SAUDI FINANCE MINISTER CALLS FOR SPECIFIC STEPS TO

C O N F I D E N T I A L SECTION 01 OF 03 RIYADH 001407

SIPDIS

DEPARTMENT FOR NEA/ARP, EB/ESC, S/CIEA
PASS TO USTR FOR CHRIS WILSON AND JASON BUNTIN

E.O. 12958: DECL: 10/21/2019
TAGS: EFIN ECON ENGR ETRD PREL SA
SUBJECT: SAUDI FINANCE MINISTER CALLS FOR SPECIFIC STEPS TO
IMPROVE TIES WITH U.S.

REF: (A) STATE 108183 (B) RIYADH 1365

Classified By: Ambassador James B. Smith, reasons 1.4 (b and d).


1. (C) Summary: Saudi Finance Minister Ibrahim Al-Assaf
believes the Saudi economy is generally on track to meet its
2009 targets. Saudi Arabia will maintain its domestic
investment program as part of international efforts to ensure
that stimulus packages continue until the world economy
recovers. Al-Assaf lauded U.S. leadership at the Pittsburgh
G20 summit. While Saudi Arabia was generally pleased with
the outcomes of the summit, it will look for U.S. support not
to lose any of its IMF quota share. Al-Assaf underscored the
importance the Saudi Government places on a strong bilateral
relationship with the U.S. He called specifically for the
conclusion of a double-taxation agreement, and urged the U.S.
to consider negotiating a Free Trade Agreement with the GCC.
He also stressed Saudi Arabia's commitment to continue a
generous foreign assistance program, including to Pakistan,
which he noted is not adequately reflected in current
discussions of rebalancing IMF (and World Bank) quotas. End
Summary.

All Quiet on the Domestic Economic Front:
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2. (C) On October 21, Saudi Finance Minister Ibrahim Al-Assaf
told the Ambassador that he is not worried about any specific
issues regarding the domestic economy. His biggest challenge
is maintaining the pace of the Kingdom's $400 billion
domestic investment program, which he characterized as Saudi
Arabia's contribution to the international fiscal stimulus.
Al-Assaf said that he was pleased the Saudi Government (SAG)
was able to stick to its budget and resist pressures last
year to spend the windfall from higher oil prices. The last
few years' savings provided Finance with the buffer it needed
to continue the investment program when oil prices fell to
$30/barrel this spring. Al-Assaf underscored the importance
of continuing to closely follow Saudi Arabia's established
budget targets.

Admiration for U.S. Leadership in the G20:
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3. (C) Al-Assaf was very complimentary of President Obama's
leadership and that of senior USG officials, which he
credited with achieving consensus at the Pittsburgh Summit on
a number of difficult issues. He stressed the importance of
continuing efforts to reform the international financial
system, and to continue stimulus programs until the world
economy gets "out of the woods." Al-Assaf is proud of the
role Saudi Arabia is playing as the G20 representative of oil
producers and Arab countries. Al-Assaf said this is an
extension of the leadership role that Saudi Arabia plays in
the Islamic world, and fits in with Saudi Arabia's
international activism. He noted that Saudi Arabia's
assistance policies are a good example of this activism, as
Saudi Arabia gives significantly more than the international
standard of 0.7 percent of its GDP. Al-Assaf also noted that
Saudi Arabia will look to continue to play a "responsible
role" in the IMF, World Bank, and regional development banks.


4. (C) Al-Assaf supported the decision to shift IMF quotas
from developed countries to emerging countries. He stressed,
however, that this shift should not come from Saudi Arabia's
share. Instead, it should be from European countries.
Al-Assaf argued that Saudi Arabia's importance is much
greater than its percentage of world GDP. He noted that
Saudi Arabia has always been a significant supporter of the
IMF, providing it with funds year in and year out for crises.
Its role as the world's largest oil exporter is also not
fully captured in the GDP share. Al-Assaf said that Saudi
Arabia will count on support from the United States on this
issue.

