerns
raised in previous meetings that large international contractors
hired by U.S. and ISAF have sought unwarranted and excessive tax
exemptions. Zakhilwal stated that he believes many shipping
contractors are not reporting sales from non-assistance-related
activities, thereby exploiting their tax-exempt status, and mentioned
Supreme, Global Logistics, and FedEx, in particular. He also cited
the interception of a Global Logistics shipment of expensive mobile
phones brought into Afghanistan for sale on the black market.
Ambassador Wayne reassured the Minister that ISAF is focused on this
issue at the top levels and is treating GIRoA concerns with urgency.
ISAF is aware of the concerns and is working directly with GIRoA,
particularly the Attorney General's office, on a solution. Minister
Zakhilwal noted that he has instructed his revenue collecting office
not to disrupt ISAF shipments but to continue to collect information
and to look for opportunities to work out problems.

SUPPORT FOR TOTAL BAN ON AMMONIUM NITRATE FERTILIZER
- - - - - - - - - - - - - - - - - - - - - - - - - - -


6. (C) Minister Zakhilwal said he would strongly support a total
ban on ammonium nitrate fertilizers in Afghanistan (the core
ingredient of improvised explosive devices),were one to be issued,
adding that he would soon review a Draft Inter-Ministry Paper calling
for such a step. Note: Finance oversees Customs which will be
essential in enforcing an import ban.

RICCARDONE