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DE RUEHIL #3776/01 3400707
ZNR UUUUU ZZH (CCY AD0709BB MSI1729-695)
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FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC PRIORITY 0534
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
INFO RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
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RUEATRS/DEPT OF TREASURY WASHDC
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RHEBAAA/DEPT OF ENERGY WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC

UNCLAS ISLAMABAD 003776 
 
SENSITIVE 
SIPDIS 
 
C O R R E C T E D COPY CAPTION 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EFIN EINV ETRD EAID PGOV PREL PK
SUBJECT: DECISION NEEDED ON PAKISTAN GSM-102 APPEAL 
 
REFS: A. ISLAMABAD 03691 B. ISLAMABAD 03493 C. ISLAMABAD 03644 D. 
ISLAMABAD 03590 
 
¶1. (SBU) Summary.  Post requests that a decision be made for a plan 
under GSM-102 for Pakistan.  Two items are delaying Pakistan from 
purchasing U.S. wheat under the GSM-102 program. First, Post renews 
its appeal for USDA's speedy approval of the 5 Pakistani banks, 
originally identified by the Government of Pakistan (GOP) in August, 
as eligible under the GSM-102 credit program.  This we believe will 
enable Pakistan to immediately access USD 48 million in GSM credits. 
 Second, Post recommends increasing the amount available to Pakistan 
in credit guarantees under GSM-102 from USD 48 million to USD 350 
million.  A decision is needed soon as it takes 45 days to ship 
wheat from the U.S. to Pakistan.  If the answer is "no," please 
inform us in a front channel cable so we can inform Pakistani 
authorities.  The GOP has undertaken measures to begin importing 
Russian wheat but would rather import U.S. wheat.  Without prompt 
action, the GOP will not be able to purchase wheat in time to avert 
a food crisis this winter.  Given the fragility of this government 
and the economic crisis, food insecurity may trigger social unrest. 
End Summary. 
 
¶2. (SBU) As mentioned in previous cables (reftels A, B, and C), 
wheat stocks currently held by the GOP are only sufficient to meet 
domestic consumption needs through January 2009.  As a result, Post 
estimates that Pakistan will experience a wheat shortage during the 
critical winter months of February and March.  The new wheat crop 
will not be harvested until April/May 2009 leaving the GOP no 
alternative but to import 1.5 million tons of wheat (approximately 
USD 350 million).  The Ministry of Food, Agriculture and Livestock 
(MINFAL) is anxious to import American wheat as soon as possible. 
 
- - - - 
GSM-102 
- - - - 
 
¶3.  (SBU) The GOP had requested access to the USDA GSM-102 program 
prior to Prime Minister Gilani's visit to Washington in July.  Five 
months have elapsed since this initial request and the situation in 
Pakistan has continued to deteriorate.  Post has identified two 
issues that need to be addressed with regard to the GSM-102 program 
in Pakistan: USDA approval of the 5 Pakistani banks and increasing 
the total exposure guideline from USD 48 million to USD 350 
million. 
 
¶4. (SBU) Currently, we believe Pakistan is eligible for USD 48 
million in credit guarantees under USDA's total exposure guideline 
once USDA approves Pakistani banks as eligible for the program 
(reftel A).  The only obstacle preventing Pakistan from immediately 
benefitting from the USD 48 million in credit guarantees is the 
approval of the five Pakistan banks (National Bank of Pakistan, 
Habib Bank Limited, United Bank Limited, Muslim Commercial Bank 
Limited, and Allied Bank of Pakistan) listed in the Credit Guarantee 
Assurance issued by Pakistan in August. 
 
¶5. (SBU) Post believes that USD 48 million is not a sufficient 
amount to meet Pakistan's needs.  We recommend increasing the amount 
available to Pakistan to the previously requested total of USD 350 
million in credit guarantees which would cover the 1.5 million tons 
of wheat shortfall.  At current market prices, USD 48 million would 
purchase approximately 206,000 metric tons of wheat, only a fraction 
of what Pakistan requires to prevent a food shortage. 
 
¶6. (SBU) Sources at the Ministry of Food, Agriculture, and Livestock 
report that the GOP is preparing a tender to purchase wheat that 
would favor Russian red wheat in order to import wheat as quickly as 
possible.  The GOP does not believe that the USG will come through 
with GSM-102 in time to avert a food crisis and is therefore 
modifying its tender specifications for 500,000 metric tons of 
wheat.  These new specifications will favor commercial purchases of 
the cheaper Russian red wheat over the more expensive U.S. white 
wheat.  However, even with this purchase of 500,000 metric tons of 
Russian red wheat, the GOP will still face a wheat shortfall of 1 
million metric tons of wheat.  GOP officials want GSM 102 available 
to meet the balance of their wheat purchase needs with U.S. 
commercial wheat at an estimate cost of USD 250 million. 
 
¶7. (SBU) The GSM-102 program would allow American wheat growers to 
commercially sell their wheat to Pakistan.  This is not a food 
donation.  Through the use of the GSM-102 program, the USG can 
facilitate the supply of a substantial volume of wheat into the 
region, thereby contributing to price stability and food security in 
Pakistan and Afghanistan. 
 
¶8. (SBU) If the answer to Post's request is "no," please inform us 
in a front channel cable. 
 
- - - - - - - - - - - - - 
FOOD FOR PROGRESS UPDATE 
- - - - - - - - - - - - - 
 
¶9. (SBU) The GOP and AgCouns have finalized the language for the 
Food for Progress program originally announced in July by President 
Bush and Prime Minister Gilani.  This language has recently received 
final approval by USDA and the agreement will provide 50,000 tons of 
donated U.S. wheat to the GOP.  The Food for Progress program 
normally prohibits a country from exporting wheat in the same fiscal 
year that it receives U.S. wheat donations.  In the case of 
Pakistan, however, USDA has allowed for a modification in the 
program to bypass its restrictions on commercial wheat sales so that 
sales are permitted after May 1.  Any surplus wheat crop from the 
April/May 2009 harvest can be exported by the GOP assuming there is 
a bumper crop.  This modification was greatly appreciated by the GOP 
and the agreement is expected to be signed by the end of this week. 
Post estimates that 50,000 tons of wheat will supply Pakistan with 
one and a half days worth of food, or 3 percent of its import 
needs. 
 
 
¶10. (SBU) Comment.  Officials from the Ministry of Food and 
Agriculture, the Ministry of Finance, and the Economic Affairs 
Division have repeatedly asked the Ambassador, DCM, Economic 
Counselor, and Agriculture Counselor on numerous occasions for any 
available update on Washington's decision.  We have not been able to 
provide any response.  As the clock has continued to tick, food 
shortfalls in Pakistan worsen and the fragility of this government 
increases.  Approval of the 5 Pakistani banks as well as the GSM 102 
credit for USD 350 million would help assist other USG 
counterterrorism efforts as, not surprisingly, the areas of Pakistan 
which are facing the greatest needs for food this winter are the 
same areas where the USG has concentrated our efforts against 
extremism.  End Comment. 
 
PATTERSON