VZCZCXYZ6721
RR RUEHWEB

DE RUEHGB #0643/01 0650741
ZNR UUUUU ZZH
R 050741Z MAR 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 6049
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS BAGHDAD 000643 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EAID EFIN EINV EAGR ENRG IZ
SUBJECT: Dialogue on Economic Cooperation Ends With Follow-Up 
Commitment 
 
¶1. (SBU) SUMMARY: The Government of Iraq (GOI) hosted the U.S. 
Government (USG) at the Al Rasheed Hotel in Baghdad February 27-28, 
2008 for the U.S.-Iraq Dialogue on Economic Cooperation (DEC). 
Senior officials from both governments discussed the nature of the 
bilateral economic relationship, its future direction, and what the 
GOI can do to accelerate economic growth and improve the lives of 
its citizens.  Over the course of eight working group sessions that 
covered a broad spectrum of Iraq's economic sectors, the GOI and USG 
both noted the importance of including the private sector in all 
manner of economic reforms.  As a result of these sessions, the GOI 
and USG agreed to number of key 'next steps' for pursuing economic 
growth in Iraq, which will be tracked jointly by the High Economic 
Committee Secretariat within the Iraqi Council of Ministers and the 
U.S. Embassy in Baghdad.  They also agreed to continue this 
important dialogue by holding another DEC in spring 2009.  END 
SUMMARY. 
 
-------------------- 
Dialogue Reconvenes 
-------------------- 
¶2. (SBU) The Government of Iraq (GOI) hosted the U.S. Government 
(USG) at the Al Rasheed Hotel in Baghdad February 27-28, 2008 for 
the U.S.-Iraq Dialogue on Economic Cooperation (DEC).  The DEC 
allowed senior officials from both governments to discuss the nature 
of the bilateral relationship, its future direction, and what the 
GOI can do to accelerate economic growth and improve the lives of 
its citizens.  Over the course of various working group sessions 
that covered a broad spectrum of Iraq's economic sectors, the GOI 
and USG both noted the importance of including the private sector in 
all manner of economic reforms. 
 
¶3. (SBU) As a result of these sessions, the GOI and USG agreed to 
number of key 'next steps' for pursuing economic growth in Iraq, 
including: 
 
--  Developing an action plan on state-owned bank restructuring; 
--  Ratifying the U.S.-Iraq Trade and Investment Framework Agreement 
(TIFA) in the Iraqi Council of Representatives (CoR) and convening 
the first TIFA Council meeting in 2008; 
--  Helping Iraq take better advantage of the benefits of the U.S. 
Generalized System of Preferences; 
--  Extending the USDA's heretofore successful Iraq Agricultural 
Extension Revitalization (IAER) program; 
--  Working together to create a comprehensive national energy 
strategy and improve investment in oil and gas; 
--  Pursuing GOI membership in the Extractive Industries 
Transparency Initiative (EITI); 
--  Implementing social safety net (SSN) measures to protect 
vulnerable Iraqi citizens; 
--  Reforming the Iraqi public distribution system (PDS); and 
--  Increasing USG technical assistance to improve budget execution 
and build ministerial capacity. 
 
¶4. (SBU) To continue constructive bilateral dialogue, both sides 
agreed to mandate the High Economic Committee Secretariat within the 
Iraqi Council of Ministers and the U.S. Embassy in Baghdad to follow 
up coordination and implement recommendation and decisions of this 
meeting.  They also agreed to hold another DEC in spring 2009, the 
location of which will be determined. 
 
¶5. (SBU) The DEC is the sixth in a series of bilateral economic 
meetings since 2003 that have focused on Iraq's economic reform 
agenda and priorities.  Iraqi Deputy Prime Minister Dr. Barham Salih 
co-chaired the meeting with U.S. Under Secretary of State for 
Economics, Energy, and Agriculture Reuben Jeffery III and Treasury 
Under Secretary for International Affairs David McCormick.  The 
Iraqi delegation included the Ministers of Finance, Planning, Oil, 
Electricity, Industry & Minerals, Trade, Construction & Housing, and 
Agriculture, as well as Iraqi Presidency and Council of Ministers 
senior officials.  The USG delegation included top officials and 
specialists from the State Department, Treasury Department, U.S. 
Agency for International Development (USAID), Department of 
Agriculture (USDA), Department of Commerce, Department of Energy, 
Office of the U.S. Trade Representative, Iraq Transition Assistance 
Office (ITAO), and Multi-National Forces-Iraq. 
 
