US embassy cable - 04AMMAN4670

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 004670 
 
SIPDIS 
 
E.O. 12958: DECL: 06/06/2014 
TAGS: EFIN, EAID, IZ, JO 
SUBJECT: JORDAN'S FINANCE MINISTER DISCUSSES IMF VISIT, 
IRAQI ASSETS, AND CABINET BUDGET MANEUVERS 
 
REF: A. AMMAN 04330 
 
     B. AMMAN 04275 
 
Classified By: Amb. Edward Gnehm, Jr., Reasons 1.5 (b) and (d) 
 
1.  (C)  SUMMARY:  Finance Minister Abu Hammour related to 
the Ambassador June 2 that the visiting IMF team said Jordan 
would graduate from the IMF program "with honors."  Although 
the IMF had raised its growth estimate for Jordan for 2004 to 
5.5%, he said it could just as easily have been 6%.  Both the 
Minister and the IMF team were happy with Jordan's inflation 
rate, which should approach 3% by the end of the year.  Abu 
Hammour also related the background of some of his battles 
within the cabinet and with the King over controlling 
government spending, taking special pride in a victory over 
the Planning Minister.  Abu Hammour confirmed the Saudi offer 
of an oil grant of 50,000 b/d to Jordan and reported the 
possibility of a secret joint $1 billion Kuwaiti/UAE grant or 
soft loan over a three year period.  Regarding the 
requirements for disbursement of U.S. aid, Abu Hammour said 
that all are being met and that he expected a letter from the 
IMF by the end of June confirming that Jordan had met its 3rd 
Review requirements.  He added that Jordan will continue to 
need both future grants and technical assistance.  Finally, 
on Iraqi assets, the Minister repeated that he expected all 
outstanding claims against frozen Iraqi assets to be 
completed by the end of June and the remaining balance 
transferred in early July.  END SUMMARY. 
 
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KUDOS FROM THE IMF AND KEEPING THE MILITARY AT BAY 
--------------------------------------------- ----- 
 
2.  (C)  On June 2, Jordan's Finance Minister, Mohammad Abu 
Hammour, told the Ambassador that the IMF team that had 
visited Jordan (Ref A) was "so happy" with Jordan's economic 
progress.  He said that the IMF had set a target for Jordan 
for the 1st quarter of a Jordanian dinar (JD) deficit of JD 
140 million ($ 196 million).  Jordan instead had registered a 
budget surplus of JD 139 million ($195 million), a 
turn-around of JD 279 million ($390 million). 
 
3.  (C)  Abu Hammour was particularly pleased that he had 
succeeded in cutting JD 15 million ($21 million) in military 
spending in his budget.  He related a story that, after the 
government had implemented a salary increase for the military 
and for civil servants, the head of the Jordanian military 
had come to him asking for JD 40 million ($56 million) more. 
Abu Hammour had agreed but told him he would have to cut his 
overall spending by the same amount, as specified by the 
budget law.   After a bargaining session, Abu Hammour had 
succeeded in holding off the request for the additional JD 40 
million, in exchange for no further cut.  In addition, the 
military managed a 10% increase in salaries without any new 
funds from the Finance Ministry. 
 
4.  (C)  The IMF team had told Abu Hammour that Jordan would 
graduate from its IMF program on July 2 "with  honors."  The 
IMF had raised its estimate of real GDP growth for Jordan for 
2004 from 5% to 5.5% but could just as easily have raised it 
to 6%, according to Abu Hammour.   Indeed, the 1st quarter of 
2004 had registered real growth of 7%, albeit partly due to 
effect of the Iraq War on the comparable 2003 figures.  Abu 
Hammour said that he did not want the IMF to use the 6% 
figure because he preferred to be cautious. 
 
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Inflation Not a Concern 
----------------------- 
 
5.  (C)  Turning to inflation, Abu Hammour said the 3.5% rate 
for April had been affected by higher prices in advance of 
the GST which went into effect in that month.  He asserted 
that many businesses had raised their prices by more than the 
additional 3% increase in the GST, partly due to currency 
fluctuations.  Fortunately, prices were already beginning to 
come down and both he and the IMF expected them to reach 3% 
to 3.2% by the end of the year, commenting that this was even 
close to the EU convergency level. 
 
