US embassy cable - 03AMMAN7691

S E C R E T SECTION 01 OF 03 AMMAN 007691 
 
SIPDIS 
 
TREASURY FOR ZARATE, NUGENT 
NSC FOR KIFAYAT 
CPA FOR WOLFE 
 
E.O. 12958: DECL: 11/18/2013 
TAGS: ETTC, EFIN, PREL, IZ, JO 
SUBJECT: JORDAN: NOVEMBER 17 MEETINGS ON FROZEN ASSETS 
 
REF: AMMAN 7525 
 
Classified By: Ambassador Edward W. Gnehm.  Reasons 1.5 (b) and (d). 
 
1.  (S)  Summary.  In several hours of meetings November 17, 
Jordanian financial officials and a U.S. Treasury/Iraqi 
finance ministry team were unable to agree on a plan for the 
GOJ to transfer all of the remaining Iraqi assets frozen in 
Jordan to the Development Fund for Iraq.  The Jordanians took 
the position that absent U.S. and Iraqi reassurances on their 
$1.33 billion central bank trade claim on Iraq, they could do 
no more than the already committed transfer of $150 million 
(out of $500 million originally frozen) by February.  The 
Jordanians made clear that they are politically unable to 
treat the assets and central bank claims issues separately. 
While it is necessary to address this issue at higher levels, 
Post does not see prospects for accelerating the transfer of 
frozen assets until the Jordanians feel some comfort that 
their $1.33 billion central bank claim will be protected. 
End Summary. 
 
2.  (S)  Accompanied by Ambassador Gnehm and Emboffs, a U.S. 
Treasury team led by DAS Juan Zarate was joined by Iraqi 
Finance Minister Geilani and CPA Advisor Haydar al-Uzri for 
approximately five hours of meetings with Jordanian Finance 
Minister Abu Hammour and Central Bank Governor Toukan on 
November 18, 2003 in Amman.  Zarate presented the growing 
sense of urgency in the U.S. Government and in Iraq that 
assets now frozen outside Iraq that had been controlled by 
the former Iraqi government be returned to the Iraqi people 
as provided for in UN Security Council Resolution 1483. 
While sensitive to concerns Jordan had expressed about the 
claims of its citizens and Central Bank on Iraq, it was 
important that Jordan be seen as a leader in the region in 
complying with the resolution.  Thus, Zarate's hope was that 
the visit could result in a specific implementation plan for 
the transfer of all frozen assets to the Development Fund for 
Iraq (DFI). 
 
3.  (S)  Minister Abu Hammour reviewed Jordan's specific 
interests.  These included claims of its citizens on Iraq for 
goods delivered but not paid for under the former bilateral 
oil-for-goods protocol, the financial exposure of individual 
banks and the banking system as a whole to these claims, and 
the $1.33 billion in trade claims on the Central Bank of Iraq 
accumulated by the Jordanian Central Bank under bilateral 
trade clearing arrangements since 1983.  He said that these 
trade claims were not "debt" in the sense of loans or credit 
used to finance trade.  Rather, they were unsettled balances 
accumulated over the years under the "clearinghouse" 
mechanism for reconciling oil supplied with goods delivered. 
 
4.  (S)  Abu Hammour said that in recognition of the concerns 
described by Zarate, Jordan had transferred an initial $25 
million to the DFI on November 13.  Jordan was ready to 
transfer more, but needed to be assured that the interests of 
its banks and exporters were safeguarded.  He said he 
expected such claims would ultimately prove equivalent to 
roughly 80% of the frozen assets.  Toukan and Deputy Central 
Bank Governor Said Shahin stressed that it was not at this 
point possible to give a more precise estimate of the amount 
of claims that would be legitimized and paid under the April 
24 law (through which the GOJ had taken title to the assets), 
as the documentation of these claims was still being assessed 
by a GOJ technical committee.  Once this process was 
complete, Jordan would be ready to move the "free balance" to 
the DFI in a way that protected Jordanian official reserves 
and the stability of its banking system.  In addition, Abu 
Hammour said, Jordan needed to ensure that the $1.33 billion 
in Central Bank claims would be paid by Iraq.  He said this 
could be in a lump sum or over time. 
 
