VZCZCXRO2444
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #1045/01 1071045
ZNR UUUUU ZZH
R 171045Z APR 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 2718
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BAGHDAD 001045 
 
SENSITIVE 
SIPDIS 
 
AIDAC 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON ETRD PGOV IZ
SUBJECT: WORLD BANK MEETS DONOR COUNTRY REPRESENTATIVES 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY. 
 
¶1. (SBU) Summary: On April 7, Daniela Gressani, World Bank Vice 
President of Middle East and North Africa Region, recently discussed 
her organization's Iraq strategy and exchanged views on the Bank's 
role in Iraq with donor country representatives.  Donors requested a 
larger World Bank presence to more effectively monitor its programs 
and provide analytical and technical advice to the government of 
Iraq (GOI).  The drop in oil prices has created a greater sense of 
urgency for the GOI to seek foreign investment in Iraq.  Gressani 
later met separately with EMIN Wall and indicated that she faced 
difficulties recruiting senior World Bank officials with the right 
skills to come to Baghdad.  PM Maliki has sent the World Bank a 
letter requesting assistance with developing a national energy 
strategy and in reforming the institutional framework for its oil 
and gas sector.  End Summary. 
 
World Bank VP Visits Iraq 
------------------------- 
 
¶2. (SBU) World Bank Vice President of Middle East and North Africa 
Region Daniela Gressani discussed her organization's new Iraq 
strategy with donor country representatives based in Iraq on April 
¶7.  Gressani was accompanied by World Bank Executive Director Merza 
Hasan, Multilateral Investment Guarantee Agency (MIGA) CEO James 
Bond, International Finance Corporation (IFC) Middle East and North 
Africa Department Director Michael Essex, and Iraq Country Director 
Hedi Larbi.  The World Bank's goal over the next two years is to 
assist Iraq in reaching its next phase of development by supporting 
a strong framework for private sector development, private 
enterprise and joint-venture establishment. 
 
Donors Urge Stronger 
World Bank Presence 
------------------- 
 
¶3. (SBU) EMIN said that the World Bank's focus on the private sector 
and public finance management is the right approach, welcomed the 
involvement of the International Bank for Reconstruction and 
Development (IBRD), IFC, and MIGA, and urged a stronger World Bank 
presence with more staffing in Iraq.  All donor representatives 
concurred with his call for a larger Bank presence.  Italian 
Ambassador Maurizio Melani suggested MIGA and the IFC engage with 
Iraq to help it develop its infrastructure.  He commented that the 
World Bank's commitment of $500 million loans for investment 
projects for FY 09-FY11 was too little.  World Bank officials 
responded that they based this decision on the fact that $850 
million in the Iraq Trust Fund has not yet been disbursed.  This 
raised the issue of Iraq's absorption capacity.  If Iraq were to 
draw down those funds and the $500 million, the Bank would have a 
case to increase its lending.  Ilkka Uusitalo, EC Mission Head to 
Iraq, expressed concern over the World Bank's slow start of its 
Public Finance Management Program. 
 
¶4. (SBU) Danish Ambassador Mikael Winther, speaking as the IRFFI 
Chairman, said donors and the World Bank should engage more with the 
GOI and help define GOI policies on donor assistance.  The World 
Bank needs a stronger presence to lead the way in discussions with 
the GOI on coordinating donor assistance.  Australian Ambassador Bob 
Tyson echoed the call for a robust World Bank presence and the need 
for the GOI to rely more on the private sector rather than public 
service sector. 
 
¶5. (SBU) Richard Hogg, Head of the UK Department for International 
Development (DFID) Office in Iraq, said that the GOI now seeks 
concessional financing and will look towards the World Bank for 
assistance.  Moreover, Hogg continued, Iraq not only needs the World 
Qassistance.  Moreover, Hogg continued, Iraq not only needs the World 
Bank's analytical and intellectual skills, but will look to the 
World Bank to play a role in donor coordination. 
 
¶6. (SBU) Japanese Minister Counselor Kansuke Nagaoka said that 
despite progress in its political and economic development, Iraq 
still lacks basic services in many areas.  In March 2008, Japan 
signed its first project, the Umm Qasr Port Rehabilitation Project. 
Since establishing a monitoring committee with participation of the 
Prime Minister's office, progress has been swift.  He noted that 
Japan anticipates disbursing $100 million for the project this year. 
 Nagaoka pointed out that the improved security situation has led to 
an expansion of its presence, including a senior Japan International 
Cooperation Assistance (JICA) official joining Japan's mission this 
month and a JICA office opening in Erbil. 
 
No Timeline Given 
----------------- 
 
¶7. (SBU) Gressani responded that the World Bank has over 30 staff, 
including Iraqi locals, working in Iraq but that most of them work 
outside Baghdad.  She acknowledged that the security situation has 
improved and that the GOI is focusing on long-term plans.  She said 
that the World Bank will eventually increase staff in Baghdad, but 
 
BAGHDAD 00001045  002 OF 003 
 
 
provided no timeline and remarked that overall World Bank staff is 
limited. 
 
World Bank: Current Role in Iraq 
-------------------------------- 
 
¶8. (SBU) Hedi Larbi, Country Director for Iraq, said that in 
addition to focusing on developing capacity building and the private 
sector, the World Bank will analyze four ministries and come up with 
an action plan to improve their capacities.  This process will take 
time, but Larbi predicted that it would lead to concrete results. 
The Bank's Third Interim Strategy Note (ISN) identifies agriculture, 
electricity, public financial management and bank restructuring as 
priority sectors on which the World Bank will focus.  Larbi 
mentioned that the World Bank's two agricultural projects are 
progressing rapidly.  The World Bank has already disbursed $10 
million on its electricity project, but remains unsure whether to 
continue in this area.  Larbi noted that the World Bank just 
negotiated the Banking Restructuring Project, which he expected to 
be signed in two to three weeks.  It also expects to negotiate a 
Public Financial Management Project on April 18 with a signing 
possible in May. 
 
