US embassy cable - 04AMMAN113

UNCLAS SECTION 01 OF 03 AMMAN 000113 
 
SIPDIS 
 
SENSITIVE 
 
NSC FOR KIFAYAT 
TREASURY FOR A. DEMOPULOS 
 
E.O. 12958: N/A 
TAGS: EAID, EFIN, PREL, JO 
SUBJECT: JORDAN ESF REQUEST FOR FY05-FY06 
 
 
SENSITIVE BUT UNCLASSIFIED. 
 
1.  (SBU)  Following up on King Abdullah's December 6 
letter to President Bush requesting that economic 
assistance to Jordan be increased to a level of $550 
million in both 2005 and 2006, Planning Minister 
Awadallah sent the Ambassador the below letter, dated 
January 4.  Expanding on the King's request, Awadallah 
says the extraordinary assistance is needed to help 
finance $4.2 billion in development programs in the areas 
of human resources development, government services, 
poverty alleviation and rural development and 
institutional reform identified under the "Social and 
Economic Transformation Program" (SETP).  The assistance 
would go toward covering the financial gap between the 
$4.2 billion mentioned above and $2.9 billion of already 
secured and expected funding.  The letter also reiterates 
the GOJ's commitment to economic and fiscal reforms that 
would, in the medium to long term, reduce Jordan's 
dependence on foreign aid. 
 
2.  (SBU)  Awadallah's letter also comes following 
lengthy discussions between him and the Mission on 
conditions Jordan would have to meet before disbursal of 
FY04 ESF.  These discussions resulted in a tentative 
agreement on 23 such conditions, which have been 
forwarded by email to USAID/Washington and State for 
Washington review.  In addition, Awadallah and the 
Ambassador are close to reaching an "ad ref" agreement on 
a mechanism for involving the Mission more closely in the 
implementation, monitoring, and evaluation of Social and 
Economic Transformation Plan (SETP) projects.  We will 
also forward this as soon as it is finalized for 
Washington's consideration and review. 
 
3.  (SBU)  Begin text of letter. 
 
Dear Excellency, 
 
I am writing to you as a follow up to the request made by 
His Majesty King Abdullah II for additional U.S. economic 
assistance in his letter dated 6 December 2003 addressed 
to The Honorable George W. Bush, the President of the 
United States, and further to our meeting at the Ministry 
of Planning and International Cooperation on 28 December 
2003. 
 
Jordan is grateful for the continued and unwavering 
support of the United States during this important 
period, and specifically for the additional economic 
assistance committed in 2003, and the assistance package 
for 2004. It is such assistance that has helped mitigate 
part of the adverse impact of the war in Iraq on our 
economic performance, and allowed us to continue on the 
path of economic development and reform despite the still 
turbulent regional political situation. 
 
As we embark on building a model of social, political and 
economic reform in the region, we will continue to count 
on the support of the United States to ensure the 
implementation of our bold reform agenda. 
 
In spite of the instability in the world in general, and 
the Middle East region in particular, Jordan has managed 
to achieve favorable results at the macroeconomic level. 
However, poverty and unemployment still linger at the 
high levels of 12% and 15%, respectively, while per 
capita income has only witnessed modest growth. 
Furthermore, the quality and efficiency of basic 
government services remain below the desired levels, 
especially in the rural and remote areas of the country, 
while private investment witnessed negligible growth due 
to the slow implementation of large development projects 
and privatization schemes. 
 
Moreover, Jordan is still faced with large distortions in 
the labor market, a high budget deficit and an 
irresponsive budget structure, a high dependency on 
foreign aid and susceptibility to external factors, small 
local markets and increased foreign competition, low 
economic productivity, low expenditure on research and 
development, modest capacity in many public institutions, 
and limited natural resources, especially water. 
 
The Social and Economic Transformation Program (SETP) was 
devised to address some of these challenges by 
implementing a sizeable segment of the reform agenda. 
Yet, the overall progress of reforms has been slower than 
desired. Furthermore, new requirements have emerged, 
necessitating a review of the reform agenda for the next 
three years (2004-2006). It is with this background that 
the new government, which was appointed on October 25, 
2003, will embark on implementing the National Social and 
Economic Action Plan (2004-2006), which will include the 
ongoing SETP projects, in addition to the new ones 
scheduled to be implemented in the next three years. 
 
