US embassy cable - 04AMMAN7403

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 007403 
 
SIPDIS 
 
E.O. 12958: DECL: 09/02/2019 
TAGS: EFIN, EPET, EAID, JO, IZ 
SUBJECT: JORDAN'S FINANCE MINISTER ON DEBT AND OIL PRICES; 
ASKS FOR HELP WITH THE PARIS CLUB 
 
REF: AMMAN 07153 
 
Classified By: CDA David Hale, Reasons 1.5 (b) and (d). 
 
  1.  (C)  SUMMARY:  Although making considerable progress on 
Jordan's public debt front,  Jordan's Finance Minister is 
pushing for more.  Driven by targets set by a Jordanian 
Public Debt Law, he seeks U.S. support in the Paris Club to 
support Jordan's debt swap plans as well as technical 
assistance in financial management and fiscal policy.  He 
will be working through the ambassadors representing Paris 
Club members in Amman, drawing in the Prime Minister to lobby 
his counterparts in other countries, and hopes King Abdullah 
can convince the Japanese to support the debt swap plans 
during his visit to Japan in early December.  Turning to the 
impact of oil prices, the Minister said that the continued 
high prices are costing the government an additional $600 
million in subsidies, a situation which may force him to 
delay his plans to eliminate the subsidies entirely.  END 
SUMMARY. 
 
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JORDAN'S DEBT PICTURE: LOOKING UP BUT STILL A WAYS TO GO 
--------------------------------------------- ----------- 
 
 
2.  (C)   Charge called on Jordanian Finance Minister 
Mohammad Abu Hammour on September 1 to discuss several 
issues.  Abu Hammour was encouraged by the increase in the 
budget surplus covered in detail by Jordanian newspapers the 
previous day.  Jordan's budget surplus had risen from JD 6 
million to JD 55.5 million in the second quarter, thanks to 
higher domestic revenues and despite the addition of health 
insurance for children under six years of age.  Abu Hammour 
was particularly happy that he had been able to cut current 
expenditures but not capital expenditures.  Tax revenues 
surged by JD 215 million, with JD 125 million coming from the 
higher General Service Tax (GST), JD 45 million from income 
taxes and the balance from customs fees.  Even the sales tax 
revenues  rose 
JD 6 million last year to JD 55 million so far this year. 
 
3.  (C)  Despite this good news, Abu Hammour remained 
concerned about Jordan's debt picture and about his ability 
to reach the targets set by Public Debt Law (NOTE:  The law 
requires that neither Jordan's official domestic debt nor 
official foreign debt exceed 60% of GDP by end-2006 and that 
Jordan's 
overall debt/GDP ratio not exceed 80% by end-2006.  END 
NOTE.)  He continues to seek debt swaps through the Paris 
Club and said he needs U.S. help.  He is developing a broader 
campaign in which he plans to work through the Paris Club 
Ambassadors in Amman, have the Prime Minister lobby his Paris 
Club counterparts, and, perhaps, have King Abdullah raise the 
issue with the Japanese during his visit to Japan in 
December. 
 
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OIL PRICES CONTINUE TO HURT 
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4.  (C)  Regarding oil prices, Abu Hammour explained that the 
government had assumed an average oil price of $26/barrel for 
this year's budget.  With the current situation, every $1 
increase in oil prices costs the GOJ $30 million; with 
current prices than means an additional $600 million.  It 
helps that Saudi Arabia agreed to supply half of Jordan's oil 
needs for one year beginning in May 2004.  Nevertheless, the 
government had agreed to eliminate all fuel subsidies within 
three years, although Abu Hammour had personally hoped to do 
so within two.  However, the current prices make those plans 
politically impossible.  Abu Hammour said that an increase to 
reflect the current prices would cause the industrial sector 
"to collapse."  If oil prices do not fall soon, Abu Hammour 
may have to consider a five-year target to remove all fuel 
subsidies.  Abu Hammour promised to keep the U.S. informed on 
this issue before the government makes any final decisions. 
 
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COMMENT 
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5.  (C)  On a technical level, the fact that Jordan's Cabinet 
approved the strategic plan to eliminate fuel subsidies met 
USAID's condition for the Iraq War $200 million supplemental 
in June.  It is the specifics of implementation of the plan 
the government is trying to finalize.  Abu Hammour promised 
to stay in close consultation on this point. 
 
6.  (C)  The continuing high oil prices make Abu Hammour's 
job much more difficult.  The fact that removing fuel 
subsidies has been both a goal of the IMF and a condition for 
the USAID cash transfer supplemental only adds to the 
pressures on the Minister; the government already increased 
fuel product prices in April by 9%.  Although it came on the 
heels of a 3% hike in the General Sales Tax, there was little 
public reaction at the time.  This time round Jordan is in 
the midst of a highly-publicized campaign to reduce poverty 
and the government is under pressure to show its 
effectiveness as a servant of the  people.  The Minister, or 
at least his government, will be loath to raise fuel prices 
soon. 
 
7.  (C)  Although the trends are positive on the debt front, 
Abu Hammour clearly feels pressure to try to ensure the 
government meets its targets set under the debt law.  He will 
be lobbying the U.S. and other Paris Club members hard with 
his debt swap plans. 
 
8.  (U)  Baghdad minimize considered. 
 
 
HALE