VZCZCXRO8582
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #1526/01 1660818
ZNR UUUUU ZZH
P 150818Z JUN 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 9441
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0820
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 001526 
 
DEPT FOR SRAP, 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 
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958 N/A 
TAGS: EFIN ECON EAID AF
SUBJECT: Ambassador's Meeting with Afghan Finance Minister 
Zakhilwal 
 
SUMMARY 
 
¶1. (SBU) Ambassador Eikenberry and Finance Minister Zakhilwal June 8 
discussed joint visits to Afghan provinces, including a June 17 trip 
to open a US-financed border crossing post in Islam Qala, Herat. 
Zakhilwal welcomed the preliminary, positive assessment by a USAID 
team that examined the Finance Ministry's financial management 
system and said the GIRoA would welcome direct budget support.  The 
Ambassador said the USG was considering channeling more of its 
assistance through the Afghanistan Reconstruction Trust Fund.  He 
urged formation of joint USG-GIRoA teams to monitor increased 
development funding flows through RC-East and RC-South.  Zakhilwal 
touted recent progress on revenue generation and complained about 
alleged fraud involving duty-exempt import goods ostensibly bound 
for Coalition forces.  Zakhilwal said the GIRoA was prioritizing the 
aid requests in the Civilian Surge Technical Assistance plan it 
presented in April.  An updated plan would be presented to the next 
meeting of the Joint Coordination and Monitoring Board in early 
July.  End Summary 
 
¶2. (SBU) The Ambassador, accompanied by Mission staff, met June 8 
with Afghan Finance Minister Omar Zakhilwal.  The minister welcomed 
the Ambassador's plans, already in train, to travel often to Afghan 
provinces and expressed interest in joining occasional trips.  The 
two agreed to travel together to Herat for the opening of the 
USG-financed border crossing post at Islam Qala on June 17.  The 
Ambassador said the USG would not object if the GIRoA invites the 
Iranian Consul General in Herat to the ceremony.  They also 
discussed a possible trip to Badakhshan in the next month. 
 
BUDGET PLANNING; POSSIBLE ARTF SUPPORT 
 
¶3. (SBU) Zakhilwal noted that a recent USAID mission had reviewed 
MOF's financial management system.  He hoped the team had a positive 
impression and undertook to work on any problems detected.  USAID 
Mission Director Frej said the team reached a favorable conclusion 
and that the USG was considering possible increased budget support 
in the future.  Zakhilwal welcomed this news.  MOF would start work 
in October 2009 on the 2010-11 budget (beginning in March 2010). 
The Ambassador said the USG would be working in October on the 
Administration's FY-2011 budget request.  The US is considering 
increasing the assistance it channels through the Afghanistan 
Reconstruction Trust Fund (ARTF), and the two governments should 
strive to align their plans. 
 
¶4. (SBU) Zakhilwal welcomed this suggestion and said such US efforts 
would also encourage other donors to increase their alignment with 
Afghan priorities.  He also hoped donor projects funded outside the 
Afghan budget could at least be reflected in the budget, so that 
Parliament gets a fuller picture of total development spending.  The 
GIRoA, he said, also seeks joint implementation, management and 
oversight of donor-funded projects. 
 
PRIORITIZING TECHNICAL ASSISTANCE NEEDS 
 
¶5. (SBU) Zakhilwal said MOF is working on an improved version of the 
Civilian Surge Technical Assistance Plan delivered to the USG in 
mid-April (reftel).  The new paper would prioritize TA needs, 
highlighting the top 50 advisor positions required, and elaborate on 
mechanisms for delivering TA.  The GIRoA would use the Joint 
Coordination and Monitoring Board (JCMB) to seek donor support for 
the revised plan, presenting it to a Standing Committee meeting on 
June 20 and a JCMB plenary in early July.  The Ambassador delivered 
his letter to Zakhilwal dated June 8 expressing USG support for the 
GIRoA's original civilian technical assistance proposal and its 
intention to update and refine it.  He said the US and other donors 
should try to meet Afghanistan's needs, and UNAMA should take the 
lead in improving donor coordination. 
 
¶6. (SBU) The FinMin said he would also seek donor support at the 
JCMB for a Revenue Action Plan and an Anti-corruption Action Plan, 
both now being developed.  On revenues, Zakhilwal touted the "very 
impressive results" of his efforts so far: average monthly customs 
revenues of Afs 1.7 billion ($34 million) last year have increased 
to Afs 2.8 billion ($56 million) so far this year and can be raised 
 
KABUL 00001526  002 OF 002 
 
 
above Afs 3.0 billion ($60 million).  He said other types of revenue 
have also increased but by less, reflecting the bigger challenges of 
generating greater income tax.  The Anti-corruption Action Plan 
would also be focused on revenue generation.  Both plans would 
highlight areas where the GIRoA needs donor assistance. 
 
MINISTER'S CONCERN WITH FUEL IMPORT FRAUD 
 
¶7. (SBU) Zakhilwal raised concerns about duty-exempt goods, 
especially fuel, imported for Coalition forces, alleging that much 
ended up on the black market, skewing market competition and 
reducing GIRoA revenues.  The minister sought the Ambassador's help 
in facilitating meetings with US military commanders and proposed 
establishing a Customs Office outside Bagram AFB to assess goods 
leaving the base for possible tax liability.  Zakhilwal estimated 
that 30-40 percent of the goods entering Afghanistan duty-exempt do 
so fraudulently and end up on the black market. 
 
¶8. (SBU) Without endorsing Zakhilwal's estimate, the Ambassador 
acknowledged the problem and said the USG would look into it and 
collaborate with MOF on a solution.  (Comment: In fact, US military 
buyers closely cooperate with Afghan Customs officials to minimize 
fraud.  Systems are in place to document that legitimate, 
duty-exempt imports actually reach their intended destinations. 
Leakage is estimated at only 2-3 percent, some of this occurring 
outside Afghanistan.  Forgery of duty-exemption documents by 
unscrupulous importers, often associated with bribery of Customs 
officers, is a separate issue requiring stronger Afghan law 
enforcement.  Goods imported in this way are obviously never 
intended to reach US military buyers.  Nevertheless, further 
cooperation and collaboration between NATO-ISAF/Coalition and MOF 
will be promoted.  End comment) 
 
COORDINATING AID FROM REGIONAL COMMANDS 
 
¶9. (SBU) The Ambassador noted that the ongoing expansion in US 
military forces in the East and South would be accompanied by 
increases in development spending through these regional commands. 
He said the two governments should discuss the implications of these 
financial flows and the resource allocation decisions being made at 
command level.  The Ambassador suggested establishing integrated 
teams at each RC, including relevant US civilian and military staffs 
and Afghan officials from the ministries of Finance, Agriculture, 
Rural Rehabilitation and Development, and the Independent 
Directorate for Local Governance.  He noted that MOF should be 
involved wherever there are such large resource flows, as this would 
give us confidence that increased funding through the ARTF is being 
properly managed.  Zakhilwal welcomed the suggestion and said the 
two sides could discuss a mechanism for such integrated teams.  The 
Ambassador urged early follow-up and noted the planned establishment 
of Civilian Coordinators at the RCs. 
 
¶10. (SBU) In closing, Zakhilwal said a feasibility study for the 
Gambiri dam project near Jalalabad had been completed and he hoped 
USAID would consider funding it.  The project would produce 25 MW of 
electricity, irrigate 10,000 ha, and have little impact on water 
supplies in Pakistan. 
 
EIKENBERRY