TRADE MINISTER DISCUSSES PDS WITH ASSISTANT CHIEF

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000182 SIPDIS USTR FOR DAWN SHACKLEFORD, CHRISTIAN DEANGELIS E.O. 12958: DECL: 01/25/2020 TAGS: EAGR EAID ECON ETRD IZ KCOR PREF WFP SUBJECT: TRADE MINISTER DISCUSSES PDS WITH ASSISTANT CHIEF OF MISSION FOR ASSISTANCE TRANSITION REF: A. 09 BAGHDAD 2621 ¶B. 09 BAGHDAD 2374 ¶C. 09 BAGHDAD 3055 ¶D. BAGHDAD 1378 ¶E. 09 BAGHDAD 1388 BAGHDAD 00000182 001.2 OF 002 Classified By: Assistant Chief of Mission for Assistance Transition Pat ricia Haslach for reasons 1.4 (b) and (d). ¶1. (C) Summary: The GOI has finalized a memorandum of understanding with the World Food Program (WFP) to develop management capacity for Iraq's Saddam-era $7 billion feeding program, the Public Distribution System (PDS). In a January 19 meeting, Acting Trade Minister Safaa al-Deen al-Safi told Assistant Chief of Mission for Assistance Transition Haslach that PDS reform efforts would remain slow (ref A) but that current plans included a multiple-step process to reduce the number of beneficiaries. The process would ultimately result in the complete elimination of the PDS by 2015, according to al-Safi, who repeated a request from WFP for USG funding to implement the training associated with the MOU. We recommend declining to fund the program. End Summary. Progress on Public Distribution System (PDS) Reform -------------- -------------- ¶2. (C) In a January 19 meeting called by Assistant Chief of Mission for Assistance Transition Haslach, Acting Trade Minister Safaa al-Safi told Haslach that the utility of the GOI's Public Distribution System had declined, except in the cases of Iraq's poorest classes, and that plans were in place to completely eliminate the program by 2015. In the meantime, al-Safi was working to introduce an "income-based system" for reducing the number of eligible beneficiaries. "Some people don't deserve to get these commodities," he said. "We are devoting a significant portion of our budget to people who don't need it." ¶3. (C) Al-Safi noted that he had signed a memorandum of understanding with the World Food Program for a capacity-building program to improve PDS management at the Trade Ministry. He asked for USG support to fund the $17 million program. (Note: In September 2009, the WFP submitted a proposal seeking $8.5 million from Post - half of the total $17 million required to embed a team of about 20 technical advisors (with life-support) at all levels of the MOT and throughout the PDS' supply chain (national, provisional, and local) to train supply chain managers in procurement, quality control, shipping, warehousing, and distribution. End Note.) ¶4. (C) The WFP had initially pushed the MOT to accept a much more robust, multi-phase program that included the WFP assuming procurement and supply chain management functions for parts of the PDS (ref C). WFP representatives have told us that al-Safi declined these components, which would have been the most useful in addressing the prolific corruption in the PDS. ¶5. (C) Comment: We understand the same proposal may have been submitted through WFP Geneva channels. After careful consideration, Post recommends declining to fund the proposal for the following reasons: - The WFP is holding in escrow a GOI-owned Oil-For-Food-era fund totaling more than $17 million from insurance recoveries for lost or damaged shipments of food assistance. The WFP asserts that the GOI could release these funds. Al-Safi said that policymakers would rather use the funds for other projects. - The PDS is a classic centrally-planned approach to providing welfare. It distorts markets and blocks the growth Qproviding welfare. It distorts markets and blocks the growth of market-based food distribution systems. It is already only semi-functioning in several governorates. Developing capacity may only serve to prolong this wasteful, mismanaged and market-distorting program (ref B). - The GOI's decision to partner with the WFP ahead of national elections may be a short term political maneuver designed only to placate discontent among the electorate about the shrinking PDS. - In the short term, training may be wasted on GOI officials and Ministry employees who could be replaced after national elections. BAGHDAD 00000182 002.2 OF 002 - If the elections result in substantial changes in GOI or MOT leadership, there is no guarantee that the new officials would still support the reform program. - The WFP program, which operates its own emergency feeding program in Iraq, may be enabling GOI corruption by relieving pressure on the GOI to provide real food assistance through the PDS. - The WFP proposal does not address fundamental issues of corruption in the PDS. The proposal does not commit resources to assist in the detection of corrupt activities, including: monitoring systems, accurate reporting on delivery of goods, etc. - Overhead costs for the program (salaries, security, benefits, equipment, and other costs) would approach 50% of total program funds. End Comment. HILL