VZCZCXRO1452
PP RUEHDBU
DE RUEHBUL #3299/01 2070929
ZNY CCCCC ZZH
P 260929Z JUL 06
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 1523
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCNAFG/AFGHANISTAN COLLECTIVE
RULSDMK/DEPT OF TRANSPORTATION WASHDC 0092
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEFDIA/DIA WASHDC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 KABUL 003299 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EB/FRONT OFFICE AND EB/OMA 
SCA/FO, SCA/A, SCA/CEN 
NSC FOR AHARRIMAN 
CENTCOM FOR CG CFC-A 
TREASURY PASS TO ANDY BAUKOL, MARK JASKOWIAK, AND JAMIE 
FRANCO 
 
E.O. 12958: DECL: 07/27/2016 
TAGS: ECON EFIN EAID PGOV USAID
SUBJECT: AFGHANISTAN - A/S SULLIVAN DISCUSSES DEBT RELIEF 
AND ECONOMIC CLIMATE WITH FINMIN AHADY 
 
 
Classified By: Deputy Chief of Mission Richard Norland.  Reasons 1.4 (b 
) and (d). 
 
¶1. (U) Meeting attendees from the USG: 
     A/S Sullivan 
     CDA Norland 
     OPIC, Deputy Chief of Staff, Dulce Zahniser 
     State, Bilateral Trade Officer, Mary Beth Goodman 
     Econ Counselor, Jack Spilsbury 
     Treasury Attache, Sonja Renander 
 
     Attendees from the GOA: 
     Minister of Finance, Ahady 
     Advisor to the Minister, Allan Kelly 
     Advisor to the Minister, Lisa Pinsley 
 
¶2.  (SBU) SUMMARY: The meeting between EB A/S Daniel Sullivan 
and Afghan Finance Minister Anwar-ul Haq Ahady, on July 15, 
covered a range of issues, including: power development in 
Afghanistan, debt relief negotiations at the Paris Club, 
budget and revenue performance, and how to effectively fight 
corruption in Afghanistan.  During the discussions A/S 
Sullivan strongly urged Ahady to conclude the Paris Club 
negotiations as soon as possible. (Pursuant to his discussion 
with A/S Sullivan, Ahady subsequently reversed a GOA decision 
to delay talks in Paris until September, thus opening the way 
to the agreement reached by the Paris Club creditors on July 
18, to provide Afghanistan a 100% write off of their claims.) 
 A/S Sullivan also agreed to follow up on the Minister's 
request for help regarding implementing an appropriate 
anti-corruption framework in Afghanistan. END SUMMARY 
 
----------------------------- 
BUILDING POWER INFRASTRUCTURE 
----------------------------- 
 
¶3. (SBU) A/S Sullivan opened the July 15 meeting by 
describing his trip to Turkey and the opening of the BTC 
pipeline.  Ahady noted the importance of power development 
and the need to attract investment. In addition, Ahady 
expressed some frustration over the slow development of the 
power sector in Afghanistan, in particular with respect to 
the northern transmission line.  Advisor Kelly noted that the 
Government of India is working on one section of the line and 
that they are currently six weeks ahead of schedule on the 
construction. Turning to discussions about the development of 
a gas pipeline, Ahady said that he did not think that a 
pipeline through Afghanistan would ever be developed without 
U.S. encouragement. If feasible, he saw a pipeline from 
Turkmenistan as a potential source of additional revenue for 
Afghanistan, especially as demand for energy increases in 
South Asia.  Sullivan noted that it was important to make 
sure that any pipeline be commercially viable. Ahady 
expressed frustration that this proposal has been on the 
table since 1993, and yet no one in the government seems to 
know whether the project is commercially viable. Ahady said 
that although energy is not under his Ministry's 
responsibility that he would have his staff engage on the 
pipeline proposal when it is next raised by the Ministry of 
Mines in order to press the question of economic viability. 
 
--------------------------------------------- --------------- 
DEBT RELIEF - 360 ON DECISION TO NEGOTIATE AT THE PARIS CLUB 
--------------------------------------------- --------------- 
 
¶4. (SBU) By way of background, on Thursday, July 13, the GOA 
had decided not to attend the Paris Club meetings that were 
scheduled to begin on Tuesday July 18th in Paris, where the 
GOA would negotiate with its creditors for debt relief.  The 
GOA pulled out of the meetings because in meetings with 
President Karzai and the cabinet there was a decision that 
parliament would need to be consulted before negotiations 
could begin. Parliament was not scheduled to be back in 
session until the 22nd of July.  As a result, the GOA sent 
out letters to the Paris Club, and to the Russians 
 
KABUL 00003299  002 OF 003 
 
 
apologizing for the delay of negotiations until the September 
Paris Club session, and asking for patience as the GOA worked 
through its governmental processes. (NOTE: Pursuant to his 
discussion with A/S Sullivan, however, Ahady proceeded to 
reverse the GOA decision to delay and was able to reinstate 
the Afghan debt issue on the July 18 Paris Club agenda. At 
the July 18th session, all Paris Club creditors, which 
include Germany, Russia, and the U.S., agreed to provide 
Afghanistan a 100% write off of their claims. Russia's claims 
total over $11.1 billion.  END NOTE.) 
 