¶6. (SBU) The senior-level representation at the meeting highlighted 
Iraqi leaders' ongoing commitment to establishing a robust, 
market-oriented economy, as described in the International Compact 
with Iraq, and the U.S. government's continued role in supporting 
these efforts.  The significance of the meeting being held in 
Baghdad was noted by many of the participants. 
 
--------------- 
Opening Plenary 
--------------- 
¶7. (SBU) Deputy Prime Minister Dr. Barham Salih and Finance Minister 
Bayan Jabr elaborated on some of the economic gains Iraq was able to 
achieve over the past year, including spending significantly more of 
their own money on capital investment and reconstruction, 
considerable reduction of both official and privately-held debt, 
 
drastic reduction in the rate of inflation, and adjusting fuel 
prices to reign in fuel smuggling.  Both underscored the importance 
of taking advantage of security gains and the need for continued 
reforms, including banking sector reform, anti-corruption measures, 
and tax reform. 
 
¶8. (SBU) U.S. Ambassador to Iraq Ryan Crocker, U/S of State Jeffery, 
and Treasury U/S McCormick all noted the significant economic 
progress Iraq has made, particularly under the International Compact 
with Iraq.  Each expressed interest in deepening the bilateral 
economic relationship between the U.S. and Iraq to promote further 
economic reform in the coming years.  USAID Acting Deputy 
Administrator Kunder also offered USAID's continued support. 
 
¶9. (SBU) Charles Ries, Embassy Baghdad's Coordinator for Economic 
Transition in Iraq, gave a brief presentation outlining U.S. 
assistance efforts in Iraq since 2003 and the changing nature of the 
bilateral economic relationship. 
 
--------------------------------------- 
Banking Sector Reform Working Group 
--------------------------------------- 
¶10. (SBU) Treasury U/S McCormick and Finance Minister Jabr led their 
respective delegations during this very substantive working group. 
The GOI noted that Iraq needs to keep pace with the global banking 
sector, and that it has begun that process by committing to 
restructure Iraq's two largest state-owned banks, Rafidain and 
Rasheed.  DPM Salih, who joined the session in mid stream, demanded 
that an action plan on bank restructuring be presented to the 
Council of Ministers by end March 2008.  DPM Salih also specifically 
asked for USG assistance in developing this action plan, a point on 
which both U/S McCormick and CETI Ries agreed to follow up. Minister 
Jabr also suggested that both banks, particularly the lagging 
Rasheed, need to make progress in developing core banking systems. 
 
¶11. (SBU) On Letters of Credit (L/Cs), Hussein al-Uzri, President of 
the Trade Bank of Iraq, noted the recent decision that all L/Cs 
below $2 million will be processed through private sector banks, 
which will expand private banks' share of L/Cs to around 12% of the 
total volume of L/Cs, or around $500 million.  Minister Jabr 
emphasized the need for the TBI to begin distributing more L/Cs to 
the private sector. 
 
---------------------------------- 
Trade and Investment Working Group 
---------------------------------- 
¶12. (SBU) One of the key issues discussed in this working group was 
the TIFA.  The TIFA has yet to be ratified by the Iraqi CoR, but is 
one of many items on the CoR's agenda when it returns.  Dr. Abdul 
Hadi al-Hamiri special advisor to the Ministry of Trade, said he 
would like to lay the groundwork now for the TIFA Council stipulated 
in the agreement and be able to announce its formation after the 
agreement is ratified by Iraq.  Both sides agreed to begin planning 
for a Council meeting in the near future, pending the ratification 
by the Iraqi CoR. 
 
¶13. (SBU) The other major issues discussed were economic zones and 
Iraq's accession to the World Trade Organization (WTO).  On economic 
zones, the Finance Ministry representative indicated that looting 
and infrastructure damage during the last six years have closed 
Iraq's economic zones, and called for huge amounts of funding for 
reconstruction in these areas to convince outside investors to 
return.  DPM Salih also requested U.S. legislation for 
industrialized zones.  In response, AUSTR Meredith Broadbent 
recommended, alternatively, that it would be beneficial to conduct 
an educational campaign on the Generalized System of Preferences 
throughout Iraq, a proposal which interested the Ministry of Trade. 
On the WTO accession process, Dr. Al-Hamiri noted that Iraq 
confirmed with the WTO Secretariat to hold its second WTO Working 
Party meeting for April 2. 
 
