US embassy cable - 04AMMAN1539

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 001539 
 
SIPDIS 
 
TREASURY FOR ZARATE, MILLS, DEMOPULOS 
CPA FOR WETHINGTON, VARDAMAN 
 
E.O. 12958: DECL: 02/27/2009 
TAGS: ECON, JO 
SUBJECT: U/S LARSON MEETINGS IN AMMAN, FEBRUARY 24 
 
REF: AMMAN 1452 
 
Classified By: AMBASSADOR EDWARD W. GNEHM.  REASONS 1.5 (B) AND (D). 
 
1.  (C)  Summary.  Under Secretary Larson used February 24 
meetings with senior Jordanian officials to reinforce their 
commitment to fiscal discipline and growth-oriented economic 
policies, urge a quick return to Iraq of the full amount of 
Iraqi assets frozen in Jordan, and seek input and feedback on 
USG ideas for a "Greater Middle East" initiative.  The 
Jordanians were responsive all these areas, although they 
expressed concern that a new U.S. or G-8 initiative for the 
region take into account what they described as the region's 
overriding political priorities, notably the 
Israeli-Palestinian conflict.  End Summary. 
 
------------------------------------- 
Jordanian Fiscal and Economic Reforms 
------------------------------------- 
 
2.  (C)  In separate sessions with Prime Minister Faisal 
al-Fayez, Deputy PM Mohammad al-Halaiqa, and Finance Minister 
Abu Hammour (accompanied by the Ambassador and ECON/C), 
Larson congratulated the Jordanians on the Parliament's 
recent approval of the government's 2004 budget (REF). 
Larson called the budget -- which meets IMF deficit targets 
and contains difficult new tax and price measures needed to 
wean the Jordanian economy off its reliance on external oil 
support -- a courageous step that was vital for maintaining 
Jordan's standard as a leader of reform in the region.  The 
new government's efforts to explain the budget's requirements 
to the public in a transparent way were particularly 
admirable.  Larson's interlocutors appreciated these 
expressions of support, and appreciated U.S. financial and 
trade assistance that had helped Jordan successfully weather 
the war in Iraq.  The Jordanians also reiterated their 
commitment to a vigorous private sector and a small, 
efficient government as the only bases for long-term growth 
and job creation. 
 
3.  (C)  Abu Hammour, however, stressed that meeting the 
budget's goals for 2004 would be a challenge given the extra 
costs of procuring oil at market prices and an expected 
decline in external aid grants.  He and Fayez took advantage 
of their meeting with Larson to request additional assistance 
in FY05.  Abu Hammour also briefed Larson on the government's 
efforts to secure Parliamentary approval of military pension 
reforms that are critical to longer term fiscal 
sustainability.  Larson praised the Minister's and the 
government's strong leadership on this issue.  In all three 
meetings, the Jordanian officials said that they intended to 
integrate Social and Economic Transformation Program (SETP) 
projects into the general budget beginning in 2005.  (In view 
of this, Abu Hammour asked that any additional U.S. grants 
not be earmarked for the SETP.)  Larson welcomed this 
decision, saying the United States was proud to support the 
SETP's goals and believed that the steps the government was 
taking to ensure transparency and accountability and 
transparency were very important. 
 
----------------------------- 
Frozen Iraqi Assets in Jordan 
----------------------------- 
 
4.  (C)  Larson told Abu Hammour that it was important to put 
this issue in the past in such a way that it did not develop 
into a source of friction between Jordan and the new 
government of Iraq.  The U.S. appreciated the transfer to the 
DFI of $235 million so far, and hoped the remainder would be 
moved quickly.  The Minister said he had tried to involve the 
Iraqis in reviewing the Jordanian private claims against the 
assets, but that a team had not yet come from Baghdad.  The 
local Rafidain Bank branch was not able to make authoritative 
statements about individual claims.  Larson pointed out that 
the Jordanians had not yet provided the Iraqis with the 
information they had requested on Iraqi ministry 
counterparties for the claims. 
 