5.  (S)  Zarate stressed that the U.S. is a friend and ally 
that does not want to destabilize Jordan's banking system and 
is well aware of the $1.33 billion issue.  Nevertheless, he 
thought it was possible to accomplish the imperative of 
transferring assets to the DFI while protecting the interests 
the Minister described.  In particular, Zarate and Finance 
Minister Geilani and CPA adviser al-Uzri said it was 
important that Iraqi officials with knowledge of the 
underlying transactions be involved in evaluating claims. 
Al-Uzri emphasized the importance of the Iraqis taking part 
in this process and asked for details and documentation of 
claims involved, including those that had already been paid 
by the GOJ.  Zarate suggested that the meeting should create 
a schedule for paying the entire $500 million -- less 
legitimate claims mutually agreed by Jordanians and Iraqis -- 
to the DFI.  He noted that the United States had transferred 
$1.8 billion in frozen assets back to Iraq despite the 
existence of U.S. claims, with the understanding that claims 
would be addressed by the government of Iraq, as foreseen by 
UNSCR 1483.  Other countries, like Japan, had done similarly. 
 
6.  (S)  The Jordanians, however, said they could not 
separate the issue of the frozen assets from the $1.33 
billion in Central Bank claims.  Explaining the origin of the 
claims as accumulated balances in Jordan's favor under the 
clearinghouse payments system of the former protocols, Abu 
Hammour reiterated that this was not "debt" like that owed by 
Iraq to wealthy creditor governments.  Jordan is a poor, net 
debtor country, he said, and could not sacrifice its assets. 
Geilani replied that Iraq had not forgotten its obligations 
and that it was ready to discuss and study "everything." 
But, Geilani said, the issues of the frozen assets and the 
Central Bank claims had to be treated separately. 
7.  (S)  Pressed by al-Uzri for more precise information 
about the amounts of claims received and those already paid, 
Shahin specified that from JD 350 million ($500 million) in 
frozen assets, JD 73 million ($103 million) had already been 
paid to claimant banks.  Adding the $25 million already moved 
to the DFI, this left JD 264 million ($373 million) to 
address the "hundreds" of claims received.  Toukan estimated 
that once claims found to be valid had been paid, about $150 
million might be left to transfer to the DFI.  Thus, the GOJ 
had conveyed to the United States its willingness to transfer 
that $150 million to the DFI over a period of months in 
installments.  The Ambassador said that this was less 
specific than the commitment to transfer $150 million in 4 
monthly installments made by Planning Minister Awadallah to 
NSC Deputy Edson.  Furthermore, he said it was our 
understanding from previous conversations with Jordanian 
officials that valid claims would amount to about $250 
million.  We saw no reason then why the GOJ was not ready to 
transfer at least $250 million immediately. 
 
8.  (S)  Zarate said we needed to see movement to transfer 
the remaining frozen assets without finalizing claims, 
although this process could also be expedited by working with 
the Iraqis.  Al-Uzri added that the Iraqis wanted Jordan to 
stop settling claims until Iraqis had reviewed the relevant 
records.  Abu Hammour and Toukan objected that there was no 
need for Iraqis to be involved.  In fact, Abu Hammour 
asserted, it would be contrary to the Jordanian law for 
non-Jordanians to be involved in the process.  Further 
muddying the discussion, Toukan and Abu Hammour asserted that 
they continued to receive new claims (note despite a cutoff 
date in the April 24 law).  Having reached an impasse, the 
group broke for a meal and agreed to reconvene later that 
evening. 
 
9.  (S)  Upon reconvening, Zarate presented a concrete 
proposal for transferring the $373 million in frozen assets 
still remaining to the DFI over a period of 4-6 months.  At 
the same time, Jordanians and Iraqis could mutually expedite 
their review of the claims.  The staging of payments should 
both smooth the financial impact on the Jordanian banking 
system and ensure effective cooperation to resolve claims. 
With the proposal having clarified the discussions of the 
frozen bank assets, the Jordanians returned to the point that 
they needed -- for domestic economic and political reasons -- 
to have a U.S. and Iraqi commitment that the $1.33 billion 
Central Bank claims would be honored and paid, even if over 
an extended period.  Governor Toukan said that the Bank's 
external auditors would require either a reaffirmation of the 
validity of the claim or a commitment by the central 
government to recapitalize the bank.  The auditors asked for 
such a statement every year.  In previous years, the Bank was 
able to show a letter from the Iraqi Central Central that 
acknowledged the claim and agreed to draw it down.  "How 
would the auditors be satisfied?" this year, Toukan asked. 
 
