TRADE MINISTER DISCUSSES PDS WITH ASSISTANT CHIEF

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


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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