VZCZCXRO3524
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #4099/01 3511326
ZNR UUUUU ZZH
R 171326Z DEC 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 4899
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 004099 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN PGOV IZ
SUBJECT: IRAQI LEGISLATIVE CASE STUDY: JAPANESE ODA LOAN 
RATIFICATION 
 
REF: A. BAGHDAD SBU OI OF 10/24/07 
 
     ¶B. BAGHDAD SBU OI OF 10/15/07 
     ¶C. BAGHDAD CLASSIFIED OI OF 09/20/07 
     ¶D. BAGHDAD CLASSIFIED OI OF 08/03/07 
     ¶E. BAGHDAD 2568 
 
¶1. (SBU) Begin Summary: Approximately one year following 
initial agreement, a batch of Iraqi reconstruction assistance 
projects financed with Japanese soft-loans has nearly 
completed its journey through the Iraqi legislative process. 
Currently, ten projects (valued at some USD 2.1 billion) have 
been identified and agreed upon by the Government of Japan 
(GOJ) and the Government of Iraq (GOI) through an Exchange of 
Notes (E/N). The GOJ has encountered a number of obstacles 
and experienced great frustration in securing Iraqi 
legislative ratification for its Official Development 
Assistance (ODA) loans. The Japanese ODA Loan experience 
underscores a significant need to further capacity 
development within the GOI, in both the executive and 
legislative branches. With so much focus on the passage of 
key legislation by the Iraqi Council of Representatives 
(CoR), reflecting on the GOJ's experience may prove a useful 
guide. End Summary. 
 
---------- 
Background 
---------- 
 
¶2. (U) At the Madrid Donors Conference in 2003, the GOJ 
pledged USD 5 billion for reconstruction assistance in Iraq, 
with USD 1.5 billion in grants and the balance in low 
interest or "soft" loans. Since then, the GOJ has been 
actively seeking to implement that assistance, and in early 
2007 the Japanese and the GOI jointly identified 8 projects 
that Japan would fund. The projects include removal of 
wreckage from the Port of Umm Qasr as well as an effort to 
rehabilitate the electricity sector across Iraq. 
 
¶3. (SBU) To date, the Japanese have agreed (by E/N) to 
finance 10 reconstruction projects with soft loans worth 
approximately USD 2.1 billion. The loans carry an interest 
rate of 0.75 percent with a repayment period of 40 years 
(including a 10-year grace period). Originally, the Council 
of Ministers (CoM) sought to include the first tranche of 
four loans in the 2007 budget law as well as World Bank IDA 
and Iranian loans among others. The CoR rejected the 
inclusion of the loans into the budget bill, and insisted 
that loan ratifications be considered separately from the 
budget. 
 
---------------------------------------- 
MoF: Azez does it all, but sometimes not 
---------------------------------------- 
 
¶4. (SBU) In the intervening period between the 2007 budget 
deliberations (which ended in February 2007) and the 
reintroduction of the Japanese loans into a separate piece of 
legislation, the GOJ and GOI signed a second E/N on 9 April 
2007 covering 4 additional projects raising the tally to 
eight. The Ministry of Finance carries the responsibility 
within the GOI for loan agreements; a significant portion of 
this responsibility apparently rests with senior advisor Azez 
Hassan Jaffar. Azez would have been charged with preparing 
the draft legislation concerning loan ratification. 
Ratification of any of the loans was not reintroduced in 
legislation until 22 July 2007 in the waning moments prior to 
the August recess when the second tranche of loans (E/N 
signed 9 April 07) had its first reading. 
 
¶5. (SBU) Azez is similarly our primary interlocutor on a 
number of fiscal policy issues, including sovereign debt 
negotiations. Our GOJ contacts have complained that he is 
very difficult to reach (often traveling out of country) and, 
because of his involvement in so many different issues, 
rarely focuses on the Japanese loan issue. The GOJ has 
requested our help in identifying an alternate. We are 
unaware of anyone who might be able to fill in for Azez and 
believe this limitation has been and will continue to affect 
the MoF's capacity to deal with a range of competing 
priorities. 
 
----------------------- 
CoR Puzzled by Projects 
----------------------- 
 
¶6. (U) The Japanese loan legislation that had its first 
reading on 22 July 2007 listed only 4 of the 8 projects 
(specifically, the second tranche of four projects agreed 
with a 9 April 2007 E/N) that had been agreed. The partial 
listing engendered confusion in the CoR, the GOI, and the GOJ 
(reftel E). The projects detailed in this piece of 
 
BAGHDAD 00004099  002 OF 003 
 
 
legislation included three reconstruction projects centered 
in or around Basra, and the fourth an Iraq-wide electricity 
sector reconstruction project. Because the GOJ failed to take 
any action early lobbying for passage of their projects, the 
legislation became vulnerable to unfair accusations, namely 
that the projects disproportionately benefited only Shia in 
the south. Still, in spite of some opposition, the CoR voted 
29 July to approve the ratification of a tranche of Japanese 
loans. 
 
