VZCZCXRO4529
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0507 0530923
ZNR UUUUU ZZH
R 220923Z FEB 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 5842
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS BAGHDAD 000507 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV IZ
SUBJECT: COUNCIL OF MINISTERS ISSUES REGULATIONS TO IMPROVE 
BUDGET EXECUTION 
 
¶1. (U) According to internal GOI memoranda, the Council of 
Ministers (CoM) agreed in a January 27 meeting to a package 
of reforms aimed at improving Iraq's capital budget execution 
performance. The new regulations stipulate formation of 
internal ministerial contracting committees (chaired by the 
head of each ministry/agency or designee) to review 
contracts. For the ministries of Defense, Interior, Oil, 
Trade, Health, Electricity, Industry and Minerals, Water 
Resources, and Municipalities and Public Works, the attendant 
internal contracting review committees are authorized to 
approve contracts worth up to USD 50 million (whereas the 
previous ceiling was USD 20 million for Defense, Oil, 
Electricity and Trade, and USD 10 million for the others). 
Other ministries not listed above may approve contracts worth 
up to USD 30 million (up from a previous ceiling of USD 10 
million). The governorates are authorized to approve 
contracts worth up to USD 10 million (up from USD 5 million). 
 
¶2. (U) The regulations also stipulate that heads of 
ministries and agencies not linked to a ministry may 
authorize a designee to approve contracts, but only contracts 
whose value do not exceed USD 5 million. For governorates, 
the threshold is USD 3 million. For contracts exceeding the 
aforementioned thresholds in para 1, the regulations outline 
the creation of a new "Central Contracts Committee" (to 
replace the former Contracts Committee) chaired by the State 
Minister for Council of Representatives Affairs (currently 
Dr. Safa al-Safi) and including representatives from the 
Ministries of Finance and Planning, Board of Supreme Audit, 
and the CoM Secretariat. 
 
¶3. (U) Stemming from the same January 27 meeting, the CoM 
Secretariat also outlined a new procedure intended to 
 
SIPDIS 
simplify the process for opening letters of credit L/Cs Under 
the new guidelines, L/Cs worth less than USD 2 million will 
be transferred from the Trade Bank of Iraq (TBI) to private 
banks with reliable correspondent accounts for processing. 
According to the instructions, 72 percent of the number of 
L/Cs opened in 2007 fell under this criteria and comprised 
approximately 7.5 percent of the total value of L/Cs opened 
in 2007. Furthermore, L/Cs worth less than USD 2 million will 
no longer need to be processed by the Ministry of Finance. 
Instead, L/C applications fitting this criteria may be sent 
directly to the Central Bank of Iraq for processing provided 
that a copy of the contract is sent simultaneously to the 
Ministry of Finance for review. A new account (that will be 
replenished periodically) for the Ministry of Finance will be 
opened at the TBI with a minimum of USD 250 million expressly 
for L/Cs valued at under USD 2 million. 
 
¶4. (U) For L/Cs worth more than USD 2 million, the CoM issued 
new procedures intended to streamline processing, including 
opening a "help desk" of sorts at the Ministry of Finance and 
mandating responses on L/C applications from the Ministry of 
Finance within 5 working days, after which approval from the 
Ministry of Finance should be assumed. The new procedures as 
outlined attempt to reduce the amount of time required to 
open L/Cs to no more than two weeks. 
 
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Comment 
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¶5. (SBU) The efficacy of the proposed reforms will become 
apparent as they are implemented. While GOI attempts to 
improve budget execution are certainly welcome and should be 
encouraged, the underlying problem of an overall lack of 
capacity remains. Furthermore, although the L/C reforms state 
explicitly that approvals should be assumed if the Ministry 
of Finance does not respond within 5 working days, in 
practice we have rarely seen such implicit approvals to be 
taken at face value. 
 
CROCKER