VZCZCXRO3318
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #2179/01 2151334
ZNR UUUUU ZZH
P 031334Z AUG 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 0576
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0865
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 KABUL 002179 
 
DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS FOR AID/ASIA SCAA 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS OPIC 
DEPT PASS FOR TDA FOR STEIN AND GREENIP 
USOECD FOR ENERGY ATTACHE 
CENTCOM FOR CSTC-A 
NSC FOR JJONES AND GSMITH 
DASD FOR DSEDNEY 
TREASURY FOR JCASAL, ABAUKOL, MNUGENT, AND AWELLER 
COMMERCE FOR HAMROCK-MANN, DEES, CHOPPIN, AND FONOVICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958 N/A 
TAGS: EFIN EAID ECON EAGR PGOV AF
 
SUBJECT: Ambassador Wayne and SRAP Staff Meetings with Afghan 
Finance Minister Zakhilwal and Central Bank Governor Fitrat 
 
REF: A) Kabul 2002, B) Kabul 2056 
 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) In a July 26 meeting with Finance Minister Zakhilwal, 
Ambassador Wayne and SRAP staff praised successful efforts by the 
GIRoA to increase revenue collection in Afghanistan and address 
corruption.  Zakhilwal said that donors should reward this progress 
by channeling more aid through the central government budget.  He 
also made clear that direct budget support could be conditioned on 
additional reform measures.  Ambassador Wayne stressed the need to 
demonstrate accountability as U.S. assistance to Afghanistan 
increases and noted that the U.S. Mission has approved the 
Ministry's request to receive direct budget support.  Zakhilwal 
mentioned that strengthening revenue collection is of primary 
importance and that he has instituted a policy of zero tolerance for 
corruption at the Ministry.  He requested U.S. assistance in 
increasing transparency, including help in strengthening the 
government's internal audit function. In a separate meeting on July 
27, Ambassador Wayne and SRAP staff met with Central Bank Governor 
Fitrat to encourage expansion - and oversight - of mobile banking. 
SRAP staff thanked Fitrat for his leadership on money service 
provider (hawala) licensing and stressed the importance of continued 
efforts in this area.  Fitrat requested the Ambassador's support in 
completing ongoing work to establish Afghan deposit insurance, build 
a banking institute, and start an Afghan stock exchange to generate 
long-term capital. 
 
End Summary 
 
------------------------------------- 
FOCUS ON INCREASED REVENUE COLLECTION 
------------------------------------- 
 
¶2. (SBU) Ambassador Wayne and Mr. Rami Shy, who serves as U.S. 
Treasury's representative to SRAP, opened the meeting with Finance 
Minister Zakhilwal saying the U.S. was very encouraged by increased 
customs and tax revenue collection.  Zakhilwal noted that his team - 
in the final month of the last fiscal year (SY 1387) - surpassed the 
IMF revenue target by adopting strong measures (Note: The original 
IMF revenue target was lowered and would note have been surpassed 
otherwise.  Importantly, however, Minister Zakhilwal's efforts at 
the end of SY 1387 undoubtedly played a key role in exceeding the 
lowered target.  Moreover, these efforts helped set the conditions 
for revenue collection progress in the current fiscal year).  These 
measures included dismissal of underperforming and corrupt 
collection officials, instituting rewards for performing staff, 
daily reporting, and prioritization of revenue collection across the 
Ministry.  He pointed out that these measures were continued into 
the current fiscal year and as a result revenue year-over-year is up 
more than 80%.  Moreover, in the area of customs revenue, the 
Government has doubled revenue collection year-over-year and 
believes that even greater gains are possible.  Importantly, 
Minister Zakhilwal recently unveiled to donors a 'Revenue Action 
Plan' that recommends further steps and should result in better 
collection results if properly implemented and resourced.  The 
current IMF revenue collection target is Afs 51 billion (roughly USD 
1 billion).  If the Ministry of Finance maintains revenue collection 
at its current pace, GIRoA will greatly exceed the IMF's target for 
SY 1388. Comment: Enhanced revenue collection is also a result of 
improved clarity on institutional arrangements of government 
entities at the border.  Earlier this year, the Ministry of Finance 
gained agreement from the Ministry of Commerce and Industries to 
implement an MOU that guaranteed Customs Officers unfettered access 
to verify fuel imports at the state-owned Fuel and Liquid Gas 
Enterprise (FLGE) facility in Hairatan.  In mid-July, Ministers of 
Finance and Interior signed an MOU in which they commit to enhancing 
cooperation at the border.  This will help to improve border 
security as well as facilitate Customs officer's ability to fulfill 
their mandate for revenue collection. 
 
KABUL 00002179  002 OF 003 
 
 
 
¶3. (SBU) Ambassador Wayne advised Zakhilwal that the U.S. Mission 
has approved direct budget support to the Ministry of Finance to 
fund at least 22 of the 55 priority technical advisory positions 
with up to $30 million over two years (Reftel A). We intend to pilot 
this initiative and work with UNAMA and other donors, and pursue 
expanded support (based on successful performance of this pilot). 
Zakhilwal thanked the Ambassador and said that this should open the 
door for more direct budget support.  He pointed out that 
approximately 20% of aid goes through the Afghan system and that 
this percentage should be increased.  To bolster this point, 
Zakhilwal mentioned that the financial management system of 
Afghanistan is strong and transparent, representing a real 
achievement for the government.  He said he hopes to further improve 
transparency through the provision of technical assistance for the 
Ministry's Internal Audit Department and the reinstatement of 
Article 61, which will give the Ministry internal audit authority 
over other Ministries. Strengthening GIRoA's Internal Audit 
function, specifically reinstatement of Article 61, is also an 
Afghanistan Reconstruction Trust Fund 'conditioned' benchmark.  This 
Incentive Program essentially offers additional discretionary 
funding if the GIRoA meets certain pre-agreed benchmarks on an 
annual basis (Reftel B). 
 
