US embassy cable - 03ABUDHABI4372

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 004372 
 
SIPDIS 
 
DEPT FOR NEA/ARP,  DEPT FOR EB/IFD - BRIAN MOHLER 
 
E.O. 12958: 9/28/08 
TAGS: ECON, IZ, PREL, TC 
SUBJECT:  IRAQ ECONOMIC RECONSTRUCTION: POST ASSESSMENT 
 
 
1. Classified by Ambassador Marcelle M. Wahba for reasons 
1.5 (b and d). 
 
2. (SBU) Summary: Post believes that the UAEG will make a 
contribution to Iraqi reconstruction at the October donors' 
conference.  We believe that the UAEG's preference, 
however, will be to provide "in-kind" contributions and 
services rather than cash.  After running a 9% of GDP 
budget deficit in 2002, the UAEG significantly tightened 
its purse strings over the past 10 months.  By the end of 
the year, the UAE will have already contributed between $80 
to $100 million of humanitarian aid to Iraq, so an approach 
that allows the UAE to pledge a multi year contribution is 
likely to get a more positive response than a request for 
immediate up-front cash.  We believe that large-scale 
assistance (i.e., providing technical training or credit 
facilities) from the Arab Monetary Fund will likely be 
dependent on resolving Iraq's outstanding arrears to the 
AMF.  End Summary. 
 
3. (SBU) Post believes that the UAEG will make a 
contribution to Iraqi reconstruction.  The security and 
stability of Iraq, and its ability to balance Iran, are a 
national security priority for the UAE.  UAEG officials 
have told mission staff and official visitors repeatedly 
that Iraq cannot be allowed to fail. 
 
4. (SBU) Minister of State for Finance and Industry Dr. 
Mohhamed Khalfan bin Khirbash repeated these points to 
Undersecretary of State For Economic, Business, and 
Agricultural Affairs Alan Larson on the margins of the 
IMF/WB Annual Meetings in Dubai.   Dr. Khirbash told 
Undersecretary Larson that the UAEG had not focused on 
participation or contributions for the Madrid conference 
because it had been focusing on its preparations to host 
the IMF/WB Annual Meetings.  He pledged that the UAEG would 
turn to this issue as soon as the meetings were over. 
 
5. (C) Post is less confident about near term aid from the 
Arab Monetary Fund.  According to AMF Director General Dr. 
Jassem Al-Mannai, Iraq owes the AMF approximately $368 
million ($189 million in principal and $179 million in 
unpaid interest) and is not eligible to participate in the 
AMF's Arab Trade Financing Program.  He also noted that the 
AMF would take its direction on multilateral debt from the 
IMF (rescheduling, but probably little or no forgiveness). 
 
6. (SBU) While the willingness of the UAE to "step up to 
the plate" is not in doubt, we are less clear about the 
extent of their ability to provide large cash donations 
this year.  According to the IMF, the 2002 consolidated 
budget deficit was approximately 9% of GDP.  Higher oil 
prices in the first half of 2003 have likely improved 
revenues and the UAE still possesses substantial overseas 
assets, but it will need to balance aid to Iraq with other 
domestic and foreign policy priorities.  On several 
occasions during 2003, the UAE has deferred acquisitions or 
offered "in kind" foreign aid rather than cash payments. 
In fact, the UAE has already provided substantial "in-kind" 
assistance: including building hospitals, offering training 
to Iraqi bankers, and is considering training Iraqi police. 
 
7.  (C) Post suggests that our approach to the UAEG needs 
to address two UAE concerns: fiscal reality and the UAE's 
preference for providing assistance quietly rather than 
publicly.  We strongly suggest that Washington NOT/NOT ask 
for any specific sum, but rather emphasize the leading role 
that the UAE has played as a member of the donors' group 
and encourage it to be as generous as possible.  In 
addition, the approach should make clear that, while the 
USG is looking for "fast disbursing" grants, longer range 
assistance (monetary and in kind) is also welcome, 
especially if it can be committed to in Madrid.  We also 
suggest that - if we have not already done so - we provide 
the UAEG with a list of specific sectors where in-kind 
assistance can be directed.  We believe they would be 
responsive to requests for a variety of training needs as 
well as humanitarian support.  This approach is likely to 
maximize the contribution that the UAE can and will make. 
 
8. (C) The UAE also prefers to provide its assistance 
quietly, at least partially out of a belief that charity 
should not be publicly proclaimed.  An approach that might 
address the UAE "publicity shyness" and our desire to 
obtain a large "up front" number to encourage reluctant 
donors would be take advantage of the UAE membership in the 
core group.  If the core group were to make a group 
announcement, the UAE might be persuaded to join in as a 
member. 
9. (SBU) In the longer term, foreign direct investment will 
be key to Iraqi reconstruction.  UAE businesses are 
interested in the investment opportunities in Iraq and 
their interest will likely increase when the security 
situation improves.  To that end, UAE businesses would 
appreciate further transparency in the awarding of 
contracts and more information on areas for investment. 
 
Wahba