VZCZCXRO6986
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3184/01 2761315
ZNR UUUUU ZZH
P 021315Z OCT 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 9747
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BAGHDAD 003184 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAGR ETRD ELAB PREL IZ
SUBJECT: INTERNAL DEBATE ON IRAQ'S PDS REFORM 
 
REF: A. BAGHDAD 2898 
     ¶B. BAGHDAD 2689 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
SUMMARY 
------- 
 
¶1. (SBU) The Ministry of Trade and the Prime Minister's 
Advisory Board are actively debating how to reform the Public 
Distribution System (PDS), but there is no consensus on the 
way forward.  Failure to reconcile the two sides could impede 
the GOI's ability to phase out the PDS in accordance with its 
International Compact with Iraq commitments.  End Summary. 
 
¶2. (SBU) On September 23, the United Nations Development 
Program (UNDP) hosted the first joint donor meeting with the 
GOI's Public Distribution System (PDS) Reform Steering 
Committee at UNAMI headquarters.  Participants included 
members of the Prime Minister's Advisory Board, the Ministry 
of Trade, the Ministry of Finance, and representatives from 
the World Bank, World Food Program, Food and Agriculture 
Organization, the International Labor Organization (ILO), UK 
DFID, and the Danish and U.S. Embassies.  The PDS is a 
universal food program - administered through the Ministry of 
Trade (MoT) -  through which the Iraqi Government attempts to 
provide a monthly basket of basic foods and assorted 
commodities.  Under the International Compact with Iraq, the 
GOI pledged to phase out the PDS by 2011. 
 
THE MINISTRY OF TRADE'S APPROACH 
-------------------------------- 
 
¶3. (SBU) Dr. Abdul Had Al-Hamriri, Senior Counselor to 
Minister of Trade (MoT) Al-Sudani, laid out the MoT's 
"Roadmap and Exit Strategy of the Government from the Public 
Distribution System," a phased plan that would monetize the 
PDS and fold it into social safety net payments by 2011. 
According to this approach, all Iraqi heads of households 
will be required to submit income declaration forms in late 
2008 as part of the annual re-registration for PDS benefits. 
District Advisory Councils (DAC) would then verify the 
information and transmit the forms to the MoT.  In 
cooperation with the Ministry of Planning and Development 
(MoPD), the MoT would use the declaration forms to means test 
beneficiaries and then create a new, shorter list of those 
eligible for PDS.  Moreover, said Al-Hamriri, some Iraqis 
would "opt out" of the system, rather than submit 
declarations.  (Comment: We have heard seperately from 
Minister Al-Sudani that, following the means-testing, he 
intends to remove the wealthiest 25 percent of Iraqis from 
the rolls (reftel A).  However, discussion of specific 
percentages is an extremely sensitive subject one that 
Al-Hamriri was reluctant to discuss in this form.  End 
Comment). 
 
¶4. (SBU) By the second half of 2009, families who are 
determined eligible to still receive PDS benefits would have 
the option of receiving either commodity allocations, as they 
do now, or cash payments that MoT would distribute via 
private and public banks.  Under this plan, the MoT would 
import 50 percent of current PDS supplies and distribute the 
items to the 60,000 existing PDS agents.  PDS beneficiaries 
would therefore have the choice of whether to purchase PDS 
items through the agents at fixed prices or from the private 
sector, depending on price and quality factors.  By the end 
of 2010, the MoT would transfer the value of PDS monetary 
benefits into GOI social safety net payments. 
 
THE PM'S ADVISORY BOARD'S APPROACH 
--------------------------------- 
 
¶5. (SBU) Dr. Abdulhussein Alanbaki, Economic Adviser to Prime 
Minister Maliki, explained that the PM's Advisory Board 
recommended a different approach, which would maintain PDS 
allocation numbers and beneficiaries, involve the private 
sector in the immediate administration of the PDS, and 
eventually move the system to a food stamp-like program. 
Stating the GOI had not yet "100 percent" approved the MoT's 
plan and citing significant "political, social, and economic" 
considerations behind the reform process, Alanbaki said the 
GOI needs to keep the PDS in its current form, but transfer 
its administration to the private sector in 2009.  Under this 
plan, the MoT would maintain a funding role, and, in 
2010-2011, the MoT, MoF, and MoPD would work together to 
begin the process of eliminating benefits for wealthy and 
middle class Iraqis, focusing the benefit to Iraq's neediest 
households.  The GOI would then incorporate a food stamp-like 
program that would drive the benefit allocation towards 
domestically-produced PDS items in order to bolster the Iraqi 
agricultural production. 
 