------------------------- 
Agriculture Working Group 
------------------------- 
¶14. (SBU) The Iraqi Ministry of Agriculture (MoA), USAID, and USDA 
all presented their respective current activities for developing the 
agricultural sector in Iraq, and their plans for future development 
and collaboration.  Deputy Minister of Agriculture Dr. Subhi 
Al-Jumaily indicated that the MoA is guided by two strategic 
documents: the Prime Minister's Agricultural Development Initiative 
and a 3-year strategic plan that the MoA is developing.  MoA 
emphasized the importance of the Coalition consulting with MoA 
before new agriculture projects are announced. 
 
¶15. (SBU) USDA made known that their successful IAER program would 
be extended for an additional two years, through 2010.  The MoA was 
also particularly interested in more information about USAID's INMA 
program, about which USAID agreed to brief the MoA by the end of 
March.  Additionally, USAID suggested that, due to current USG 
budget shortages that are likely to continue, a GOI-USG dialogue on 
cost-sharing of agricultural programs should start now. 
 
 
-------------------- 
Energy Working Group 
-------------------- 
¶16. (SBU) This discussion focused on two aspects of the energy 
situation: the management of proceeds of oil and gas sales, and the 
development of oil and gas resources.  On the former, Dr. Azez, 
special advisor to the Ministry of Finance, indicated that the 
Iraqi-led Council of Financial Experts (COFE), which has been 
identified as the replacement to the International Advisory and 
Monitoring Board for Iraq (IAMB), has the full confidence of the GOI 
as it works with the IAMB in preparation for taking over auditing 
the Development Fund for Iraq (DFI) in January 2009. 
 
(SBU) Regarding oil and gas resource development, the GOI delegation 
stressed the importance of international investment and new 
technology to improve these sectors, and indicated that a 10-year 
plan exists to improve production. The U.S. delegation stated that 
international private companies are interested in investing in Iraq, 
but that the right legal and regulatory framework has to be in 
place.  The Technical Service Agreements (TSAs) that the Ministry of 
Oil (MoO) is currently pursuing are a good start, but are not the 
solution; a framework law is needed.  The U.S. delegation also 
pressed the importance of developing a collaborative, comprehensive 
National Energy Strategy, but no such strategy is planned.  The GOI 
requested help in developing such a strategy. 
 
------------------------------ 
Economic Revival Working Group 
------------------------------ 
¶17. (SBU) Deputy Minister of Industry and Minerals Dr. Sami Al-Araji 
advocated for Iraq moving to a market economy, but cautioned 
participants that it could not be "at any price."  He said that the 
Ministry of Industry and Minerals (MIM) was focusing its efforts on 
Small and Medium-sized Enterprise (SME) promotion, in particular how 
to hone SMEs to produce the "inputs" needed for Iraq's 
reconstruction and development like steel, cement, and fertilizer. 
The Ministry of Industry and Minerals and the Ministry of Labor and 
Social Affairs highlighted various GOI programs - particularly 
favorable lending and SOE revitalization - to help boost private 
sector development. 
 
¶18. (SBU) The U.S. delegation agreed that SMEs will create the most 
jobs, which is also the case in the United States.  USAID Deputy 
Assistant Administrator James Bever noted, however, that private 
banks will need to take a greater lending role and that there is a 
need for Iraq to develop that capacity for contract enforcement. 
Susan Hamrock-Mann from the U.S. Commerce Department cited the 
February 9 U.S.-Iraq Business Dialogue as a good way to leverage 
ways to attract US investment, but said that "capital is 
conscientious" and will look to find the most efficient commercial 
and legal environment. 
 
