US embassy cable - 04AMMAN8107

C O N F I D E N T I A L SECTION 01 OF 03 AMMAN 008107 
 
SIPDIS 
 
USDOC FOR 4520/ITA/MAC/ONE/PTHANOS 
TREASURY FOR OASIA - LARRY MCDONALD 
 
E.O. 12958: DECL: 09/29/2014 
TAGS: PREL, ECON, EFIN, EAID, IZ, JO 
SUBJECT: JORDANIAN REQUEST FOR IRAQ-RELATED AID 
 
REF: AMMAN 07841 
 
Classified By: CHARGE D'AFFAIRES, A.I. DAVID HALE, REASONS 1.4 (B,D). 
 
 1.  (C)  SUMMARY:  The GOJ has launched a two-track push for 
increased aid for Jordan, which would also benefit Iraq.  One 
track proposes debt forgiveness for Jordan.  Jordan would 
then apply some of the savings from the debt forgiveness 
against the debt it is owed by Iraq, thereby reducing Iraq's 
debt burden as well.  The second track requests approximately 
$1 billion in assistance to Jordan for Iraq-related 
infrastructure improvements.  As a first step on the second 
track, Jordan seeks Iraqi government approval; the Iraqi 
Ambassador agrees that Jordanian officials received promising 
signals from Iraqi counterparts, but the financing piece 
remains a major hurdle.  It will be a challenge, to say the 
least, for the GOJ to win the donor, creditor, and IIG 
support it needs; but Either approach, if successful, would 
have direct and indirect benefits for Iraqi reconstruction. 
Post believes donors should seriously consider this creative 
approach.  END SUMMARY. 
 
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THE VISION 
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2.  (C)  As reftel reported, Jordan is launching a two-prong 
effort to increase assistance which has direct or indirect 
links to support for Iraq.  Jordan's Planning Minister Bassem 
Awadallah began the campaign by calling in Paris Club 
Ambassadors.  Foreign Minister Muashar and King Abdullah 
himself will also raise the strategy with their counterparts 
among Paris Club and donor countries over the coming months. 
In this context, Jordan has also offered to host the second 
International Reconstruction Fund Facility for Iraq (IRFFI) 
meeting early next year.  The King and all key ministers have 
advocated these plans with a range of foreign visitors in the 
past month.  The proposal comes in the context of Jordan,s 
unstinting strategic and practical support for U.S. policy 
aims in Jordan, an eagerness to reweave Jordan,s own 
historic ties with Iraq, including in the commercial field, 
and the economic self-interest of a still aid-dependent 
country that has exposed itself politically time and again in 
the pursuit of our common regional goals and seeks to improve 
the state,s economic foundation as a defense against 
extremists. 
 
3.  (C)  In detail, the two proposals are as follows:  Jordan 
seeks some level of debt forgiveness by the Paris Club.  In 
turn, Jordan would then forgive a part of the $1.3 billion 
owed Jordan by Iraq under the previous trade protocol between 
the two countries.  By way of background, Nearly 42% of 
Jordan's external debt is denominated in euros or yen, and 
the strengthening of both currencies has hurt Jordan. 
 
4.  (C)  Under the second proposal, Jordan has identified 
approximately $1 billion in "Iraq-related" Jordanian 
infrastructure assistance needs, including $150 million to 
upgrade the Aqaba container port, $705 million to upgrade the 
road system connecting Aqaba to Iraq, and $140 million for 
border-crossing infrastructure.  The Iraqi Ambassador in 
Amman told us that -- true to Jordanian claims -- Iraqi 
officials are reviewing the proposal favorably, but aspects 
of the proposed financing are clearly problematic.  The GOJ 
proposes using swap-outs of some of its bilateral debts, for 
example with the Japanese, new donor funds, and DFI money to 
finance these projects.  The Japanese government is said here 
to be looking favorably at a debt swap. 
 
