VZCZCXRO4992
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #2632/01 2431128
ZNR UUUUU ZZH
P 311128Z AUG 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 1257
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0877
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 KABUL 002632 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR SRAP, SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS FOR AID/ASIA SCAA 
DEPT PASS USTR FOR DELANEY AND DEANGELIS 
DEPT PASS OPIC 
DEPT PASS USDA FOR FAS MICHNER 
DEPT PASS TDA FOR STEIN AND GREENIP 
NSC FOR JJONES AND GSMITH 
DASD FOR DSEDNEY 
TREASURY FOR MHIRSON, ABAUKOL, AWELLER, AND MNUGENT 
COMMERCE FOR HAMROCK-MANN, DEES, AND FONOVICH 
 
E.O.  12958; N/A 
TAGS: EAID ECON EFIN PGOV PREL AF
SUBJECT: Finance Minister Zakhilwahl on Assistance Priorities 
and Post-election Economic Reforms 
 
Ref: Kabul 2002 
 
SUMMARY 
 
¶1. (SBU) Afghan Finance Minister Omar Zakhilwahl confirmed to 
USAID Mission Director William Frej his commitment to post- 
election economic reform and listed as priorities the 
restructuring and gradual privatization of state-owned Ariana 
airline and merging Pashtany and Mille banks.  He is concerned 
about predatory anti-competitive practices of some larger 
private-sector companies including airlines, and asked for 
USAID technical assistance to develop competition policy 
capacity and appropriate anti-trust legislation.  Zakhilwahl 
wants to move ahead on insurance sector regulatory reform to 
provide greater safeguards for investors.  To enhance revenue 
collection and improve AfghanistanQs prospects for fiscal 
sustainability, he vowed to continue his battle against 
customs sector corruption, despite significant political 
pressures from Parliament.  Frej outlined USAIDQs newly 
awarded $90 million Economic Growth and Governance Initiative 
(EGGI) and confirmed U.S. support for the Civilian Technical 
Assistance Plan (CTAP), a new multi-donor pilot program 
providing a direct transfer of resources to the Ministry of 
Finance to allow MOF to manage its own technical assistance 
(Reftel).  End summary. 
 
ANDS IMPLEMENTATION AND OUTREACH BEYOND KABUL 
 
¶2. (SBU) In an August 8 meeting with Afghan Minister of 
Finance Zakhilwahl, USAID Mission Director William Frej 
announced the award of the new USAID Economic Growth and 
Governance Initiative (EGGI) to BearingPoint/Deloitte.  This 
new program will provide support for national and regional 
economic policy development, central bank supervision, and 
business-enabling environment reforms.  The Minister and Frej 
agreed that international and local Finance Ministry advisors 
funded under EGGI will broaden their portfolios to support not 
only the MinisterQs Office, but also the MinistryQs Policy 
Unit and its Afghanistan National Development Strategy (ANDS) 
implementation Unit. 
 
¶3. (SBU) The EGGI program will support the implementation of 
recently adopted financial and commercial laws that will 
translate into increased access to finance through development 
of mortgage, secured transactions for movable property, and 
leasing products.  EGGI will also address the ANDS priority of 
extending outreach to provincial economic centers to help 
connect AfghanistanQs regions with the center, including 
through expansion of a new streamlined business registration 
process which makes it easier for businesses to register and 
will encourage their participation in the formal economy.  The 
Minister highlighted the challenge of providing appropriate 
financial incentives and logistical support to encourage 
Afghan government officials to work in the more difficult 
regions of the country.  Eventually, he said, the Ministry of 
Finance will need to incorporate logistical costs into its 
budget planning to avoid dependency upon external programming. 
EGGI will help GIROA to provide services (not just exercise 
authority) to better connect provinces with the center.  The 
program will also look to tie its efforts with other 
stabilization programs on the ground. 
 
PERSPECTIVES ON PRIVATIZATION AND STATE-OWNED ENTERPRISES 
 
¶4. (SBU) Zakhilwahl noted his support for the eventual 
privatization of state-owned flag carrier Ariana Airlines, and 
Frej updated the Minister on USAIDQs current work reviewing 
Ariana AirlineQs financial statements to better inform the 
Ministry of the airlineQs financial status.  Frej thanked 
Zakhilwahl for his support in overcoming Ariana managementQs 
resistance to providing this information.  A final USAID 
report on Ariana's financials will be shared for discussion in 
the coming weeks. 
 
 
KABUL 00002632  002 OF 003 
 
 
¶5. (SBU) On restructuring AfghanistanQs two remaining state- 
owned banks, Zakhilwahl said that Bank Millie has capable 
management but that:  a) management of Pashtany would be 
removed following the election; b) merging the two state banks 
is his personal preference; and c) opening up ownership of the 
state banks to private sector investment in the coming year is 
the best way to facilitate a gradual transition to private 
sector leadership.  Zakhilwahl noted, however, that Parliament 
remains supportive of "national" banks and will likely seek to 
maintain state participation in this sector. 
 