U.S. Relations:
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5. (C) Al-Assaf said Saudi Arabia deeply values its
relationship with the United States, which has lasted many
decades. Al-Assaf was pleased that relations seem to be back
on track, recovering from their "detour" after 9/11. He said
that close contact with U.S. officials at the Federal Reserve
and in Washington was very much appreciated during last
year's financial crisis, including coordinating positions
within the International Financial Institutions. Al-Assaf

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noted that U.S. companies have always enjoyed a preeminent
position in trade and investment, although this is
increasingly challenged by other countries. Al-Assaf said it
was important for Saudi Arabia that our investment and trade
relationship remain strong and vibrant.


6. (C) In that regard, Al-Assaf pushed for concluding two
agreements that he thought would strengthen our relations.
The first is an agreement on the avoidance of double
taxation, which he would like to conclude soon. The second
would be to reopen discussions between the U.S. and the GCC
on a Free Trade Agreement (FTA). Al-Assaf noted that the
United States has already signed FTAs with two GCC members,
Oman and Bahrain. Al-Assaf noted this caused significant
heartache within the GCC, as the GCC had always intended to
proceed with these kinds of trade agreements as a group.
This is now causing headaches for Saudi Customs, for
instance, as it has to apply different tariffs on goods,
despite the GCC customs union. Al-Assaf understood the U.S.
position is that it would prefer to sign agreements with
individual countries, although he was aware we had recently
signed an agreement with a Caribbean group. Al-Assaf
concluded by expressing the hope that the U.S. could conclude
an FTA with the GCC before the EU. He said the GCC is "fed
up" with the EU because it continues to place new conditions
on the negotiations. As a result, they have officially
suspended EU negotiations (in December 2008). (Note: GCC
officials made the same pitch for a GCC-U.S. FTA to visiting
AUSTR Chris Wilson on October 20. End Note)

Energy:
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7. (C) Al-Assaf expressed satisfaction with the price of oil
over $70/barrel. He attributed much of last year's run up in
price to speculation. Saudi Arabia believes it makes sense
to bring the market mechanisms used for last year's
speculation under greater supervision to allow them to
continue to be useful for markets without fueling
speculation. Al-Assaf said it is impossible for producers
and consumers to pursue a policy of independence from each
other. Instead, they need to pursue cooperation. Al-Assaf
said this is why Saudi Arabia sponsored the International
Energy Forum (IEF) in Riyadh, which demonstrates Saudi
Arabia's commitment to cooperation and dialogue between
producers and consumers. Al-Assaf stressed that security of
demand is just as important for Saudi Arabia as security of
supply is for consumers. He noted that Saudi Arabia has seen
calls before (e.g., the late 1970's) to increase production
at a time of high prices, only to invest billions in spare
production which never reaches the market. Al-Assaf said
Saudi Arabia had made a major commitment to the world's
future stability and growth by investing to increase capacity
to 12.5 million barrels a day, which he expected would all be
used eventually. Despite the financial crisis, he said the
MOF made sure these investments stayed on track in 2008,
which demonstrates Saudi's commitment to the health of the
world economy.


8. (C) Particularly against that backdrop, it is very
important, Al-Assaf said, that Saudi Arabia not feel targeted
in international discussions on energy or environmental
issues. While Saudi Arabia supports greater energy
efficiency, and is looking into other sources of energy such
as nuclear and solar, it is important to avoid international
moves to impose heavy taxes on oil to subsidize other forms
of energy. Saudi Arabia gets particularly concerned when
fuels like coal, which pollutes more than oil, receive
subsidies while oil is taxed.

Foreign Assistance:
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9. (C) The Ambassador thanked Al-Assaf for Saudi Arabia's
continued assistance for Pakistan, and hoped the Kingdom
would remain closely engaged (ref A). Al-Assaf said the head
of the Saudi Fund for Development would travel "in a few
days" to Pakistan for a signing ceremony to deposit part of
the pledge Saudi Arabia made in Tokyo (ref B),and implement
part of the export facility. Al-Assaf also said that Saudi
Arabia has told the UN secretariat that it will contribute
$100 million for Pakistani refugees (SFD officials have
indicated this will be divided between a number of UN
agencies per an agreement between the SFD and the UN's
country committee for Pakistan). He promised that Saudi
Arabia will continue to work with Pakistan, and hoped also to

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continue to support Afghanistan.
SMITH