VZCZCXRO1424
OO RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHNO #0640/01 2991812
ZNY CCCCC ZZH
O 261812Z OCT 06
FM USMISSION USNATO
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 0165
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUCNMEC/MIDES COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUEKJCS/OSD WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 USNATO 000640 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
STATE FOR TREASURY 
 
E.O. 12958: DECL: 10/17/2016 
TAGS: MOPS NATO PREL IZ AF
SUBJECT: DEPUTY SECRETARY KIMMITT ADDRESSES THE NORTH 
ATLANTIC COUNCIL 
 
 
Classified By: Ambassador Victoria Nuland for reasons 1.4 (b) & (d) 
 
¶1.  (U) Summary:  Treasury Deputy Secretary Robert Kimmitt 
reviewed key points of the International Compact for Iraq 
(ICI) with the North Atlantic Council on 18 October 2006. 
Kimmitt noted that the ICI is a contract between the 
international community and Iraq with the goal of achieving 
economic self-sufficiency and financial independence within 
five years.  This effort is linked with security and 
political reforms, which should be mutually reinforcing.  The 
presentation generated significant interest among Allies, 
including a follow-up inquiry by the Slovak Mission on how to 
join the Compact.  It also served our larger goal of 
broadening strategic dialog among NATO Allies into vital 
security areas where the Alliance itself is not the lead 
actor. 
 
¶2.  (U) Deputy Secretary Kimmitt, reviewing key milestones, 
noted that the Compact was announced in July and a 
preparatory group composed of countries with the greatest 
financial engagement with Iraq at that point in time was 
formed.  Specifically, all countries with 200 million dollars 
in assistance or 4 billion dollars in debt forgiveness were 
invited to participate in the preparatory group.  The Iraqis 
organized the first meeting in Baghdad in July to craft the 
Iraqi contribution to the Compact:  a set of economic reforms 
designed to deliver growth and demonstrate progress to Iraqi 
citizens.  He noted that the Iraqi plan had been reviewed at 
ministerial-level meetings around the edges of the IMF/World 
Bank meetings in Singapore and the U.N. General Assembly 
meetings in New York.  Over 35 countries participated in such 
meetings.  A final preparatory group meeting is planned for 
October 31 in Kuwait City. 
 
¶3.  (C) Kimmitt said that the time has come to focus on the 
international community's side of the agreement.  He 
explained that, once the Compact is signed, any other party 
interested in assisting Iraq will be welcome to join the 
Compact.  Current Iraq needs include:  funding for economic 
development, security, and capital investment for 
reconstruction purposes.  He noted that GOI has its own 
resources and that no "Marshall Plan" structure is needed. 
He indicated that GOI has the potential to reach economic 
self-sufficiency within 5 years if they receive medium-term 
bridge support now.  The goal is to use the economic reform 
package to draw together the strategic center and help the 
government exercise control in the country. 
 
¶4.  (C) Kimmitt also noted that the GOI has proved able to 
meet defined targets and goals that contain conditionality 
components.  Their experience with the IMF stand-by agreement 
in particular demonstrates Iraq's ability to hold up its end 
of the Compact when it is finalized. 
 
¶5.  (C) In response to questions regarding Afghanistan, 
Kimmitt regretted that by comparison, the Afghan Compact 
lacks clear priorities or measurable targets.  As a 
consequence, the Afghan experience may not be a good 
indicator of how the Iraq Compact might function.  He noted 
that the U.S. is working to assist the Afghan finance 
ministry and Central Bank.  The upsurge in the flow of funds 
to the Taliban and Al Qaeda networks is a concern.  In a 
subsequent meeting, Ambassador Nuland suggested that getting 
the Gulf Arabs to look again at contributing to the 
Afghanistan Compact could breathe new life into the 
agreement.  For example, Gulf States with funds to donate 
could be "married-up" with smaller European countries who are 
leading PRT's in Afghanistan.  Kimmitt concurred, emphasizing 
that a demand side approach, especially for education and 
health care facilities, could prove to be successful.  He 
noted that there are some tricky issues associated with 
linking PRTs too closely to third-party donors.  Kimmitt also 
noted the need to understand better and encourage the 
participation of multilateral lending organizations like the 
Islamic Development Bank and the Arab Fund for Reconstruction 
and Development.  Kimmitt noted that in other EU meetings the 
potential role of the European Investment Bank was also 
discussed. 
 
¶6.  (C) Other PermRep questions to Kimmitt focused on oil 
revenues.  After describing the Iraqi's current and projected 
oil output, Deputy Secretary Kimmitt said that approximately 
200,000 barrels/day are being siphoned off to fund terrorism 
 
USNATO 00000640  002 OF 002 
 
 
and insurgency.  He explained that the goal of the Iraq 
Compact and related oil legislation is to create transparency 
from the well-head to the finance ministry, thereby thwarting 
those who would siphon oil off for personal gain or nefarious 
purposes.  Another goal is to distribute the revenues 
throughout the country, with 20% of the revenues going to the 
center of the country. 
 
¶7.  (C) Oil output is approaching pre-war levels, although 
revenues still lag due to siphoning between the well-head and 
the government.  Kimmitt indicated that the Iraqis have the 
potential to increase production from 2.5 million barrels per 
day to 4 million barrels per day over a five-year period, but 
this would require much more capital investment and security 
improvements, both of which need to come through foreign 
investment.  Even if the Iraqi budget grows substantially, 
the government will need these funds from increased 
production to service security needs in the near-term, so 
foreign investment will be key to continued growth in output. 
 
¶8.  (U) Deputy Secretary Kimmitt stated that overall, on a 
macro economic level, the Iraqis have laid out their plan 
well and they have a solid budget. 
 
¶9.  (C) Ambassador Nuland asked Kimmitt to brief PermReps 
also on U.S Treasury steps regarding North Korea.  In 
response, Kimmitt said that Treasury actions are aimed at 
specific conduct, not individual countries.  He further 
explained that Treasury's actions against the Banco Delta 
Asia bank branch in Macao were specifically designed to avoid 
extraterritorial issues.  Treasury's actions do not require, 
but often spur other governments or financial institutions to 
take action outside the United States.  They only cut off 
terrorist and other negative world actors' access to the U.S. 
financial system, thus impairing their ability to compromise 
the U.S. financial system.  The process also sends a strong 
message to the rest of the world about the importance of 
protecting financial systems from abuse.  Kimmitt noted that 
these are not political actions but law enforcement matters 
independent of the 6-party talks.  He also noted that the 
response to the actions taken by Treasury had been well 
received in the region.  In their private session, Nuland 
asked Kimmitt to ensure visiting Treasury officials stop at 
NATO from time to time to keep Allies briefed on terrorist 
finance, and the Iraq and Afghanistan Compacts. 
 
¶10.   This cable was cleared by Deputy Secretary of the 
Treasury Kimmitt while traveling. 
NULAND