BOTH PLANS RIFE WITH RISKS 
 
BAGHDAD 00003184  002 OF 002 
 
 
-------------------------- 
 
¶6. (SBU) Advisory Board members questioned the MoT's capacity 
to continue administering the PDS in any form, given its 
unwieldy structure and rising food prices.  PM Advisor and 
Board Member Saad Ibrahim complained of systemic corruption 
in PDS, from import to distribution, arguing the private 
sector would help improve this problem.  PM Adviser Alanbaki 
further argued against monetization, referencing a COSIT 
survey that cited 90 percent opposition to monetized PDS 
benefits.  He also doubted whether the banking system was 
sufficiently prepared to handle PDS cash payments according 
to the MoT's timetable. 
 
¶7. (SBU) The MoT's Al-Hamriri, on the other hand, ruled out 
the Board's private sector strategy and said the MoT needed 
to continue to administer PDS.  He argued that the private 
sector was still grossly underdeveloped and any privatization 
of PDS administration would leave the system vulnerable to 
even more corruption.  "If you give private companies the 
contracts one day, they will be selling the products in Amman 
the next," he said.  A Ministry of Finance representative 
agreed with Al-Hamriri, arguing the risk of wide price 
fluctuations necessitated the need for significant government 
involvement.  As for the corruption charge that Board members 
leveled against current PDS administration, Al-Hamriri said 
the MoT's proposed self income declaration form, combined 
with the DAC audit, would help end corruption on the 
distribution end by weeding out ghost beneficiaries and by 
identifying forgery.  Advisory Board members responded that 
the MoT was overestimating the DACs' ability to verify 
information and underestimating the councils' susceptibility 
to corruption. 
 
INTERNATIONAL COMMUNITY WEIGHS IN 
--------------------------------- 
 
¶8. (SBU) International Organization representatives expressed 
concern over lack of progress on PDS reform.  Pointing out 
the GOI pledged to phase out the PDS completely by 2011 under 
the ICI, the UNDP's Simona Marinescu questioned why the 2009 
budget request for PDS was 6.4 trillion ID, essentially the 
same amount as in 2008.  On the various arguments presented 
by the steering committee members, Marinescu emphasized that 
both philosophies tied PDS benefits to the social safety net 
program, and the principal question was to what extent the 
private sector could participate.  "We should also bear in 
mind how you can publicize this, reduce reliance on imports, 
and create jobs," she added.  The International Labor 
Organization also agreed with the need to move PDS benefits 
to the social safety net program, but went further by saying 
this would need to be tied to the overall reform of the 
social safety net. 
 
COMMENT 
------- 
 
¶9. (SBU) After security and electricity, Provincial 
Reconstruction Teams and GOI interlocutors report that many 
Iraqis view PDS as perhaps the single most visible indicator 
of whether or not a democratically elected government can 
deliver services.  And Iraqi politicians are keenly aware of 
this reality -- a fact made plain by the dramatic disconnect 
between the reform strategy the PM,s Advisory Board has 
presented and that of the MOT.  At least for 2009, this 
disconnect will likely not be resolved.  MOT Al-Sudani has 
already told us even the initial step of collecting income 
information from beneficiaries will be delayed by several 
months (reftels), and the 2009 budget request is further 
proof that this is the case.  This said, we remain hopeful 
that -- ultimately -- PDS reform will occur.  The information 
gathering and means-testing phases (i.e., the only points the 
Board and the MOT generally agree upon) could even start as 
early as 2009.  But the final phase -- full monetization and 
integration into the social safety net payment system -- will 
not occur for years.  End Comment. 
CROCKER