This record is a partial extract of the original cable. The full text of the original cable is not available.

210701Z Dec 05

UNCLAS SECTION 01 OF 02 AMMAN 009795 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EFIN EAID JO
SUBJECT: MEPI-FUNDED TREASURY ADVISOR HELPING JORDAN WITH 
CRITICAL DEBT ISSUES 
 
 
¶1.  SUMMARY:  Since May 2004, the Treasury Department's 
Office of Technical Assistance has provided a debt advisor 
to Jordan's Ministry of Finance.  Funded by MEPI, the 
advisor has helped the Ministry rationalize its debt 
issuance and improve its coordination with the Central Bank 
of Jordan (CBJ).  The goals of the advisory program include 
creating reliable cash forecasting for the Ministry, 
providing training, and establishing a framework for the 
management of domestic and external debt on a long-term 
basis.  In addition, the program is aimed at helping Jordan 
develop secondary markets for debt issuances.  Although 
hampered by three different Finance Ministers since his 
arrival, the Advisor has made substantial progress, and has 
already had important interactions with the new Finance 
Minister, who also holds the portfolio of Deputy Prime 
Minister. End Summary. 
 
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THE OTA PROGRAM IN JORDAN 
------------------------- 
 
¶2.  The Treasury Department's Office of Technical Assistance 
(OTA) first provided technical assistance to Jordan's 
Ministry of Finance (MoF) in 2000-2002, when an advisor was 
seconded to the Ministry to assist in establishing the basis 
for MoF financing and creating  methodology for operations 
within the MoF's Debt Department.  The principal objective 
of the current OTA Government Debt Issuance and Management 
(GDIM)-Jordan project is to develop primary and secondary 
markets for issuance of securities by MoF.  Included in this 
objective are such issues as reliable cash forecasting, 
effective interaction between MoF, CBJ, and investors, 
training personnel to build the necessary capacity, and 
establishing a framework for the management of domestic and 
external debt on a long term basis.  The Advisor is housed 
in the MoF and works closely on a day-to-day basis with his 
counterparts in the Ministry.  He also liaises with the CBJ 
and the banking community, to date the only significant 
investors buying the debt issued by the GoJ. 
 
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BETTER FINANCE MINISTRY-CENTRAL BANK COORDINATION 
--------------------------------------------- ---- 
 
¶3.  Advisor Gregory Ambrosio arrived in Jordan in late May. 
Since that time, he has made progress in a number of key 
areas related to the Terms of Reference signed between OTA 
and the MoF.  Inter-institutional coordination between MoF 
and CBJ has increased markedly.  The CBJ now ensures that 
necessary liquidity remains in the market so that when the 
MoF issues bonds or t-bills, prices are good.  This was a 
serious problem because the earlier high price for an MoF 
bond issuance in September was attributed to a lack of 
liquidity in the market after the CBJ had just previously 
issued certificates of deposit to mop up liquidity.  The 
lack of coordination between the two agencies forced the MoF 
to pay a very high interest rate of 9% to clear the market. 
 
¶4. Under the Advisor's initiative, for the first time, an 
annual (2006) debt issuance calendar has been prepared by 
the MoF and is awaiting final approval by DPM and Minister 
of Finance Ziad Fariz. Henceforth, the Ministry will publish 
its issuance plans on a quarterly basis. Additionally, 
issuance will be coordinated with the CBJ so that there is 
no overlapping of activities.  Communication between the 
domestic banking community and the MoF is also improving.  A 
regular meeting among the MoF's Debt Department, CBJ and the 
banking community to discuss issuance and other topics will 
be instituted in early 2006. 
Once these changes are approved, Ministry and CBJ operations 
will be synchronized, thereby ensuring the government is no 
longer forced to pay higher-than-expected interest rates in 
future bond/t-bill issuances. 
 
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HELP WITH OTHER ISSUES AND ON-GOING TRAINING 
-------------------------------------------- 
 
¶5. Discussions are also under way to deal with long-standing 
issues between MoF and CBJ, including the clearing up of a 
Ministry overdraft at the CBJ, an overdraft that has been 
outstanding for at least five years. 
 
¶6. Personnel at the MoF and the CBJ are currently receiving 
training in capital markets issues and issuance procedures. 
In response to their request, the Advisor has instituted a 
weekly training session to deal with all aspects of debt 
management. 
 
¶7.  As follow-up to the on-going work, an OTA Cash 
Management Training Team will arrive in Amman in January to 
introduce an Access-based cash management model.  The 
training will include all line ministries, the CBJ, and all 
other government entities enjoying money-flows. 
 
¶8.  The Advisor, working with a Washington-based Treasury 
legal advisor, also analyzed the Public Debt Law of 2001 and 
provided significant recommendations for its amendment, 
including adopting international standards and improving the 
legal foundations of the MoF's issuance activities. 
 
¶9.  The Advisor proposed the MoF issue a Request for 
Proposals for international investment banks to help the 
government hedge the currency risks in its external debt 
portfolio.  COMMENT:  Earlier this year, the weakness of the 
dollar against the euro and yen added $1 billion to Jordan's 
debt stock.  Although subsequent strengthening of the dollar 
has reduced this burden, hedging currency risk remains 
essential for the government.  END COMMENT. 
 
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NEXT STEPS IN THE PROJECT 
------------------------- 
 
¶10.  There have been three changes in the Government over 
the seven months since the advisor arrived in Jordan.  This 
lack of continuity has delayed some aspects of the agreed 
work plan.  The High Ministerial Committee (composed of the 
Ministers of Finance and Planning and the Governor of the 
Central Bank) is tasked with setting strategy and making 
recommendations on medium to long-term strategy. Although 
mandated by the 2001 Debt Law, the Committee has not yet 
met.  However, the new Minister has now agreed to convene 
the Committee for its first meeting in January. 
 
¶11.  The recommendations on hedging currency and interest 
rate risk in the external debt portfolio have not yet been 
adopted by the new Finance Minister but remain a priority 
for the Advisor and the Embassy.  In addition, the Advisor 
will be participating in drafting a Fiscal Agency Agreement 
between MoF and CBJ that will detail the relative roles and 
responsibilities of each vis--vis the issuance and payments 
of GoJ debt.  He will also work on finalizing the repayment 
by MoF to CBJ of the overdraft mentioned previously; on 
improving the domestic market infrastructure to promote 
investment in GoJ debt instruments; and on continuing to 
build capacity at the MoF, the CBJ and within the investment 
community. 
 
¶12.  COMMENT:  One of the most serious and pressing economic 
challenges Jordan faces today is the country's debt.  High 
oil prices, and the early end of hoped-for financial aid 
from the Gulf, have hit the government's finances hard. 
2006 will prove even more of a challenge to the government 
than 2005, as the government moves ahead to reduce fuel 
subsidies two more times, and to follow the strictures of 
its tough 2006 budget.  OTA's debt advisor will play a key 
part in helping the GoJ meet those challenges.