Please find attached a paper outlining the main features 
of the Action Plan entitled "The National Social and 
Economic Action Plan (2004-2006)," as well as an 
executive summary of the paper. 
 
The Action Plan was developed in coordination with the 
relevant ministries and sets clear policies, strategies, 
and time-bound sectoral action plans. It incorporates a 
macroeconomic framework that was developed in cooperation 
with the IMF, the World Bank, the Central Bank of Jordan, 
and the Ministry of Finance. Moreover, it was developed 
in full partnership with the private sector. A draft of 
the Action Plan was presented on 13 November 2003 to 
private sector and civil society institutions for 
comments. The aforementioned institutions have since 
submitted their comments, which have been taken into 
consideration in the preparation of the final version of 
the Action Plan. 
 
By 2006, the Action Plan aims to achieve and sustain, 
inter alia, a GDP growth rate of 6% and growth in per 
capita income of 3.6%, as well as realizing a growth in 
exports to reach 46.3% of GDP, while keeping inflation 
under control (restricting it to less than 2% per year), 
and lowering the budget deficit as a percentage of GDP to 
2.8%. The government will also work on reducing poverty 
and unemployment through enhancing qualitative investment 
in rural development and introducing programs which aim 
to empower and enable citizens, especially the youth and 
women, as well as encourage more private investment in 
order to help create 50,000 new job opportunities every 
year. 
 
In order to complete the reform agenda detailed in the 
Action Plan over the next three years (2004-2006), the 
GOJ must invest a total amount of around US $4,229.1 
million in development projects in the areas of human 
resource development, basic government services, rural 
development and poverty alleviation, and institutional 
and structural reform. The Action Plan is articulated to 
reflect all projects included in the medium term 
budgetary framework for the next three years, including 
the ongoing SETP projects and the new ones to be 
implemented in 2004. In fact, the investment needs in 
basic infrastructure are commensurate with the initial 
findings of Jordan's Millennium Development Goals (MDG) 
Report that is being prepared jointly with the United 
Nations. The report states that in order for Jordan to 
reach the MDG goals by 2015 (particularly as pertains to 
poverty, education, and water access), additional funding 
of more than US $l.4 billion per annum is needed. 
 
The total secured and expected funding for the three year 
period 2004-2006 amounts to US $2,907.6 million, thus 
giving rise to a funding gap of US $1,321.5 million. 
 
As the expected assistance for 2004 will fall short of 
the requirements for the year, and to ensure the 
implementation of the reform agenda and the realization 
of the goals of the SETP and the Action Plan, and in 
order to achieve a self-sustaining budget in the medium- 
and long-term, we are requesting additional grants from 
the US in the amount of US $300 million in 2005 and US 
$300 million in 2006, to partially cover the Action 
Plan's funding gap. The requested amounts are in addition 
to the expected regular economic assistance of US $250 
million in 2005, and US $250 million in 2006. 
 
The GOJ realizes that unless serious steps are taken in 
order to reduce dependence on foreign aid in the medium 
and long terms, reform efforts will never yield the 
desired results. Therefore, a number of fiscal measures 
were taken, including the lifting of subsidies, in order 
to create a self-sustaining budget. Additional measures 
in the pipeline will include further actions in the 
context of pension reform and the rightsizing of the 
public sector in order to curb the level of current 
expenditures. These measures are aimed at developing a 
budget that is responsive to socioeconomic developmental 
needs, and is capable of self-financing and covering the 
recurring costs of ongoing projects and all new and 
prioritized projects. The government is committed to 
continuing the process, which has already started, of 
correcting distortions and increasing revenues through 
increasing the rate of the General Sales Tax (GST) and 
gradually reducing subsidies on petroleum products. 
 
I trust that the above, and the attachments, will prove 
useful for your purposes of evaluating our assistance 
requirements for 2005 and 2006. We are ready to provide 
further details upon request. 
 
Again, please allow me to extend my gratitude for the 
continued support of the United States in our development 
efforts, and rest assured, Your Excellency, that Jordan 
will continue to be an ardent supporter of peace, 
stability, and freedom in the region. We are committed to 
building a viable model of a modern inclusive democratic 
civil society in the region, and we count on your 
continued support in this regard. 
 
Please accept the assurance of my high esteem and 
consideration. 
 
Bassem I. Awadallah 
Minister of Planning and 
International Cooperation 
 
End text. 
GNEHM