¶9. (SBU) Larbi said that given the limited capacity of the Iraqi 
government, a monitoring committee for all the donors may be needed 
to examine the implementation of programs.  Jean-Michel Happi, 
resident World Bank Country Manager, added that the GOI is creating 
a single National Development Plan and that the first critical 
element is to align the World Bank's program with the GOI's National 
Plan.  Donor coordination should be led by the GOI, and the World 
Bank should facilitate donor coordination. 
 
More Investment Needed 
---------------------- 
 
¶10. (SBU) EMIN said that the GOI is interested in attracting foreign 
investment and that the oil and gas sector and the financial sector 
have particular promise.  He noted prospects for investment from the 
Middle East, including Iraqi expatriate funds.  He cited the 
potential for investing in independent electricity generation, but 
this needs further clarification from the GOI.  Italian Ambassador 
Melani suggested investment in areas of agribusiness, food 
processing, and manufacturing but noted that Iraq's transportation 
infrastructure still needs rehabilitation.  Italy has financed an 
agriculture and irrigation project via a soft loan of EU 100 million 
($133 million).  The project is making progress. 
 
¶11. (SBU) Australian Ambassador Tyson mentioned that Australia and 
Iraq recently signed several Memoranda of Understanding (MOUs), 
including one on investment in Iraq's trade sector.  DFID's Hogg 
added that Lord Mandelson led an investment delegation recently to 
Iraq, which included construction, architectural, and financial 
companies.  Japan's Nagaoka said that Japanese investors are 
interested in rehabilitating facilities, such as refineries, that 
they had constructed in Iraq in the 1970s.  He noted that 
state-owned enterprise reform seems more difficult as investors 
cannot ensure their profitability after investing in the companies. 
World Bank Executive Director Hasan said that there is a growing 
interest in investing in Iraq, but the GOI must better communicate 
its investment strategy to potential investors. 
 
Export Credit Insurance 
----------------------- 
 
¶12. (SBU) James Bond, CEO of the Multilateral Investment Guarantee 
Agency (MIGA), said that his agency supports private sector 
development and provides insurance against political risk.  Since 
Iraq became a member of MIGA last year, MIGA wants to support 
QIraq became a member of MIGA last year, MIGA wants to support 
private business in Iraq.  Bond said that export credit insurance 
can be supported by either MIGA or the IFC; MIGA provides assistance 
for those seeking coverage for more than a year while the IFC 
provides for less than a year.  MIGA also extends assurances for 
Iraqi joint-venture companies who have partners in the region. 
IFC's Essex warned that the joint-ventures must be viable and 
sustainable to qualify for financing.  Since the World Bank is 
sensitive to corruption, the financing cannot go to projects or 
companies that involve political leaders or "politically exposed 
persons." 
 
Staffing and National Energy Strategy 
------------------------------------- 
 
¶13.  (SBU) In a separate meeting with World Bank officials on April 
7, EMIN asked Gressani about the Bank's staffing difficulties. 
Gressani responded that the World Bank is aware of donors' concerns 
about staffing and has a new strategy supported by the Board of 
Directors.  Gressani acknowledged that World Bank staff are 
interested in coming to Iraq, but she faced difficulties finding 
 
BAGHDAD 00001045  003 OF 003 
 
 
senior people with the right networking capability and maturity 
skills.  She plans to send more senior high-level missions to Iraq, 
and hopes this will attract more qualified senior staff to take 
positions in Iraq. 
 
 
¶14. (SBU) Gressani said that the World Bank avoided engaging Iraq on 
its oil sector in the past because it is expensive, time-consuming 
and the GOI did not seem interested in the type of market-oriented 
advice that the Bank would provide; however, things now seemed to 
have changed.  Country Director Larbi added that Prime Minister 
Maliki sent a letter requesting the World Bank's assistance on 
developing a national energy strategy.  (Comment: World Bank Senior 
Public Sector Specialist Yahia Said told emboffs on April 15 that in 
the letter, the GOI asked for World Bank assistance to "reform 
everything."  End Comment.)  The GOI asked for assistance in 
reforming the institutional framework for its oil and gas sector, 
re-establishing the Iraq National Oil Company, and technical 
assistance in ending natural gas flaring which would make additional 
gas available to meet Iraq's power generation needs. 
 
¶15. (SBU) MIGA's CEO Bond noted that the oil sector policy is not 
focused, and that the electrical power sector requires tariff reform 
before investors will come.  So far, the GOI is only focused on the 
technical side and not on the institutional framework, impeding 
investor interest.  Executive Director Hasan commented that only 
partnerships with foreign oil companies will give Iraq the 
technology it needs to extract the oil and repair the damage to its 
oil reserves.  The Bank is not yet sure that GOI officials 
responsible for this sector have grasped that essential fact. 
 
¶16.  (SBU) Comment:  The GOI's invitation to the World Bank to 
assist in developing a national energy strategy comes out of the 
internal debate underway on the GOI's approach to developing the oil 
and gas sector.  We hope the World Bank will move quickly to take 
advantage of this opening.  We also hope it will take steps to 
respond to the concerns of donors here to play a stronger role in 
Baghdad.  End Comment. 
 
Butenis