VZCZCXRO8129
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2830/01 2351429
ZNR UUUUU ZZH
R 231429Z AUG 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 2969
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 002830 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV IZ
SUBJECT: PENSION REFORM UPDATE: WILL COOLER HEADS PREVAIL? 
 
REF: A. BAGHDAD 2402 
     ¶B. BAGHDAD 2528 
     ¶C. BAGHDAD 2500 
     ¶D. BAGHDAD 2604 
 
 ¶1. (SBU) Begin Summary: The future of pension benefits for 
Iraqi retirees remains in doubt as debate on the first 
amendment to the Unified Retirement Law (#27/2006) will not 
resume until the Council of Representatives (CoR) reconvenes 
in September following its summer recess. The Pension Reform 
Steering Committee (PRSC) led by Ministry of Finance (MoF) 
officials has met on several occasions and has prepared a 
presentation on adjusting the pension benefit levels for 
existing retirees that will be briefed to the Council of 
Ministers (CoM) in the near future. CoR members have 
expressed concern that existing retirees' benefits will be 
substantially less than the benefits of those opting to 
retire after the legislation goes into effect. Enacting 
pension reform that will not cripple Iraq's fiscal solvency 
is crucial for many obvious reasons, first among them to 
assuage the IMF SBA requirement that the total expenditures 
for pensions not exceed 5.5 percent of GDP. With the 
extension of the SBA through December announced in early 
August, the sense of urgency has waned; however, the passage 
of sensible pension reform, satisfying internal political 
demands without jeopardizing fiscal stability, represents an 
important test in governance for Iraq. End Summary. 
 
---------------------------------------- 
Background of the Unified Retirement Law 
---------------------------------------- 
 
¶2. (SBU) The Unified Retirement Law was published in January 
2006, but the CoM decided to postpone indefinitely its 
enactment because they considered it incomplete and faulty. 
In its original form, the law did not include a minimum age 
for retirement, only 15 years of service. An oversight in the 
law would permit only those employees in office as of the 
date of publication (17 January 2006) with 15 years of 
service to enter into retirement. Without an amendment to 
mitigate this unintended consequence, employees who may have 
met the minimum years of service requirement, but were not in 
office as of the date of publication, would never be eligible 
to receive a pension under the provisions of the law. Most 
controversially, the law did not make explicit retirement 
provisions for large segments of the population such as 
reinstated former political dissidents and former employees 
of dismantled entities (primarily state owned enterprises). 
 
¶3. (U) In late August 2006, the Pension Reform Steering 
Committee (PRSC) met with IMF and World Bank officials in 
Amman and agreed on a series of revisions to the Unified 
Retirement Law. The group addressed several of the 
outstanding problematic provisions with the overarching goal 
of ensuring the long term fiscal solvency for Iraq. 
Additionally, the group considered pension systems in 
neighboring countries to provide context. The amendment 
includes the following key provisions: a minimum age of 50 
for retirement, compulsory retirement at 63 with a possible 
three-year extension, minimum pension amounts, redefining 
disability and survivor pensions to comport with 
international standards, and an annual inflation-based 
adjustment. 
 
---------------------------------- 
No Unequal Treatment Under the Law 
---------------------------------- 
 
¶4. (SBU) The first amendment, with provisions as agreed by 
the IMF and WB, to the Unified Retirement Law had its second 
reading on 3 July 2007 at the CoR, sparking acrimonious 
debate. The most politically charged issue was the 
arbitrarily discriminatory treatment of pensioners who 
retired prior to the publication date of the law. Debate in 
the CoR focused on the discrepancies between new pensioners 
and existing pensioners who retired under the old system, 
because new retirees stand to earn more lucrative pensions 
under the terms of the amendment. Several CoR members called 
for another amendment to make retroactive any benefits 
calculation to the pensioners who entered into retirement 
prior to the 17 January 2006 publication of the law. 
According to the MPs, this measure would ensure equality of 
pensions for all retired Iraqis. 
 
--------------------------------------- 
Proposed Solution: Marginal Inequality? 
--------------------------------------- 
 
¶5. (U) Following the amendment's second reading, the PRSC was 
tasked to prepare a white paper outlining the fiscal effects 
associated with adjusting upward the minimum pension payments 
for existing retirees, as some CoR members demanded. (Note: 
 
BAGHDAD 00002830  002 OF 002 
 
 
The IMF and WB stated unequivocally that recalculating 
benefits for existing pensioners to match those proposed for 
new retirees according to the new system for calculating 
benefits would not be possible because of the fiscal strain 
such a provision would incur. The PRSC has consistently 
advised the CoR that any change in benefits calculations 
should not constitute a disproportionate burden on the 
federal budget. End Note). The paper was first presented on 
the morning of 30 July 2007 (the CoR's final session prior to 
the August recess) to the CoR Finance Committee, which in 
turn presented it to the plenary later that same day. 
According to a USAID contractor in attendance for the 
presentation, the CoR agreed to the PRSC proposal. 
 
¶6. (SBU) The MoF and CoM are responsible for implementing the 
legislation. However, the CoR Finance Committee, claiming 
they could not trust the executive branch, insisted that the 
PRSC make the presentations on the proposed modifications to 
the CoR so that the amendment to the law would explicitly 
reflect the CoR's consensus. The PRSC is scheduled to give 
the same presentation on the new methodology to the Council 
of Ministers in August. If it meets with the CoM's approval 
(though not required for passage in the CoR), the amendment 
to the Unified Retirement Law should achieve passage without 
further delay. 
 
---------------- 
A Need for Haste 
---------------- 
 
¶7. (U) The published Unified Retirement Law mandates the 
creation of a State Pension Fund, a theoretically 
self-sustaining fund (with contributions from the state and 
employees) from which retirees will be paid. All pensioners 
currently are paid from the Federal Budget and not from the 
State Pension fund because of the CoM's decision to suspend 
indefinitely the enactment of the law. However, the creation 
of the State Pension fund will not be possible until the 
amendment is passed because establishing the fund would 
implicitly validate the law. Moreover, the Federal Budget law 
that was passed for 2007 mandates the establishment of the 
State Pension fund during the 2007 fiscal year (which ends at 
the conclusion of the current calendar year). 
 
 
¶8. (SBU) The principal concern for the IMF and WB is that 
total pension expenditures, in whatever form, not exceed 5.5 
percent of GDP. The amendment's proposed changes in its 
current form satisfy this requirement. On August 2, the IMF 
announced the extension through December of the Stand-By 
Arrangement (SBA) for Iraq based partially on assurances that 
the CoR would pass sensible pension reform. 
 
------- 
Comment 
------- 
 
¶9. (SBU) Begin Comment: We will continue to report on the 
status of this legislation as it winds its way back through 
the CoR upon its return from August recess. Based upon our 
conversations with members of both the legislative and 
executive branches (see reftels), parties with vested 
interests recognize the need to weigh carefully political 
considerations and fiscal concerns. The new proposals by the 
PRSC specifically address the CoR's concern that all retirees 
who fall into similar categories receive as close to the same 
benefits as possible. It will be telling to see how the GOI 
passes this test of governance and illustrative of its 
development to date. End Comment. 
 
 
CROCKER