US embassy cable - 05AMMAN2970

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002970 
 
SIPDIS 
 
TREASURY FOR QUARLES 
 
E.O. 12958: DECL: 04/11/2015 
TAGS: EAID, EFIN, PREL, EPET, KPRV, JO 
SUBJECT: NEW FINANCE MINISTER REVIEWS PARLOUS STATE OF GOJ 
FINANCES 
 
REF: A. RIYADH 2258 
     B. AMMAN 2753 
 
Classified By: Charge d'Affaires David Hale for reason 1.4 (b) and (d) 
 
1. (C) SUMMARY: Newly appointed Jordanian Minister of Finance 
(and former Minister of Planning) Bassem Awadallah told 
Charge on April 12 that Jordan will likely face a $282-352 
million shortfall as a result of higher-than-expected crude 
oil prices and lower-than-expected grant income.  The 
Minister has a three-year plan to wean Jordan off dependence 
on grant aid, but it will require extra foreign assistance 
until it is completed.  During his upcoming visit during the 
IMF/World Bank Spring Meetings, Awadallah will likely press 
USG interlocutors for further support of Jordan's efforts to 
obtain bilateral and Paris Club debt relief.  END SUMMARY. 
 
2. (C) According to Awadallah, higher-than-expected oil 
prices have created a large hole in Jordan's budget.  Jordan 
has included in its 2005 budget an oil subsidy of JD 310 
million ($437 million), calculated at an average annual price 
of $42 per barrel.  At the current world crude price of $54 
per barrel, however, Jordan would need to pay a total of JD 
450 million ($635 million) in order to maintain the fuel 
product prices envisioned in the budget.  The JD 140 million 
($197 million) difference will be difficult to cover given 
current GOJ revenues. 
 
3. (C) The variable price of crude is especially problematic 
given the form that the GCC grants will take.  Awadallah 
noted that Saudi Arabia had chosen to renew its grant to 
cover Jordan's expenditures on crude for another year, 
starting in April 2004.  However, it will grant Jordan JD 
15.7 million ($22.1 million) per month in cash rather than 
continue to provide 50,000 barrels per day in free crude as 
it has over the past two years.  (NOTE: This amount tracks 
with Prince Sultan's statement, reported ref A, that Saudi 
Arabia would provide Jordan with $270 million in cash.)  This 
grant, given current prices, amounts to no more than half of 
the past year's Saudi grant; it also does not provide any 
hedge against the possibility of further rises in the world 
price of crude.  Awadallah did not seem to be aware of a $200 
million UAE grant to Jordan mentioned by former Finance 
Minister Mohammed Abu Hammour in a meeting with Charge 
earlier this month (ref B). 
 
4. (C) Oil is not the only topic giving the Finance Minister 
heartburn.  Awadallah noted that the GOJ's budgeted capital 
spending of JD 750 million ($1.06 billion) remains largely 
unfunded by foreign donors.  He also alerted Charge to the 
likelihood that new Prime Minister Adnan Badran would put 
significant pressure on him to allocate more money for social 
spending, particularly in the form of wage increases for 
lower-income government workers, in ordre to counter the 
popular anger he expects to provoke with planned subsidy cuts 
(see para. 6 below). 
 
5. (C) Jordan's budgetary picture, however, is not entirely 
bleak.  Awadallah noted that internal Ministry of Finance 
estimates put Jordan's annual revenues for 2005 at JD 150 
million ($212 million) more than the figure in Jordan's 2005 
budget.  He also noted that the growing economy would allow 
the GOJ to run a slightly larger deficit in absolute figures 
while maintaining a figure that would not substantially 
increase Jordan's debt-to-GDP ratio.  Nevertheless, Awadallah 
predicted an overall figure of JD 200-250 million ($282-352 
million) in GOJ spending needs that would not be covered by 
domestic or grant revenues. 
 
6. (C) Awadallah told Charge that given the situation of 
government finances, he plans to seek international support 
at the soonest possible time.  Partly in order to take 
advantage of the large cluster of decision-makers who will be 
gathering in Washington for the IMF/World Bank Spring 
meetings, Awadallah said he planned to depart for the United 
States on April 15.  Awadallah plans to present his plan to 
wean Jordan completely from foreign grants through a 
three-year budgetary reform process that would include 
pension reform and the ending of all subsidies, many of which 
he said were hidden in the budget.  In addition, Jordan would 
ramp up privatization, bringing the GOJ additional income to 
retire debt and reducing its expenditures on money-losing 
government-owned corporations.  This plan, he estimated, 
would cut JD 450 million ($635 million) in spending from the 
budget each year.  Together with a substantial reduction in 
debt servicing, the cost of which Awadallah estimated at JD 
300-350 million ($ 423-494 million) per year, this would 
essentially wipe out the need for foreign grant aid to fund 
anything other than capital spending. 
 
7. (C) COMMENT: Awadallah did not give Charge any indication 
that he expected any further grant aid from the United 
States.  He made a strong push, however, for U.S. assistance 
in engaging other Paris Club members both for bilateral 
relief and for a rise in the Paris Club debt swap ceiling. 
USG interlocutors during the IMF/World Bank Spring meetings 
should expect a similar pitch.  END COMMENT. 
HALE