US embassy cable - 05KUWAIT669

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000669 
 
SIPDIS 
 
STATE FOR NEA/ARPI 
EB/IFD/OIA ABRYAN 
EB/ESC/TFS BSTEPHENSON 
S/CT TKUSHNER 
OFAC DIRECTOR RWERNER 
TREASURY FOR U/S TAYLOR, S. RENANDER 
 
E.O. 12958: DECL: 02/15/2015 
TAGS: ECON, EAID, EFIN, KU, IZ, GZ, WE 
SUBJECT: MINISTER OF FINANCE AND TREASURY U/S DISCUSS AID 
TO PALESTINIANS, IRAQI DEBT, TERROR FINANCE, BMENA AND U.S. 
DEFICIT 
 
REF: SECSTATE 26150 
 
Classified By: Ambassador Richard LeBaron for reason 1.4 (d) 
 
1.  (C) Summary: Kuwaiti Finance Minister Mahmoud Al-Nouri 
hosted a working dinner 9 February for Department of Treasury 
Undersecretary John Taylor at which the two discussed aid to 
the Palestinians, Iraqi debt and reconstruction, future plans 
for BMENA and G8 involvement in economic and political 
reform, terror finance interdiction, the U.S. deficit and 
other general economic issues.  The Finance Minister outlined 
specific steps that the Palestinians needed to take in order 
for Kuwait to continue its financial support, described his 
understanding of Iraq's debt to Kuwait, and shared his views 
on some of the BMENA and G8 economic and political reform 
initiatives.  U/S Taylor explained the need to help the 
Palestinians respond to budget shortfalls, asked for a 
renewed focus on terror finance legislation and enforcement, 
and explained what steps the USG was taking to reign in the 
deficit.  Also attending the dinner were Ambassador Richard 
LeBaron, Ministry of Finance Undersecretary Mustafa 
Al-Shamali, Kuwait Investment Authority Managing Director 
Bader Al-Saad, Treasury Department Advisor Sonja Renander and 
Econ Officer (notetaker). End Summary. 
 
Aid to PA 
--------- 
 
2.  (C) U/S Taylor said that the USG was trying to support 
the Palestinians as much as possible and described Finance 
Minister Fayyad as a responsible overseer of Palestinian 
funds (reftel).  He then explained that the Palestinian 
Authority will likely be $500 million short in the current 
fiscal year, and that the USG had pledged $350 million.  In 
response to U/S Taylor's request that Kuwait do all it can to 
support the newly elected Palestinian government and the 
Palestinian people, Al-Nouri outlined three specific 
conditions that he said Kuwait was waiting for in order to 
provide continued support.  He said that Kuwait has always 
been a generous supporter of the Palestinians and would 
continue to be so, but needed Abbas to form a government and 
needed him to come to Kuwait and talk to the GOK.  He 
complained about people in the Palestinian government that 
are still "attacking Kuwait or against Kuwait" and he also 
said that Kuwait must be assured that any money given in aid 
will be put to good use and not touched by any corrupt people. 
 
Iraq Debt Reduction 
------------------- 
 
3.  (C) U/S Taylor asked for Kuwait's support on debt 
reduction for Iraq and Al-Nouri said that Kuwait was willing 
to match the Paris Club agreement, but needed to work out a 
specific formula directly with the Iraqis.  He said that the 
Iraqi Central Bank Governor and Finance Minister (once 
appointed) would likely come to Kuwait to discuss the 
specifics of the debt reduction plan.  Al-Nouri explained 
that a large portion of Kuwait's loans to Iraq had been made 
interest-free and that this needed to be taken into account 
when determining "comparable treatment" to the Paris Club 
decision.  The 80% reduction agreed to by other countries 
means that they are mostly forgiving the interest and not the 
principal, whereas Iraq's debt to Kuwait is mostly principal, 
Al-Nouri said. 
 
Regional Initiatives 
-------------------- 
 
4.  (C) After the U/S and the Minister discussed recent 
Broader Middle East and North Africa (BMENA) and G8 
initiatives for economic and political reform throughout the 
region, Al-Nouri reiterated his disagreement with some of the 
initiatives being developed.  First, he said, the $100 
million IFC facility is "too small."  Second, Al-Nouri said 
that the network of funds made available could be perceived 
as being "controlled by the U.S.," rather than being at the 
direction of those in the region.  U/S Taylor asked that 
Kuwait remain actively engaged in the dialogue and encourage 
more money to be added to the IFC facility when the time was 
right.  On the second point, U/S Taylor explained that the 
U.S. has no desire to control the funds and simply wants to 
ensure that the money is used appropriately.  Al-Nouri also 
said there was already good coordination among the various 
Arab regional financial institutions and he feared giving the 
Arab League any entree in to these mechanisms through BMENA 
channels. 
 
Terrorism in Kuwait & Terror Finance 
------------------------------------ 
 
5.  (C) The group discussed the recent shootouts between 
extremists and police in Kuwait, and U/S Taylor urged the 
Finance Minister to continue enacting and enforcing proper 
legislation to crack down on terror financing.  Al-Nouri said 
that he and others were not surprised by the recent shootouts 
and were "expecting it for the past six months."  "We're in 
the neighborhood of Saudi Arabia and Iraq," he added, "so it 
would be unusual for something not to happen."  He said that 
the GOK was ready to deal with the problem and that the 
public was overwhelmingly against the terrorists.  He 
explained that the Central Bank has a special committee on 
terror financing, chaired by the Central Bank Governor, and 
that Kuwait was also participating in GCC-wide efforts to 
crack down on terror financing.  When asked about the free 
flow of currency across borders, Al-Nouri said that the 
Cabinet had issued a proclamation to control cash flows and 
that the Customs Agency was in charge of enforcing it. 
(Note: Implementation rules are still being worked out.) 
Al-Nouri then repeated an opinion on terror finance 
interdiction that he had earlier shared with the Ambassador, 
that the challenge was not in the big money transfers, but in 
controlling the small amounts that were needed to buy guns, 
grenades or other small weapons. 
 
U.S. Deficit 
------------ 
 
6.  (U) Al-Nouri asked about the U.S. deficit and U.S. dollar 
policy, and U/S Taylor explained that the U.S. supports a 
strong dollar policy and that the President's proposed budget 
provides for fiscal tightening to cut down the deficit.  U/S 
Taylor further explained the difficulties in bringing down 
the deficit in light of a surge in imports from China and 
China's monetary policy, but said that the U.S. continues to 
work diligently on these issues. 
 
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Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
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LEBARON