5.  (C)  Abu Hammour said he was under a lot of domestic 
pressure and could only hold off on paying additional claims 
for "two weeks."  Larson said he would work with CPA and the 
Iraqis to get a team to Amman quickly, but that the 
Jordanians also needed to provide the additional information 
the Iraqis had asked for.  Abu Hammour agreed that both sides 
needed to move fast. 
---------------------- 
Bilateral Trade Issues 
---------------------- 
 
6.  (C)  With Deputy Prime Minister Halaiqa, who is also 
Minister of Industry and Trade, Larson noted the Jordanian 
request for acceleration of FTA tariff reductions for certain 
textile products.  The USG was supportive, but recommended 
that Jordan consult with the Israeli government given 
possible perceptions of an impact on the economics of the QIZ 
initiative.  Halaiqa said he would look for an early 
opportunity to do so.  If he was not able to meet his Israeli 
counterpart Ehud Olmert in the near future, he would call him 
on the telephone.  Halaiqa also asked for U.S. support for 
Jordan's and Israel's initiative to obtain an arrangement 
from the EU similar to the QIZ initiative.  This would help 
the QIZ's remain competitive after 2005, when the global 
textile quota system ends.  As an example, Halaiqa said an 
Israeli firm was ready to create 10,000 new QIZ jobs in 
Jordan if it were to obtain such access to the EU market. 
 
7.  (C)  Larson also raised concern about the Jordan 
pre-inspection program for imports, Daman.  He said this 
appeared to be a costly, haphazard, superficial system that 
he was not aware of anyplace else in the world.  It was 
certainly not appropriate in a free trade relationship. 
Halaiqa said he had promised Ambassador Gnehm a paper on the 
subject on which future discussions could be based.  He said 
the list of goods requiring pre-inspection would not be 
expanded beyond the current 40 goods, and noted that the cost 
of inspections had been reduced. 
 
----------------------- 
G-8 Regional Initiative 
----------------------- 
 
8.  (C)  Larson described for all his interlocutors the 
current state of U.S. thinking about a regional initiative 
that could be announced at the G-8 summit this summer.  He 
said the U.S. and its partners were currently in the mode of 
seeking feedback from the region.  The U.S. goal is to 
support the region's initiatives for change and development, 
not to impose change from outside, Larson said.  He also 
noted how Jordan was a "pathfinder" for the region in 
demonstrating that positive change could occur in the Middle 
East. 
 
9.  (C)  The Jordanians welcomed the attention to the region, 
but raised several concerns.  The Prime Minister said he 
thought that the Arab countries of the Middle East had unique 
concerns and that an initiative should be focused on them as 
opposed to a "Greater Middle East" that included countries 
like Pakistan.  He was also very concerned that reforms be 
perceived as homegrown, not imposed from outside, and that 
reforms be adapted to the traditions and cultures of the 
region.  Furthermore, the Prime Minister continued, the 
United States needed to recognize that reforms, particularly 
political reforms, could not be made at the expense of 
stability and security within the region.  Given the region's 
multiple political problems, security had to be the first 
priority.  A G-8 statement on the region should, he said, 
acknowledge the difficulties the region is experiencing. 
 
10.  (C)  DPM Halaiqa was more direct in stating that an 
initiative should not be perceived as ignoring or putting to 
the side the Israeli-Palestinian issue.  This issue, he said, 
was at the core of every major problem the region faced; it 
desperately needed resolution.  He hoped that a G-8 
initiative in support of regional reforms would also address 
the Israeli-Palestinian issue.  Alternatively, a push on the 
Israeli-Palestinian issue could be on a separate track.  In 
sum, Halaiqa said, the region needed space and room to 
address its own problems.  He said that the upcoming Arab 
Summit meeting in Tunis would see an important initiative 
from Jordan and others that he hoped the United States would 
be able to support.  Halaiqa also noted that King Abdullah 
would be traveling to the UK, France and Ireland in the next 
week to seek support for this initiative. 
 
11.  (C)  Halaiqa said he was planning to visit Washington in 
late March or early April and would like to continue this 
discussion with Larson and other U.S. officials.  Also, Abu 
Hammour asked for U.S. support in encouraging the IMF to 
locate a planned regional training center in Amman instead of 
in Abu Dhabi, the other main competitor for the center.  (He 
made a similar request to Treasury U/S Taylor in a February 
21 meeting.) 
 
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Comment 
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12.  (C)  Larson's visit was very useful in solidifying an 
already strong dialogue with Jordanian economic policymakers. 
 His reinforcement of Jordan's fiscal and economic reforms, 
which Larson also praised in public fora with the AmCham and 
in a roundtable with young professionals (septel), was 
especially helpful as the new government considers how to 
move on economic issues.  Post will keep the pressure on the 
Jordanians for an early transfer of the remaining Iraqi 
assets.  At the same time, however, it is critical that an 
Iraqi team come to Amman in the very near future -- if only 
for a first discussion and assessment of what would be 
required to resolve the claims issues. 
 
13.  (C)  Under Secretary Larson or his staff did not clear 
this message. 
GNEHM