10.  (S)  Zarate emphasized that neither he nor the Iraqis 
were in a position to make commitments on the Central Bank 
claims, although, Geilani said, Iraq did not "deny the $1.33 
billion."  Both the U.S. and Iraq were, Zarate said, prepared 
to discuss the subject with Jordan, but separately from the 
frozen assets and the UNSCR 1483 obligation to transfer them 
to the DFI.  Zarate said that Jordan's responsibility was not 
just a moral one under the UNSC resolution.  Jordan should 
also show leadership to other countries holding frozen 
assets.  Joining the Jordanian team at this point, Justice 
Minister Salah Al-Bashir made an argument that the allowance 
for prior judgments in UNSCR 1483 paragraph 23 applied to the 
claims of Jordanian banks and exporters.  Bashir said that 
this was because a letter of credit was "morally equivalent" 
to a court judgment.  (He did not address the inconsistency 
of why such claims would need evaluation by an inter-agency 
GOJ committee.)  Bashir also highlighted the political 
sensitivities surrounding the $1.33 billion in central bank 
claims.  The government could not be seen by Parliament or 
the private sector as returning the frozen assets without 
having protected Jordan's interest in the "trade ledger." 
 
11.  (S)  Emphasizing that Jordan could not move further than 
it had already agreed to do on returning the frozen assets 
without progress on the $1.33 billion, Abu Hammour proposed 
that Jordan would make one more transfer of $35 million to 
the DFI, but would then stop such transfers until there was 
agreement on the central bank issue.  The Ambassador pointed 
out that this was contrary to the commitment already made to 
transfer $150 million to the DFI over four months. 
 
12.  (S) At this point, it was clear to both sides that the 
discussion had exhausted the issues and that there would not 
be a resolution during these meetings.  Given this impasse, 
Zarate said U.S. officials, including the President, would 
pursue the subject during the King's December visit to 
Washington.  Both Zarate and the Ambassador reiterated that 
the United States was sensitive to Jordan's interests, which 
was why we had gone so far as to propose a mechanism for 
transferring the frozen assets over time, which would also 
provide for Iraqi assistance in evaluating Jordanian claims. 
Zarate said he would take back to Washington Jordan's 
concerns over the $1.33 billion central bank claim, but 
emphasized that for legal and practical issues this issue 
would have to be addressed separately. 
 
------- 
Comment 
------- 
 
13.  (S)  DAS Zarate did an outstanding job of showing 
sensitivity to Jordanian concerns and at the same time 
firmness over the issues at stake.  The plan for repayment of 
the remaining $373 million over several months in conjunction 
with Jordanian/Iraqi evaluation of claims against the assets 
addresses Jordanian concerns about both the liquidity the 
banking system and the bank/exporter claims.  We had the 
sense that the Jordanians would have been able to accept this 
proposal, were it not for their need to reaffirm the status 
of the $1.33 billion central bank claim.  As Abu Hammour 
explained after the meetings, the government would be 
politically crucified if it were seen as conceding on the 
assets without progress on the enormous central bank claims 
(equivalent to 15% of GDP).  Following internal GOJ cabinet 
and economic team meetings the day after the discussions with 
Zarate (see reftel), Abu Hammour reaffirmed the Jordanian 
position on linking the two issues to Zarate by phone.  He 
also reaffirmed the commitment to transfer $150 million to 
the DFI by February.  (In addition to the $25 million, the 
GOJ transferred $10 million to the DFI November 20.)  In 
Post's assessment, the political pressures on the government 
to address the central bank balance sheet problem are very 
real.  We do not expect further discussions of the frozen 
assets to make progress until we and/or the Iraqis are able 
to provide reassurances that the CBJ will not be required to 
write-off all or part of its claim. 
 
14.  (SBU) Treasury and CPA did not have the opportunity to 
clear this message. 
GNEHM