¶4. (SBU) Zakhilwal noted that the current leadership within the 
cabinet is very good and communication is better than he has ever 
seen during his time in government.  He further pointed out that 
people underestimate President Karzai's commitment to reform.  More 
broadly, Zakhilwal called on the Ambassador and SRAP staff for help 
in moving forward efforts to reform the Ministry of Mines and other 
ministries that collect non-tax revenue (e.g. Ministry of Interior 
and Ministry of Transport and Civil Aviation).  In particular, 
Zakhilwal believes that mining contracts are not fully transparent 
and that material extracted is often worth more than what is being 
collected.  As a result, the cabinet asked the Ministry of Finance 
to review all finalized mining contracts (except the Aynak copper 
mine) to ensure proper revenue collection.  Improvement of the 
regulatory framework and transparency in the mining sector is also 
an Afghanistan Reconstruction Trust Fund 'conditioned' benchmark 
(Reftel B). 
 
------------------------- 
EXPANDING MOBILE BANKING 
------------------------- 
 
¶5. (SBU) In a separate meeting, Ambassador Wayne, Mr. Rami Shy, and 
SRAP Special Advisor Ashley Bommer met with Central Bank Governor 
Fitrat to discuss the expansion of mobile banking and to follow-up 
on his efforts to license and supervise money service providers in 
Afghanistan.  Governor Fitrat said he is trying to create a 
partnership between the formal banking sector and the mobile banking 
platform.  For example, to alleviate banker's uncertainties with 
mobile banking, he is bringing the various parties together for a 
mobile money workshop on August 11.  Ambassador Wayne and SRAP staff 
encouraged Fitrat to continue his leadership in this important area, 
noting that mobile banking represents a viable platform for ensuring 
payment to GIRoA employees in remote areas.  Fitrat agreed and added 
that this technology could also be used to pay electricity bills and 
other debts over time.  He also said he has seen tremendous growth 
in credit unions operating in difficult areas where soldiers rarely 
go.  These credit unions, according to Fitrat, are offering a 
variety of popular Sharia-compliant products to finance development 
and agriculture. 
 
¶6. (SBU) Fitrat outlined provisions of a new Central Bank draft 
regulation for the mobile banking sector. Interested parties have 
one month to comment on the draft regulation, which provides basic 
consumer protection, limits daily and monthly remittance amounts 
(USD 600 and 3,000 respectively), and provides anti-money laundering 
measures and combating the financing of terrorism controls.  Fitrat 
noted his vision is in the beginning to limit the amount of mobile 
banking agents to around 1,000.  This, he believes, will help ensure 
that the agents are chosen carefully.  As a result, mobile banking 
 
KABUL 00002179  003 OF 003 
 
 
customers will be better serviced and protected.  He emphasized the 
importance of ensuring that there are no delays in mobile banking 
payments from agents to customers and said that he would be 
following this issue closely.  Note: There are currently 650 agents 
and some 70,000 mobile banking customers. 
 
-------------------------------------------- 
TACKLING UNLICENSED MONEY SERVICE PROVIDERS 
-------------------------------------------- 
 
¶7. (SBU) Mr. Shy pointed out that the U.S. is encouraged by Fitrat's 
important work in the area of money service provider licensing.  Mr. 
Shy further said to Fitrat that success in this area is widely seen 
in Washington as an important sign of progress in Afghanistan. 
Fitrat believed that his supervision team would soon finish money 
service provider licensing in Mazar-e-Sharif and then move next to 
Herat and ultimately Kandahar and surrounding provinces in the 
South.  In response to a question from Mr. Shy, Fitrat indicated 
that licensing money service providers (many for the first time 
ever) presented several challenges along the way; challenges that - 
for the most part - have been overcome. 
 
----------------------------- 
BUILDING THE FINANCIAL SECTOR 
----------------------------- 
 
¶8. (SBU) Governor Fitrat outlined several key initiatives and 
requested Ambassador Wayne's support in ensuring their delivery via 
U.S. funding.  These initiatives include the start-up of an Afghan 
Deposit Insurance Corporation (ADIC), Afghan Institute of Banking 
and Finance, and an Afghan stock exchange to raise more long-term 
capital.  Under the Central Bank's scheme, the ADIC would provide 
insurance for depositors up to the equivalent of $1,000 or Afs 
50,000.  The Afghan Institute of Banking and Finance would provide 
basic training to the more than 6,000 financial sector employees 
throughout the country (half of whom are female).  According to 
Fitrat, very few opportunities are available to further train 
domestic talent in the area of banking and financial services, 
representing an important gap.  In the coming months, Fitrat would 
like to bring representatives of the NASDAQ to Kabul or Dubai for 
further discussion on setting up a stock market along the lines of 
what was done previously in Iraq.  Fitrat also mentioned ongoing 
work to finalize a web-based Afghan Credit Information Bureau that 
will operate from the Central Bank.  According to Fitrat, the 
private sector is not currently equipped to take on this critical 
function. 
 
------- 
COMMENT 
------- 
 
¶9. (SBU) Members of Zakhilwal's executive team recently told FINATT 
that revenue collection may decline or remain at present levels in 
the coming months due to the August 20 election and Ramadan.  It is 
important to closely monitor revenue collection developments during 
this time and maintain continued pressure in this area.  Governor 
Fitrat's commitment to making mobile banking work is important and 
represents a relatively new development on his part.  Moreover, the 
Central Bank's efforts to license and supervise money service 
providers (hawala) are critical and require the Mission's continued 
attention as efforts move beyond Kunduz and Mazar-e-Sharif into 
Herat and Kandahar. 
 
EIKENBERRY