VZCZCXRO7135
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #0558/01 0710609
ZNR UUUUU ZZH
P 120609Z MAR 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 7693
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0750
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 000558 
 
DEPT FOR SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS FOR AID/ANE 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS OPIC 
DEPT PASS FOR TDA FOR STEIN AND GREENIP 
USOECD FOR ENERGY ATTACHE 
CENTCOM FOR CSTC-A 
NSC FOR JWOOD 
TREASURY FOR MHIRSON, ABAUKOL, AWELLER, AND MNUGENT 
OSD FOR SHIVERS 
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958 N/A 
TAGS: EFIN ECON EAID IMF PREL AF
SUBJECT: CHARGE'S INITIAL CALL ON NEW AFGHAN FINANCE MINISTER 
 
REF: A) Kabul 323  B) Kabul 317 
 
¶1. (SBU) Summary.  Newly-confirmed Finance Minister Zakhilwal told 
the Charge March 4 that Afghanistan is working to meet the three 
prior actions required for IMF Board review before the program 
expires in June.  He said the government may fall just short of the 
revenue target in the IMF program this fiscal year and that he would 
institute a series of measures to meet and surpass next year's 
revenue target.  Zakhilwal described plans to increase fiscal 
revenue and assured the Charge that Customs would gain full access 
to the oil import depot at Hairatan, another IMF condition.  The 
Charge welcomed Minister Zakhilwal's emphasis on private sector 
development, increasing revenues, and anti-corruption and assured 
him of continued U.S. cooperation and support.  End Summary 
 
¶2. (SBU) The Charge congratulated Zakhilwal on his appointment as 
Finance Minister and his strong confirmation earlier that week by 
the Parliament.  Zakhilwal said he was taking the job at a 
challenging time but that he was not new to challenges.  He said he 
had spoken candidly in his parliamentary confirmation hearing, 
expressing strong support for private sector development and 
privatization of state-owned enterprises, despite opposition to 
privatization among many MPs.  Zakhilwal said he told Parliament 
that corruption, in both his ministry (especially Customs) and 
others, reduces government revenues, and that he would not tolerate 
Parliamentary pressure to protect corrupt officials he tries to 
dismiss.  In the hearing he also stressed the need for joint 
GIRoA-donor evaluations of aid projects to prevent future waste - a 
controversial proposal that in the past has been used to harass U.S. 
implementing partners. 
 
¶3. (SBU) Zakhilwal said the GIRoA would come close but might not 
reach the revised FY 2008-09 domestic revenue target of Afs 40 
billion ($770 million) recently agreed with the IMF.  On the other 
hand, he was confident FY 2009-10 revenues would surpass that year's 
target of Afs 51 billion ($981 million), if he can institute various 
changes.  He said the GIRoA can raise substantial new revenues by 
streamlining vehicle licensing procedures ($200-$300 million), and 
increasing charges for mining permits ($100 million), civil aviation 
fees ($50 million), and leased agricultural land.  (Note: In a 
separate meeting March 5, Agriculture Minister Rahimi told Ag 
Attache and EconCouns that $100 million can be raised from 
agricultural leases of state-owned land.)  Zakhilwal said such 
changes would require cooperation with other ministries.  He had 
good partners in the ministers of Interior, Commerce, and 
Agriculture; in contrast, his proposals would not be popular with 
the ministers of Transport and Mining.  Nonetheless, he would push. 
 
¶4. (SBU) Zakhilwal said he is also pressing for full implementation 
of the MOU between the Finance and Commerce ministries on Customs 
access to the Hairatan fuel import depot owned by FLGE, the 
state-owned importer under MOCI.  He assured the Charge that MOF 
would gain the full access mandated in the MOU and that anything 
less would be unacceptable.  He also admitted that housecleaning is 
also needed at Customs to increase revenues.  "We can't just replace 
their [MOCI's] bad people with ours."  The Charge welcomed 
Zakhilwal's assurance on MOU implementation and said the USG would 
limit assistance to MOCI until Commerce Minister Shahrani fulfills 
his ministry's side of this agreement.  (Note: Based on latest 
information from MOF staff and the IMF resrep, FLGE is providing 
limited access to Customs officials at Hairatan but requires written 
instructions from FLGE headquarters to provide full access. ) 
 
¶5. (SBU) Zakhilwal said he is trying to fill ministry positions with 
good people and replace non-performers but needs support to offer 
attractive salaries to retain staff and reduce reliance on bribes. 
He also raised the need for specialized technical assistance in 
areas related to increased revenue generation and collection (e.g. 
vehicle licensing, civair charges, and land leasing).  He said he 
will also work on the spending side of the budget and estimated that 
the GIRoA pays 15-20 percent more than it should for the goods and 
services it receives. 
 
¶6. (SBU) The Charge noted the long and close relationship between 
the U.S. Mission and MOF.  He welcomed the priority Zakhilwal has 
 
KABUL 00000558  002 OF 002 
 
 
placed on private sector development, increasing revenues, and 
anti-corruption.  He encouraged the minister to discuss further 
cooperation with the USAID Mission Director.  Noting the substantial 
USG support for strengthening Customs, the Charge expressed concern 
that MOF's planned staffing increase for administrative personnel 
exceeds that for Customs.  He also said the U.S. is stressing 
"Afghanization" and directing more of its aid through the national 
budget and is therefore concerned about weak and delayed 
implementation of the Afghanistan National Development Strategy 
(ANDS - see septel). 
 
¶7. (SBU) Zakhilwal said the GIRoA and donors share equal blame for 
problems with ANDS implementation.  He admitted that the division of 
labor between MOF and the Ministry of Economy created a diffusion of 
responsibility, and that high-level changes in the government had 
also contributed to drift.  But Zakhilwal asserted that donors are 
not aligning their programs with the ANDS and are channeling less of 
their funding this year, not more as the GIRoA has repeatedly asked, 
through the national budget.  He said donors should reward the 
GIRoA's modest reforms to date in order to encourage further reform. 
 GIRoA capacity could only be built if donors trust the government 
with resources.  A JCMB Development Standing Committee meeting would 
take up these issues later in March. 
 
¶8. (SBU) The Charge said the U.S. is increasing the share of its aid 
being channeled through the Afghan government by certifying key line 
ministries to receive direct budget support and through the ARTF, 
including the proposed incentive scheme, though more could be done. 
Looking forward, USAID aims to increase the share of funds channeled 
through Afghan systems to 50 percent by 2011 and to 75 percent by 
¶2014.  The U.S., he said, seeks to lead by setting a good example 
for other donors.  The Charge assured Minister Zakhilwal of 
continued U.S. cooperation and support, despite economic problems at 
home. 
 
WOOD