¶6. (SBU) On competition policy, Zakhilwahl said he was 
concerned about "predatory" practices by some private sector 
companies, in particular Pamir Airlines.  Pamir currently 
prices tickets from Kabul to Dubai at around $100, 
significantly below a market break-even in the $200 range, he 
said.  This practice could drive competitors out of air 
transport business and weaken AfghanistanQs airline sector. 
(Note:  Minister of Commerce Shahrani has expressed similar 
concerns to USAID officers.  The EGGI program can provide 
technical support to promote competition-policy capacity 
building and the development of appropriate anti-trust 
legislation.) 
 
¶7. (SBU) AfghanistanQs insurance sector includes one private 
company and one state-owned company.  Zakhilwahl said he did 
not see parliamentary opposition to the eventual privatization 
of the state insurance company.  He welcomed USAID assistance 
with insurance regulatory reform and to moving the Insurance 
Commission out of the Ministry of Finance to structure it as 
an independent entity.  Support for the regulatory reform of 
insurance and other sectors such as mining, building on the 
reform success in the telecom sector, is included in the EGGI 
project design. 
 
BATTLING CORRUPTION IN CUSTOMS 
 
¶8. (SBU) In the area of customs reform and related revenue 
generation, Zakhilwahl anticipated greater political support 
for broadening AfghanistanQs tax base after the elections. 
While Parliament supports customs reforms in concept, he said, 
many members benefit from the current system of "variable 
enforcement," and so often lobby the Minister for individual 
exceptions and exemptions from payment of customs duties.  The 
Minister noted his recent removal of the Deputy of Customs in 
Nimroz province in southwestern Afghanistan which sees 
considerable trade with Iran but reports "unusually low" 
tariff collections.  Zakhilwahl said that he has faced 
significant political pressure to reverse this decision but 
that he has been able to uphold it.  Frej and Zakhilwahl 
discussed possible mechanisms to hold Parliament to higher 
ethical standards including the potential to encourage 
Parliamentarians to comply with regulations that require 
senior government officials to declare assets.  While 
Zakhilwahl anticipated leeway for bolder action following the 
election, he noted that Ministers require Parliamentary 
confirmation before assuming their appointments or 
reappointments. 
 
STATUS OF CIVILIAN TECHNICAL ASSISTANCE PLAN 
 
¶9. (SBU) Frej informed Zakhilwahl that the U.S., in concert 
with the United KingdomQs Department for International 
Development (DFID) and the Canadian International Development 
Agency (CIDA), are prepared to quickly mobilize resources to 
support implementation of the Civilian Technical Assistance 
Plan (CTAP).  CTAP responds to the GIROAQs request for 
expanded technical advisory (TA) support.  This plan would 
recruit and place TAs in ministries throughout Afghanistan 
using a two-pronged approach.  The first step is to place 55 
urgently needed TAs in ministries quickly using existing 
mechanisms.  The second step is to create a new National 
Capacity Development and Technical Assistance Program (NCDTAP) 
to help ministries prepare additional TA requests and provide 
 
KABUL 00002632  003 OF 003 
 
 
a basket funding mechanism to which donors could contribute. 
The NCDTAP would identify the TA necessary for implementation 
of the Afghanistan National Development Strategy (ANDS) and 
aim to place an additional 500 - 1,000 advisors at the 
national and sub-national levels. 
 
¶10. (SBU) At the 12th Joint Coordination Monitoring Board 
(JCMB) meeting on July 8, 2009, donors expressed support for 
GIRoA efforts to prioritize its technical assistance needs and 
take ownership of the planning and deployment of technical 
assistance.  A new Secretariat will be established within the 
Ministry to manage the multi-donor pilot program that will 
channel direct assistance of $30 million through the Ministry 
of Finance over the next two years. 
 
COMMENT 
 
¶11. (SBU) This decision maximizes "Afghanization," critical to 
President ObamaQs new strategy, and allows the GIROA to take 
the lead in the recruitment, hiring, placement, and management 
of these advisors with the appropriate oversight of the USG. 
Specifically, the USG would help the MOF cost out the plan, 
agree on a multi-donor/UNAMA management committee to assist 
with the development of position descriptions, assist with 
placement in the ministries, publish a solicitation, 
participate in the selection of the advisors, oversee 
performance, and transfer the funds to the MOF.  This GIRoA- 
led pilot program does not preclude hiring U.S. advisors as 
part of the technical assistance team. (Reftel) 
 
ZAKHILWAHL 
 
¶12. (SBU) Widely viewed as one of the Karzai administrationQs 
most competent Ministers, Omar Zakhilwahl expressed confidence 
that he would remain in his position should President Karzai 
win re-election.  During his six-month tenure as Minister, 
Zakhilwahl has demonstrated both clarity of conviction and the 
ability to turn implement his organizational vision.  His new 
revenue action plan, bold steps to combat corruption, and 
support for a vibrant private sector make credible his role to 
press ahead a valuable reform agenda.  If re-appointed in a 
follow-on administration that wins a first or second round 
solid majority, he should be well-positioned to help place the 
right people in the right jobs as well as to promote reform. 
Regardless of who assumes the position of Finance Minister, 
ongoing USAID Economic Growth and Governance Initiative 
programmatic support has laid a strong foundation to work with 
the new GIROA administration. 
 
EIKENBERRY