VZCZCXYZ0013
PP RUEHWEB

DE RUEHC #5831 0211235
ZNR UUUUU ZZH
P 211228Z JAN 10
FM SECSTATE WASHDC
TO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0000
INFO RUEHDO/AMEMBASSY DOHA PRIORITY 0000
RUEHMK/AMEMBASSY MANAMA PRIORITY 0000
RUEHRH/AMEMBASSY RIYADH PRIORITY 0000

UNCLAS STATE 005831 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EPET PREL PGOV EINV ECIN EAID EBEXP BTIO IZ
QA, SA, BA 
SUBJECT: REPORT ON HORMATS-MAHDI MEETING IN WASHINGTON - 
13 JAN 2010 
 
REF: BAGHDAD 00036 
 
¶1. (SBU) Summary:  On January 13, 2010 Under Secretary for 
Economic, Energy and Agricultural Affairs, Robert Hormats and 
Iraqi Vice President Adel Abd' Al-Mahdi addressed several 
major economic challenges faced by Iraq.  Al-Mahdi said that 
he is ready to see the debt issues with Gulf Arab neighbors 
settled, and hopes this can be achieved without having to 
delve into broader political issues. He expects the 2010 
Budget to be adopted "very soon ... within days."  He agreed 
that Iraq's poor ranking on the World Bank's "Ease of Doing 
Business Scale" reflects needs to reform and update Iraq 
business and investment laws, regulations and practices. 
While not fully informed about the issue of Iraq demands to 
amend already initialed oil development contracts, Mahdi 
acknowledged how such actions would erode investor confidence 
(oil and non-oil), but feels that greater involvement of U.S. 
oil companies in Iraqi oil development is needed and would 
send a good message.  He identified building mutual 
confidence, also, as the key to resolving the differences 
between the central government in Baghdad and the Kurdish 
Regional Government (KRG) over the Hydrocarbons Law.  Taking 
a long-term view, Mahdi especially wants to involve Iraq's 
citizenry broadly in the economic development process through 
exemplary "pilot projects" (public or private) and expanded 
efforts for training and education.  Responding to a 
suggestion that Iraq might be a good place to establish new 
Qualified Industrial Zones (QIZs), U/S Hormats explained that 
the whole topic of QIZs has become politically contentious in 
the U.S., reflecting desires to see greater job creation at 
home, and concerns over foreign labor and environmental 
practices.  End Summary. 
 
¶2. (SBU) During their hour long meeting, U/S Hormats and 
Iraqi VP Adel Abd' Al-Mahdi discussed several of the major 
economic challenges facing Iraq.  Without prompting from U/S 
Hormats, VP Al-Mahdi raised the issue of debt reduction 
noting that it continues to weigh on Iraq, and referring to 
the fact that the debts of the prior regime to Iraq's Gulf 
Arab neighbors are still unresolved.  Al-Mahdi said Iraq 
seeks good relations with all its neighbors and should be 
viewed as a "bridge" between the Arab nations to its south 
and west, and the Turks and Iranians to the north and east. 
It would be wrong, he said, to see Iraq as being on the Arab 
"front line" against Iran.  While giving no specifics, he 
said he is consulting with Qatar and Bahrain. He also 
mentioned a letter he recently sent appealing to the Saudi 
King for an end to harmful rhetoric and the establishment of 
good neighborly relations. 
 
Economic Reform 
--------------- 
 
¶3.  (SBU) Recalling that Iraq had once been the bread basket 
of the Middle East, but now is a net food importer, U/S 
Hormats encouraged the GOI to undertake necessary economic 
and regulatory reforms.  He pointed to the World Bank's 
ranking of Iraq at 152 of the 181 countries on its "Ease of 
Doing Business" scale.  He said all sectors of the economy 
would benefit from reform, and job creation would accelerate 
if the GOI makes concerted and persistent efforts to improve 
its investment climate through such measures as establishing 
a one-stop-shop for foreign and domestic investors, and by 
joining the international arbitration conventions. 
 