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THE REALITY 
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5. (C)  Despite the obvious self-serving aspects of these 
proposals, there is no doubt that assistance in these areas 
would help our effort in Iraq.  Jordan is currently under 
some pressure from its external auditor to write off the $1.3 
billion debt Iraq owes the Central Bank under the now-defunct 
trade protocol with Iraq which ran for nearly 20 years. 
Jordanian officials make the point that they can hardly take 
foreign assistance with one hand while writing off debt with 
the other without consulting donors.  Should the Central Bank 
be forced to write off that debt, the Finance Ministry would 
need to recapitalize the bank and Jordan's debt picture, 
which is already serious, would become critical.  (Note: 
Jordan's total external debt is $7.5 billion in a total 
economy of just under $10 billion.  End Note.)  Under the new 
proposal, Jordan would receive debt forgiveness for an 
unspecified portion of its external debt, with the 
understanding that it would apply some of that gain to 
forgive Iraqi debt owed Jordan. 
 
6.  (C)  Looking at the infrastructure aid request, Aqaba 
continues to serve as the largest port of entry for Iraq, 
both for commercial goods and for fuel and materiel for U.S. 
troops operating in Iraq.  Aqaba's port facilities are 
over-taxed, and the new commercial operator of the port 
expects that it will take up to two years to convert Aqaba 
into a modern container port.  With the space constraints on 
Iraq,s Umm Qasr port, and the inability to re-open Basra for 
some years hence, Aqaba will continue to be vital for Iraq's 
economy and reconstruction efforts.  Similarly, the road 
network connecting Aqaba and Iraq is severely stressed and in 
need of refurbishment and/or expansion, tasks which Jordan 
would find very difficult to finance on its own.  Finally, an 
improved border crossing facility at Karama/Trebil, on 
Jordan's border with Iraq's Al-Anbar province, would both 
speed the clearance of the goods in transit, make the trade 
more secure, and eliminate the humanitarian problem caused by 
immense delays in moving people through a remote, inadequate 
desert post. 
 
7.  (C)  Without question, the proposals will also directly 
benefit Jordan.  Reducing Jordan's debt overhang is the chief 
worry of Jordan's Finance Minister, a concern driven by a 
Jordanian law which requires substantial further reductions 
in debt levels by the end of 2006.  The problem is 
exacerbated by doubt over how to handle the $1.3 billion debt 
owed by Iraq.  Jordan has launched  talks with Iraq to 
develop an oil-for-debt write-off over a period of years, but 
there has been little progress to date. 
 
8.  (C)  On the infrastructure side, the improvements 
envisioned would also greatly benefit economic development in 
Jordan, particularly in the area of rural development.  Rural 
development remains a particular concern for the government 
due to high levels of poverty in those areas, fears that they 
may serve as breeding grounds for extremism, or, at a 
minimum, as sources of resentment on the part of Jordanians 
who feel left out of the prosperity evident in large swathes 
of the capital.  The projects proposed, particularly the 
roadworks, would provide employment for low-skilled workers 
during the construction phase and longer-term benefits for 
the country as a whole in terms of newer, more modern 
infrastructure. 
 
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COMMENT 
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9.  The self-serving nature of this Jordanian initiative is 
obvious.  Jordanian access to DFI funds -- even for projects 
which indirectly support Iraqi reconstruction -- is unlikely 
to win much favor, starting with the IIG.  However, the 
Jordanians have begun in the right way, by consulting Iraqi 
partners.  Should these ideas be identified by the IIG as 
priority needs, they would be worth our serious study.  Even 
DFI funding for a joint border post -- critical for enhanced 
security and faster processing of goods and people -- may not 
be too far fetched.  The fact that the projects would also 
help Jordan and further enhance its reputation as a model of 
economic reform in the region would be significant added 
benefits.  Strengthening economic ties between Iraq and 
Jordan through infrastructure links and financial agreements 
may serve to reduce the economic leverage other neighbors 
such as Iran and Syria might develop over Iraq, and help 
anchor the budding, moderate alliance between Amman and 
Baghdad.  The King, Foreign Minister, Finance Minister, 
Planning Minister and others have made a point of raising 
these proposals with nearly every U.S. visitor, and they will 
feature in the upcoming visits by the Planning and Finance 
Ministers.  For now, post recommends that we listen to the 
proposal, encourage an understanding with the Iraqis, and 
express readiness to explore any reasonable joint plans which 
enhance Jordan,s role in facilitating Iraqi redevelopment. 
 
10.  (U)  Baghdad minimize considered. 
HALE