¶7. (SBU) In our conversations with various CoR members and 
other GOI officials (refs A-D), the CoR exhibited a poor 
understanding for the mechanism the GOJ used for identifying 
projects. Many expressed concern that the projects were not 
equitably distributed, but, when we reminded them that the 
projects had been selected at a time when predominantly Sunni 
areas, like Anbar, were not particularly stable, they 
recognized the wisdom behind why no projects were located in 
Sunni-dominated areas. We also stressed to our Iraqi 
interlocutors that the CoR should not unduly delay passage of 
the loans because the international donor community might 
balk at providing additional assistance given the GOJ's 
frustrations with its ODA loan ratification, which likewise 
registered. 
 
----------------------------- 
PC Ratification Not Automatic 
----------------------------- 
 
¶8. (U) Although the Iraqi Constitution (Article 138, para 5) 
defines the rules governing Presidency Council (PC) approval 
of legislation passed by the CoR -- specifically that if the 
PC takes no action on legislation within ten days from the 
date of delivery to the PC, it should be considered approved 
-- the Japanese loan experience illustrates it may be that in 
practice, no legislation will be promulgated without explicit 
PC approval, regardless of the time involved. For instance, 
the ratification bill approved by the CoR on 29 July 2007 
should have been considered passed according to a strict 
interpretation of the aforementioned constitutional article. 
However, according to CoR documentation, the PC vetoed the 
legislation 13 September 2007, a period of time much longer 
than that constitutionally permitted. Due to a lack of 
transparency in the transmission of documentation, the PC is 
able to manipulate the delivery date of documents, thus 
providing an umbrella to rebut any claims that it has 
exceeded the time allotted for consideration of legislation. 
When it comes to the legislative process, we have learned 
time and again that nothing, not even the timely delivery of 
documents from one IZ location (CoR) to another (PC 
Secretariat), can be taken for granted. 
 
SIPDIS 
 
-------------------------- 
Equitable Distribution Key 
-------------------------- 
 
¶9. (U) The implied reason for the PC veto (responsibility for 
which belongs to VP Tareq al-Hashimi) lies in the 
interpretation of yet another article of the Iraqi 
Constitution. Article 106 mandates the establishment of a 
public commission, among whose responsibilities include, 
"(the verification of) the fair distribution of 
...international loans." Our conversations with CoR members, 
particularly those affiliated with the Sunni al-Tawafuq 
Front, indicate that their interpretation of the above 
article is such that international loan financed-projects 
that they consider not equitably distributed are 
unconstitutional. We may expect further delays on similar 
loan ratification bills (the Italians have pledged a sizable 
amount of loan assistance to the agricultural sector) due to 
a provision within the 2008 draft budget bill, which calls 
for the equitable distribution of international loans to 
provinces according to population (with the KRG due to 
receive 17 percent), with the exception of "strategic" 
projects. 
 
-------------- 
Engage Hashimi 
-------------- 
 
¶10. (SBU) The CoR overruled the first PC veto on four 
Japanese loan-financed projects 17 November 2007, nearly two 
months after the PC vetoed it. The Japanese might have been 
able to dissuade VP Hashimi from issuing a veto in the first 
place had they lobbied him earlier in the legislative 
process. In fact, Ambassador Crocker garnered a pledge from 
VP Hashimi during a 25 October meeting that Hashimi would no 
longer hold up passage of the Japanese loan legislation. 
Regarding the separate tranche of four projects, the CoR 
approved the legislation 24 September 2007, with PC approval 
on 4 November 2007. The final two projects of the 10 that 
 
BAGHDAD 00004099  003 OF 003 
 
 
have been agreed had their first reading in the CoR on 29 
November 2007. 
 
------- 
Comment 
------- 
 
¶11. (SBU) The Japanese experience reaffirms the necessity to 
further GOI capacity building efforts, particularly in the 
CoR. With the benefit of hindsight, several of the pitfalls 
the Japanese encountered might have been avoided; however, 
navigating GOI parliamentary procedure is a relatively new 
experience for all involved. In our conversations with the 
Japanese, they have expressed disappointment that the process 
has consumed much valuable time, but have expressed genuine 
gratitude for our assistance in lobbying for the passage of 
their loan ratification. In the future, early identification 
and lobbying of all potential stakeholders will be crucial to 
ensuring speedy, ultimate passage of any important piece of 
legislation. At each and every stage of the process, 
regardless of how minor it may seem, the potential to derail 
any bill exists. End Comment. 
 
CROCKER