¶4. (SBU) Hormats also noted that concluding the Stand-by 
Arrangement with the IMF depends on the passage of the 2010 
Budget, and that this needs to happen soon - at least one 
month before the national elections on March 7.  Al-Mahdi 
responded that, "the budget will be passed by the Council of 
Representatives in the next few days."  He had "good 
discussions" with the World Bank (WB) earlier in the day, but 
noted that of the $500 million in International Development 
Assistance (IDA) that the WB granted Iraq in 2004, only about 
$200 million has actually been disbursed.  He admitted that 
Iraq's legal and regulatory framework has impeded 
disbursements, and said he has been working to address these 
issues since 2004-05, when he was Minister of Finance.  He 
said that improving conditions for investment should be a 
"top priority" for the new government. 
 
Investment 
---------- 
 
¶5. (SBU) VP Al-Mahdi said he would look into the details 
related to recent oil development contract revisions, adding 
that greater participation by American oil companies in 
Iraq's oil development would send a confidence building 
message.  He said Iraq wants to have petroleum development 
relationships with all parts of the world, including the 
United States -- not just China, Russia and a few others.  He 
wondered why ExxonMobil was the only American company to make 
a bid. 
 
¶6. (SBU) Hormats explained that many factors enter into the 
investment decision calculations that oil companies make. 
Each has its own global market outlook, technical 
requirements, and business needs.  Given another opportunity, 
some might reconsider and participate.  Both for oil and 
non-oil investment, the best things Iraq can do are pass the 
Hydrocarbons Law, avoid actions that confuse or discourage 
investors, and make the reforms needed to improve the overall 
investment climate. 
 
¶7. (SBU) On the Hydrocarbons Law, Hormats urged reconciling 
the differences between the central government in Baghdad and 
the KRG.  Al-Mahdi responded that the differences surrounding 
the Law boil down to "just a few words."  The main issue, he 
said, was confidence, and that building Baghdad-KRG 
confidence should be a top priority after the elections. 
 
¶8. (SBU) Al-Mahdi said that business investor confidence 
would also be improved by resolving the "American claims," 
referring to the lawsuits of the American victims of the 
prior regime. Al-Mahdi sees great benefits coming from 
well-executed "pilot projects," that when shown to be 
successful could be readily duplicated around Iraq.  "Make 
one good bank and others will follow; similarly for a 
supermarket, or a hotel, or an airport," he said. 
 
Education 
--------- 
 
¶9. (SBU) Al-Mahdi noted that while Iraqis are good workers, 
having lived in isolation for decades, they need education 
and training to catch-up and connect with the rest of the 
world.  His advisor, Zuhair Homaidi, went on to explain 
Iraq's new program for providing up to 10,000 scholarships 
for Iraqis to study in universities in America and the United 
Kingdom.  Six to seven hundred students will participate in 
the program during 2010, seeking bachelors, masters and 
doctoral degrees; the numbers will increase at an 
accelerating pace in future years.  Now, the students can 
choose their fields, but in the future studies in such areas 
as engineering, the sciences, public administration and 
education will be encouraged.  U/S Hormats wholeheartedly 
endorsed this emphasis on education, recalling how a similar 
 
program helped to transform China in the 1970s and 1980s. 
 
Qualified Industrial Zones 
-------------------------- 
 
¶10. (SBU) Responding to Advisor Fareed Yasseen's inquiry as 
to whether the U.S. would consider adopting the Qualified 
Industrial Zone (QIZ) concept in Iraq, U/S Hormats explained 
that QIZs were first established to tap Israeli investment to 
employ Palestinian manpower, and then extended to Jordan and 
Egypt and adapted in a different form to Afghanistan (the 
latter without the Israeli investment component).  However, 
in today's environment, where creating new jobs for Americans 
in the United States is a top priority, extending the QIZ 
concept has many opponents in Congress.  The American labor 
and environmental lobbies are particularly critical. 
 
¶11. (U) List of Participants: 
 
USG 
--- 
U/S Robert Hormats 
NEA/I DAS Michael Corbin 
E Staff Sara Yun 
NEA/I-EAA Kevin Taecker 
 
GOI 
--- 
VP Abd' Al-Mahdi 
Amb Samir Sumaidaie 
Advisor Muhammed Al-Hakim 
Advisor Zuhair Homaidi 
Advisor Fareed Yasseen 
ISCI-DC Rep Karim Almusawi 
CLINTON