VZCZCXRO6872
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #0701/01 0820910
ZNR UUUUU ZZH
P 230910Z MAR 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 7885
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0757
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 000701 
 
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 AND CSKERRY 
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 PREL IMF AF
SUBJECT: Afghan Finance and Commerce Ministers Report Progress in 
Meeting IMF Program Conditions 
 
REF: A) Kabul 558 and previous  B) Kabul 633 
 
SUMMARY AND COMMENT 
 
¶1. (SBU) Finance Minister Zakhilwal told the Ambassador March 18 
that the GIRoA has met its revised revenue target for the fiscal 
year ending March 21 and thus fulfilled a key condition under its 
IMF program.  He also described plans to increase revenues next 
fiscal year, including through a zero-tolerance policy on corruption 
that reduces revenues.  Zakhilwal and Commerce Minister Shahrani 
both say the MOU between their ministries on Customs access to the 
fuel import depot at Hairatan - another IMF condition - is being 
implemented.  While we will continue to urge MOF to document Customs 
receipts resulting from the reported new access, as required by the 
IMF, these ministerial assurances along with the revenue outcome 
raise hope that Afghanistan can resume good performance under the 
IMF program.  End Summary and Comment 
 
¶2. (SBU) The Ambassador began the meeting by congratulating Finance 
Minister Zakhilwal on parliamentary passage of the government's FY 
2009-10 budget earlier in the day.  A clearly elated Zakhilwal said 
he was worried the bill might not pass and that he had lobbied MPs 
who had threatened to vote against it.  He said he has developed 
good relations with parliament by respectfully listening to MPs' 
concerns and candidly conveying his own views, including on the need 
to curtail meddling in MOF's hiring and firing decisions.  The 
Ambassador stressed the importance of good relations between the MOF 
and parliament, praised Zakhilwal's efforts in this regard, and said 
the U.S. is ready to help if needed. 
 
PROGRESS ON IMF CONDITIONS 
 
¶3. (SBU) In the course of the meeting an aide entered to report that 
the government has met the revised FY 2008-09 revenue target of Afs 
40 billion.  Zakhilwal (ref A) had been saying the government would 
come close but probably fall just short of the target.  He told the 
Ambassador that his goal is eventually to cover the government's 
operating costs from domestic revenue sources and that with new 
measures the government can double the revenue it now collects.  He 
reviewed his plans (see ref A), which he described as targeted 
interventions, e.g. increasing fees for vehicle registration while 
speeding the process to receive one.  Most other ministries have 
indicated a willingness to cooperate with his plans, but Zakhilwal 
noted that the Ministry of Mines (MOM) was resisting efforts to 
improve revenue collection from mining concessions (see ref B). 
Zakhilwal said that at his instigation the cabinet has created a 
committee to look into revenue collection by ministries other than 
MOF. 
 
¶4. (SBU) Zakhilwal said the MOU between MOF and the Ministry of 
Commerce on Customs access to the state-run fuel import depot at 
Hairatan is now being "fully implemented."  Documenting customs 
receipts from implementation of this MOU is a prior action for 
completion of the fifth review under Afghanistan's IMF program. 
Zakhilwal said his Director General for Customs is now in Hairatan 
overseeing implementation.  (In a separate meeting March 16, 
Commerce Minister Shahrani also assured EconCouns and Finatt that 
the MOU is being implemented.  While expressing consternation that 
his ministry had been unfairly criticized for foot-dragging on this 
issue, Shahrani said the MOU should be extended to import operations 
at the border crossing points of Torghundi and Islam Qala.) 
 
¶5. (SBU) Comment: The specific IMF prior action is a report showing 
two weeks of Customs collections at Hairatan.  It remains to be seen 
whether/how the government will fulfill this specific requirement. 
Post will continue to urge preparation of this report and continued 
implementation of the MOU.  Following the meeting, Deputy Finance 
Minister Sabit informed Finatt that the President had signed into 
law amendments to Afghanistan's income tax legislation, introducing 
a 2 percent business receipts tax on imports, thereby fulfilling 
another IMF prior action. 
 
FIGHTING CORRUPTION TO CAPTURE LOST REVENUE 
 
 
KABUL 00000701  002 OF 002 
 
 
¶6. (SBU) In discussing the fuel import issues, Zakhilwal reiterated 
his view that housecleaning at Customs is also important.  He 
admitted that corruption, within both MOF and other ministries, 
impedes revenue generation and vowed to show "zero tolerance" for 
it.  Zakhilwal requested U.S. support to strengthen the Internal 
Audit and Procurement departments at MOF, which will report directly 
to him, not a vice minister.  A citizen's corruption complaint 
hotline will be publicized on television, and he will demand a daily 
summary on calls received.  He will meet with provincial Customs 
directors to convey the new zero-tolerance policy; those unwilling 
to cooperate will be replaced.  MOF will also conclude an MOU with 
the High Office of Oversight (HOO), one of the government's main 
anti-corruption units, to increase outside oversight at MOF.  The 
Ambassador urged streamlining of government and clarifying the 
different ministries' mandates, to reduce overlap and opportunities 
for corruption.  For example, the number of approvals required for a 
government service should be reduced, usually to one, and the 
remaining approving authority held accountable. 
 
¶7. (SBU) Zakhilwal also acknowledged that problems exist with high 
expenditures and promised greater spending restraint through 
increased MOF oversight of major procurement contracts.  He said he 
had rejected some two dozen contracts in recent weeks because costs 
were 20 percent higher than the value of the goods and services the 
government was receiving.  He also plans to crack down on the 
practice of other ministries signing contracts first and seeking MOF 
approval later. 
 
¶8. (SBU) The Ambassador welcomed the good news on revenues and 
Hairatan, as well as Zakhilwal's plans to improve fiscal performance 
and fight corruption, and promised USG support.  He said the U.S. 
believes the IMF plays a constructive role in Afghanistan and will 
continue to press them to do so. 
 
ORGANIZING FOR DEVELOPMENT 
 
¶9. (SBU) The Ambassador and Minister also discussed leadership of 
the Joint Control and Monitoring Board (JCMB) and implementation of 
the Afghanistan National Development Strategy (ANDS).  Zakhilwal 
admitted that the JCMB needs more active Afghan government 
leadership and that the multi-ministry implementation structure for 
ANDS implementation is not ideal.  The Ambassador added that the 
Obama Administration is tackling many issues and quickly putting its 
own structures in place.  If the GIRoA can soon streamline its ANDS 
implementation structures, the two countries can progress together. 
 
 
¶10. (SBU) The Ambassador said the international community also needs 
to improve donor coordination and that the U.S. wants to channel 
more of its aid funding through Afghan systems and the national 
budget, but that current mechanisms must be reinforced in order to 
improve accountability.  The U.S. also seeks way to increase 
discretionary budgetary resources for the provinces.  Zakhilwal 
supported the latter objective, provided provincial accountability 
could be assured.  One idea, he said, might be to strengthen MOF 
offices in the provinces (mustufiat), which could help increase 
accountability to Kabul when aid funds were provided directly to 
provinces. 
 
WOOD