6.  (C)  Abu Hammour said he did not expect further price 
rises to be needed.  In the first four months of the year, 
tax revenues had reached JD 80 million ($112 million) 
although the government had estimated revenues for the whole 
year at only JD 100 million ($140 million).  Unification of 
the GST had also been important and had brought in another JD 
40 million ($56 million), again higher than expected.  On the 
other side of the equation, imports were also up in the 1st 
quarter, largely due to higher oil prices. 
 
 
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A Temporary Break for Tourism 
----------------------------- 
 
7.  (C)  In addition, the current account registered a 5% 
surplus, partly thanks to a 30% increase in tourism receipts. 
 He thanked the USAID-supported AMIR program for its help 
with Jordan's tourism sector strategy.  He also mentioned 
that he had met with Tourism and Antiquities Minister Alia 
Hattough-Bouran, who had requested that the GST be cut from 
16% to 0% for hotels.  Abu Hammour had said no, not wanting 
to create market distortions.  However, King Abdullah had 
over-ruled him.  Nevertheless, Abu Hammour had "minimized his 
losses" by convincing the King to cut the GST to only 7% and 
to keep the reduction for only one year. 
 
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Foreign Aid 
----------- 
 
8.  (C)  When asked about the status of the Conditions 
Precedent (CP) for the remaining $200 million of the USAID FY 
2003 cash transfer for emergency assistance, Abu Hammour said 
that the IMF team had said Jordan had met all its targets by 
a wide margin.  The next step would be the IMF team's report, 
to be distributed by June 13.  The report could then be 
approved by the IMF without a Board meeting unless one of the 
board members requested a meeting.  Once the IMF management 
sent a letter certifying that Jordan had met its final CP, 
the cash transfer could then be authorized.  Abu Hammour was 
not in a hurry for the transfer and said he did not 
necessarily need the money in June, thanks to the 
higher-than-expected revenues.  He would prefer the transfer 
take place in July; this would make him less of a target for 
other ministers seeking more funds for their ministries. 
None of this meant that Jordan did not still have demands on 
its revenues.  Abu Hammour said the higher oil prices meant 
the government had to pay an additional JD 220 million ($308 
million) in fuel subsidies.  For every one dollar increase in 
oil prices, the government paid an additional JD 22 million 
($30.8 million) in subsidies. 
 
9.  (C)  Abu Hammour confirmed earlier reports that Saudi 
Arabia had agreed to supply Jordan with a grant of 50,000 
barrels of oil per day.  In addition, during his recent visit 
to Kuwait, the King had negotiated with the Kuwaitis and come 
away with a plan under which Kuwait and the UAE would jointly 
give Jordan a $1 billion grant/soft loan at a very low rate. 
Although the grant/loan would be for a three year period, the 
funds would be given to Jordan up front.  Abu Hammour asked 
that this information be closely-held. 
 
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Loose Lips... 
------------- 
 
10.  (C)  Abu Hammour then related the story of how the news 
of the Saudi oil grant had been made public. The Prime 
Minister had told the Cabinet that Jordan would be receiving 
a grant from Saudi Arabia but instructed them not to make it 
public.  Unfortunately, the next day, Government Spokesperson 
Asma Khader announced it in her press conference,  At the 
next session, Abu Hammour asked her why she had done so, 
perhaps jeopardizing the deal because the Saudis wanted it 
kept private.  After she replied that she could not lie to 
journalists, he told her that making this deal public could 
also affect a possible renewal of the deal next year.  As Abu 
Hammour had feared, immediately after news of the Saudi deal 
had been made public, Abu Hammour began receiving further 
requests from Ministers and MPs for increased spending.  He 
hoped that the Kuwait/UAE deal could remain closely held. 
 
