CHARGE'S INITIAL CALL ON NEW AFGHAN FINANCE MINISTER

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SIPDIS

E.O. 12958 N/A
TAGS: EFIN ECON EAID IMF PREL AF
SUBJECT: CHARGE'S INITIAL CALL ON NEW AFGHAN FINANCE MINISTER

REF: A) Kabul 323 B) Kabul 317


1. (SBU) Summary. Newly-confirmed Finance Minister Zakhilwal told
the Charge March 4 that Afghanistan is working to meet the three
prior actions required for IMF Board review before the program
expires in June. He said the government may fall just short of the
revenue target in the IMF program this fiscal year and that he would
institute a series of measures to meet and surpass next year's
revenue target. Zakhilwal described plans to increase fiscal
revenue and assured the Charge that Customs would gain full access
to the oil import depot at Hairatan, another IMF condition. The
Charge welcomed Minister Zakhilwal's emphasis on private sector
development, increasing revenues, and anti-corruption and assured
him of continued U.S. cooperation and support. End Summary


2. (SBU) The Charge congratulated Zakhilwal on his appointment as
Finance Minister and his strong confirmation earlier that week by
the Parliament. Zakhilwal said he was taking the job at a
challenging time but that he was not new to challenges. He said he
had spoken candidly in his parliamentary confirmation hearing,
expressing strong support for private sector development and
privatization of state-owned enterprises, despite opposition to
privatization among many MPs. Zakhilwal said he told Parliament
that corruption, in both his ministry (especially Customs) and
others, reduces government revenues, and that he would not tolerate
Parliamentary pressure to protect corrupt officials he tries to
dismiss. In the hearing he also stressed the need for joint
GIRoA-donor evaluations of aid projects to prevent future waste - a
controversial proposal that in the past has been used to harass U.S.
implementing partners.


3. (SBU) Zakhilwal said the GIRoA would come close but might not
reach the revised FY 2008-09 domestic revenue target of Afs 40
billion ($770 million) recently agreed with the IMF. On the other
hand, he was confident FY 2009-10 revenues would surpass that year's
target of Afs 51 billion ($981 million),if he can institute various
changes. He said the GIRoA can raise substantial new revenues by
streamlining vehicle licensing procedures ($200-$300 million),and
increasing charges for mining permits ($100 million),civil aviation
fees ($50 million),and leased agricultural land. (Note: In a
separate meeting March 5, Agriculture Minister Rahimi told Ag
Attache and EconCouns that $100 million can be raised from
agricultural leases of state-owned land.) Zakhilwal said such
changes would require cooperation with other ministries. He had
good partners in the ministers of Interior, Commerce, and
Agriculture; in contrast, his proposals would not be popular with
the ministers of Transport and Mining. Nonetheless, he would push.


4. (SBU) Zakhilwal said he is also pressing for full implementation
of the MOU between the Finance and Commerce ministries on Customs
access to the Hairatan fuel import depot owned by FLGE, the
state-owned importer under MOCI. He assured the Charge that MOF
would gain the full access mandated in the MOU and that anything
less would be unacceptable. He also admitted that housecleaning is
also needed at Customs to increase revenues. "We can't just replace
their [MOCI's] bad people with ours." The Charge welcomed
Zakhilwal's assurance on MOU implementation and said the USG would
limit assistance to MOCI until Commerce Minister Shahrani fulfills
his ministry's side of this agreement. (Note: Based on latest
information from MOF staff and the IMF resrep, FLGE is providing
limited access to Customs officials at Hairatan but requires written
instructions from FLGE headquarters to provide full access. )


5. (SBU) Zakhilwal said he is trying to fill ministry positions with
good people and replace non-performers but needs support to offer
attractive salaries to retain staff and reduce reliance on bribes.
He also raised the need for specialized technical assistance in
areas related to increased revenue generation and collection (e.g.
vehicle licensing, civair charges, and land leasing). He said he
will also work on the spending side of the budget and estimated that
the GIRoA pays 15-20 percent more than it should for the goods and
services it receives.


6. (SBU) The Charge noted the long and close relationship between
the U.S. Mission and MOF. He welcomed the priority Zakhilwal has

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placed on private sector development, increasing revenues, and
anti-corruption. He encouraged the minister to discuss further
cooperation with the USAID Mission Director. Noting the substantial
USG support for strengthening Customs, the Charge expressed concern
that MOF's planned staffing increase for administrative personnel
exceeds that for Customs. He also said the U.S. is stressing
"Afghanization" and directing more of its aid through the national
budget and is therefore concerned about weak and delayed
implementation of the Afghanistan National Development Strategy
(ANDS - see septel).


7. (SBU) Zakhilwal said the GIRoA and donors share equal blame for
problems with ANDS implementation. He admitted that the division of
labor between MOF and the Ministry of Economy created a diffusion of
responsibility, and that high-level changes in the government had
also contributed to drift. But Zakhilwal asserted that donors are
not aligning their programs with the ANDS and are channeling less of
their funding this year, not more as the GIRoA has repeatedly asked,
through the national budget. He said donors should reward the
GIRoA's modest reforms to date in order to encourage further reform.
GIRoA capacity could only be built if donors trust the government
with resources. A JCMB Development Standing Committee meeting would
take up these issues later in March.


8. (SBU) The Charge said the U.S. is increasing the share of its aid
being channeled through the Afghan government by certifying key line
ministries to receive direct budget support and through the ARTF,
including the proposed incentive scheme, though more could be done.
Looking forward, USAID aims to increase the share of funds channeled
through Afghan systems to 50 percent by 2011 and to 75 percent by

2014. The U.S., he said, seeks to lead by setting a good example
for other donors. The Charge assured Minister Zakhilwal of
continued U.S. cooperation and support, despite economic problems at
home.

WOOD