----------------------------- 
Anti-Corruption Working Group 
----------------------------- 
¶19. (SBU) The WG on Anti-Corruption was led by Dr. Faik Abdul Rasool 
and Econ Counselor Todd Schwartz on the US side. MoO Director 
General Nihad Ahmad Moosa presented an official letter, which had 
been sent earlier on behalf of the Government of Iraq to the 
Extractive Industries Transparency Initiative (EITI). The letter 
formally announced the GoI's intent to become an EITI member. DG 
Nihad issued a request for a subject matter expert to assist the GoI 
in gaining EITI membership. USAID Director described his agency's 
transparency initiatives. (Note: The Iraqi side had only two 
representatives for this WG. End note) 
 
------------------------------------- 
Iraqi Living Conditions Working Group 
------------------------------------- 
¶20. (SBU) Representatives from the Ministries of Labor and Social 
Affairs (MOLSA), Trade, and Housing and Reconstruction presented on 
several programs and issues, including the SSN, the PDS, and housing 
initiatives respectively.  On PDS reform, the Ministry of Trade 
announced a three-year plan, beginning in 2008, to overhaul the PDS. 
 On housing initiatives, the Ministry of Housing and Construction 
noted that there is currently the need for roughly 1.6 million 
housing units.  The Ministry plans to combat this by building new 
units, rehabilitating old units, and augmenting the state-owned Real 
Estate Bank to encourage investment. 
 
¶21. (SBU) Dr. Ahmad Ridha, Chairman of the National Investment 
Commission (NIC), contended that diversifying the economy beyond oil 
and passing critical legislation relating to investments, including 
the monetary law, are key steps towards making the Iraq economy the 
largest in the Middle East.  He stated that the NIC would be fully 
engaged in creating the proper legal and regulatory framework for 
attracting investment.  He also asked the Americans to encourage 
investment in Iraq and assist Iraq with purchasing modern 
technologies. 
 
---------------------------------- 
Ministerial Capacity Working Group 
---------------------------------- 
¶22. (SBU) This working group addressed the challenges and 
opportunities associated with GOI budget execution and reported on 
capacity building projects.  The GOI highlighted its improved budget 
execution in 2007, but Dr. Aziz from the MoF said Iraq's cash-based 
accounting system hampered the GOI's ability to record accurate 
figures for budget execution.  Looking ahead to 2008, Dr. Faik, a 
special advisor to the Ministry of Planning, said the GOI expected 
continued improvements, pointing out that that the GOI had increased 
governors' and ministers' contract-signing authorities.  The 
American delegation sympathized with the GOI's accounting challenges 
and expressed the USG's desire to continue working with the GOI to 
improve budget execution performance.  The GOI and USG delegations 
also agreed on the importance of re-starting the Iraq Financial 
Management Information System, especially in the provinces. 
 
¶23. (SBU) On ministerial capacity building, the GOI delegation 
indicated that their own capacity development initiatives are in the 
early stages, and facing some growing pains.  Minister of Planning 
Ali Baban said that USG-sponsored capacity-building programs would 
benefit from more cultural sensitivity and an understanding that 
many GOI officials and ministries have existing administrative 
strengths.  USAID's Chris Crawley recognized these points and stated 
USAID planned to hire more Arabic speakers from other Gulf countries 
to lead capacity-building initiatives. 
 
--------------- 
Closing Plenary 
--------------- 
¶24. (SBU) DPM Salih led the closing session.  Noting the 
improvements in security, DPM Salih stated that these positive 
changes would not be successful in the long term without economic 
reforms and improved living standards.  Iraqis are proud of the 
achievements they have made despite the on-going difficulties, he 
said.  Going forward, programs must translate into real dividends on 
the ground for the Iraqi people.  The Deputy Prime Minister also 
specifically said that a new energy policy, agreed upon by the Iraqi 
government, would be adopted. 
 
¶25. (SBU) While noting that the country faces difficult challenges, 
including political problems, the DPM stated there was consensus 
among the political leadership to tackle these challenges.  The GOI, 
he said, was committed to dealing with economic reforms in 
cooperation with the international community to achieve progress at 
the national and regional levels.  Both DPM Salih and Finance 
Minister Bayan Jabr expressed their appreciation for such excellent 
U.S. participation. 
 
¶26. (SBU) Treasury U/S McCormick and U/S of State Reuben Jeffery 
highlighted the positive outcomes of the productive two-day meeting, 
and underscored that the way forward on Iraq's economy would be one 
of partnership with, and support from, the United States. 
 
¶27. (SBU) Ambassador Ries extended thanks on behalf of Ambassador 
Crocker for all the participants who had made the meeting a 
success. 
 
CROCKER