---------------------------------- 
Tussles with the Planning Minister 
---------------------------------- 
 
11.  (C)  Abu Hammour related that Planning Minister Bassem 
Awadallah had been upset about having "his" Social and 
Economic Transformation Fund, containing USAID funding, 
integrated into the overall budget.  Abu Hammour related that 
this decision dated back to a Finance Ministry plan for 
financial management for the next three years which was 
drafted last November.  The Ministry had decided that it 
would need technical assistance to develop and implement the 
plan.  Abu Hammour expected Awadallah to claim the proposal 
was too biased so Abu Hammour had decided the technical 
assistance should consist of both the IMF and the World Bank, 
with the latter presumably more favorably disposed to 
Planning Ministry concerns.  This seemed to calm the waters. 
 
12.  (C)  Nevertheless, just prior to the World Economic 
Forum held at the Dead Sea in May, Awadallah had suggested in 
a Cabinet meeting that the GOJ announce something 
extraordinary at the WEF like, for example, eliminating the 
income tax.  The Prime Minister had laughed and turned to Abu 
Hammour for his reaction.  Abu Hammour said that he could 
eliminate the JD 200 million/year tax ($280 million) but 
would have to close the Ministry of Planning which spends the 
same amount.  The following day Awadallah circulated a letter 
opposing the mission by the IMF/World Bank because it could 
develop recommendations which would take away Ministry of 
Planning functions.  Abu Hammour replied that it was too late 
to call off the mission. 
 
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What the Finance Ministry Needs over the Next Five Years 
--------------------------------------------- ----------- 
 
13.  (C)  Looking ahead, Abu Hammour said that Jordan and the 
Finance Ministry would continue to need further grants over 
the next five years.  In addition, the government and the 
ministry would need more technical assistance, particularly 
in the areas of customs and border management.  Abu Hammour 
was very appreciative of previous support from USAID and from 
its economic development contractor, AMIR.  Abu Hammour had 
met with AMIR the previous week to discuss tax incentives to 
attract foreign direct investment (fdi).  The GOJ is 
considering tax exemptions on customs duties for all products 
connected with fdi and perhaps income tax exemptions for 
certain periods for foreign investors.  In addition, Abu 
Hammour wants to improve tax administration and financial 
management. 
 
 
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Iraqi Assets 
------------ 
 
14.  (C)  When asked about the status of the remaining frozen 
Iraqi assets, Abu Hammour replied that everything should be 
settled soon and that he hoped the final transfer of the 
balance of assets would create a good starting point for 
Jordan's relations with the in-coming Iraqi government.  He 
asserted that he had the sense from his Iraqi contacts that 
some Iraqis were indeed starting to believe that the U.S. had 
come to Iraq to help Iraqis.  In addition to the $250 million 
in Iraqi assets already transferred to the Development Fund 
for Iraq, Abu Hammour hoped that the remaining claims could 
be processed by the end of June and that the remaining 
balance could be transferred in "very early July." 
 
15  (C)  On the $1.3 billion trade protocol claim in the 
Central Bank of Jordan (CBJ), Abu Hammour said that there had 
been no progress in talks with the Iraqis.  It was clear the 
trade protocol which had generated those funds had predated 
any sanctions against Iraq, going back to the early 1980's. 
Abu Hammour continues to be concerned that the CBJ's external 
auditor will force the bank to write off the amount, thereby 
forcing the Finance Ministry to recapitalize the CBJ.  Abu 
Hammour hoped the two sides could instead agree to resolve 
the issue over a period of time. 
 
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COMMENT 
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16.  (C)  Although in this case we are only hearing Abu 
Hammour's side of the budget process, we have little reason 
to doubt that the Planning Minister and others continue to 
press the Finance Ministry to increase government spending. 
Abu Hammour's ability, so far, to resist these pressures 
helps explain why the IMF is so impressed by his achievements 
as Finance Minister.  Indeed, Jordan has been able to ride 
out the economic dislocations of the past year and a half 
remarkably well, thanks both to wise economic leadership and 
financial support from the U.S. and other regional partners 
of Jordan.  Jordan's challenge will be to continue its 
economic reforms and attract foreign investment to help wean 
itself off of foreign assistance. 
 
17.  CPA BAGHDAD minimize considered. 
 
 
GNEHM