¶5. (C) On the subject of debt relief A/S Sullivan asked for 
an update on the current state of play. Sullivan also related 
USG experiences on securing debt relief for Iraq from the 
Russians, and how timing was critical for securing the deal. 
With respect to Afghanistan, Sullivan urged the Minister to 
move as quickly as possible to solidify debt relief with its 
creditors, particularly given that the Russians presently 
seemed favorably disposed to 100% debt relief.  Ahady agreed 
that he was also concerned about the timing, and had 
expressed this concern to President Karzai that morning. 
Ahady explained how he had taken the proposal to debt relief 
before the President and the cabinet for approval, and that 
they had agreed, but that there was concern about the 
sensitivity with parliament, recognizing that the very 
acknowledgment of Russian debt could cause political problems 
for the Karzai administration. 
 
¶6. (C) However, the GOA had now decided that rather than 
consulting the parliament as a whole that they could perhaps 
move forward with negotiations by consulting a select group 
of parliamentarians.  The meeting with the parliamentarians 
was to take place on Sunday, July 16th.  If the outcome of 
the meeting is favorable Ahady said that he would like to go 
ahead with negotiations in Paris beginning July 18th.  A/S 
Sullivan expressed that waiting until the September 
negotiations leaves more time for things to go awry and for 
the Russians to change their minds. TREASATT agreed to follow 
up with Treasury to see if Ahady's proposal is feasible. 
TREASATT also noted that the GOA still needs to reconcile its 
debt with the Russians, and the Russians might not be willing 
to negotiate at this juncture.  Ahady said he did not think 
there was much to negotiate since he does not have any 
leverage with the Russians, that essentially he just has to 
agree to whatever number the Russians put forward. He also 
indicated that since the Afghan private claims could not be 
included in the deal, that he had talked to President Karzai 
about perhaps doing a special deal with the Afghan private 
sector.  He did not elaborate further on what this deal might 
include. 
 
¶7. (C) Ahady further explained that he felt that the GOA 
needs to move forward on debt relief now in order to clean up 
its balance sheet - that 100% is the best deal that they are 
going to get and they need to take advantage of the favorable 
environment now. Ahady recognized, however, that there is 
some risk that they may not receive the 100% write-off if 
they don't reach completion point under the Highly Indebted 
Poor Countries (HIPC) initiative. HIPC links a country's debt 
stock write-off to performance under an IMF program, the 
development of a poverty reduction strategy, and the 
completion of a number of structural benchmarks. 
 
--------------------------------------------- ------- 
BUDGET IMPLEMENTATION - IMPROVING REVENUE COLLECTION 
--------------------------------------------- ------- 
 
¶8. (SBU) A/S Sullivan also inquired into the implementation 
of the 1385 budget and how the government is doing in terms 
of meeting their revenue collection targets.  Minister Ahady 
related that revenues were slow in the first quarter of the 
year, but they still have exceeded their revenue target set 
by the IMF by a substantial margin, although the numbers are 
not yet final. Ahady estimated that the revenues for first 
quarter were $181 million, of which $40 million was 
 
KABUL 00003299  003 OF 003 
 
 
non-recurrent revenue, against a target of $105 million. 
Ahady attributed the increases to the implementation of a 
road toll tax that will generate roughly $8-$10 million in 
the 1385 fiscal year, and an additional $30-40 million for 
the increase in the customs tariffs from an average of 4% to 
6%. However, there are problems with the implementation of 
the tariff rationalization program as many traders have 
protested the increases.  To appease the traders, Ahady 
indicated that they may need to compromise by decreasing the 
average tariff rate to some unspecified lower rate. 
 
¶9. (SBU) A/S Sullivan asked how these revenues contributed to 
the budget overall and how much of government expenditures 
are covered by government revenues. Ahady relayed that out of 
a recurrent budget of $831 million, $520 million is covered 
by government revenue, and given current revenue trends Ahady 
expects the total revenue to increase to $550 million by 
year-end.  The revenue number could be higher, but there is 
leakage at the border and there is not strong compliance with 
the business receipt tax. Ahady explained that he was not 
pushing broad tax compliance at this time because he does not 
have the capacity to enforce it and he thinks that tax 
compliance needs to be phased-in due to political concerns. 
 
---------------------------------- 
FIGHTING CORRUPTION IN AFGHANISTAN 
---------------------------------- 
 
¶10. (SBU) After hearing about the leakage at the border, A/S 
Sullivan inquired about the government's efforts to address 
corruption.  Ahady was energized by this topic and said that 
he is in need of help to deal with the problem, and that he 
had asked the World Bank to do a study on causes and 
mechanisms behind corruption in Afghanistan; he was not sure 
where this stood. TREASATT agreed to follow up with the World 
Bank to determine the status of the report. In particular, 
the Minister expressed that what he would really like is a 
broad, cross-cutting action plan with USG help on how to deal 
with corruption in Afghanistan. A/S Sullivan thought that it 
was important to explore additional potential resources to 
help the GOA fight corruption and to continue to work with 
the GOA to comprehensively address corruption issues. 
NEUMANN