US embassy cable - 05AMMAN5009

C O N F I D E N T I A L AMMAN 005009 
 
SIPDIS 
 
E.O. 12958: DECL: 02/28/2015 
TAGS: PREL, EAID, JO 
SUBJECT: JORDAN COMMITTED TO ENDING FUEL SUBSIDIES 
 
 
Classified By: Charge d'Affaires David Hale for reason 1.4 (b) and (d) 
 
1. (C) In conversations this week with virtually every 
relevant Jordanian official - the King, Prime Minister, 
outgoing Finance Minister, Planning (and acting Finance) 
Minister, and Royal Court Minister, Charge has heard renewed 
pledges of their commitment to ending fuel subsidies over a 
three-year time span.  (These subsidies, calculated at an 
average annual crude oil price of $40 per barrel in the 2005 
budget, were equivalent to $437 million in the GOJ,s current 
expenditures.  The GOJ in June recalculated the subsidies 
assuming a crude oil price of $45 per barrel, which would 
place the total cost at around $600 million.  If current 
trends held for the rest of the year, an average price of $55 
per barrel and a $940 million subsidy could result.  This 
would leave a shortfall in the oil subsidy budget line item 
of $503 million.)  Current thinking is to announce a 25% cut 
in the subsidies starting in early July, once a new Finance 
Minister and other anticipated cabinet changes are in place. 
Prime Minister Badran wants a more politically palatable team 
in place, and the King is giving him some scope for further 
changes so long as Badran sticks with the comprehensive 
reform program.  The political risks from ending subsidies 
are real, and understood by those who remember the 1989 
violence triggered in Maan by efforts then to reduce 
subsidies.  But the government recognizes this is a necessary 
step, given the impact rising oil prices have had on the 
budget, the resulting threat to macroeconomic stability, and 
the unavailability of unlimited support from the 
international donor community, especially in the Gulf ($760 
million in projected grants from GCC countries for 2005 have 
not materialized). 
 
2. (C) As the government embarks on this process, it will be 
moving simultaneously to unveil comprehensive reforms of the 
broad sweep of government activity, including in the 
political sphere.  The leadership is committed to pursuing 
this reform path for its own sake, recognizing the necessity 
of meeting the aspirations of its public.  Unfortunately, at 
this stage in Jordan the reform process is poorly understood 
and the public is easily manipulated by traditional forces 
who would fall by the wayside if true political reforms take 
root.  They paint a picture of western-imposed reforms 
designed to sell Jordan,s patrimony to rich Palestinians 
through privatization, or to get Jordan ready to be a 
Palestinian state.  These may sound like absurd charges, but 
they get traction in a conspiracy-laden environment, and the 
King had to deny them in person on television to tone down 
national debate.  The case for reform is especially hard to 
make among Jordan,s poor, who will suffer the most from the 
end of subsidies - the largest of which are on fuel products 
disproportionately consumed by the poor, such as diesel and 
kerosene (65% subsidized) and fuel oil (46% subsidized) - and 
job losses made through privatization and the ongoing 
streamlining of the military. 
 
3. (C) To get through this challenging period, Jordan needs 
as much budget support as it can get.  This argument was the 
basis for their request for a full cash transfer of the 
supplemental.  We have always maintained to the Jordanians 
that as they move forward at an appropriate pace with reform, 
they can count on support  -- and the deeper the reforms, the 
easier the case will be for assistance dollars.  Those 
changes are proceeding, and the best way we can shore up the 
reformers is with a substantial cash transfer, along the 
70/30 division decided upon by the Department.  As the Queen 
recently told the Secretary, of any country in the Middle 
East, you can expect no better return on our assistance 
dollars than in Jordan.  They need the breathing space of an 
expeditious cash transfer this year in order to ensure we 
maintain forward momentum on reform.  If this particular 
cabinet at this particular moment in Jordan stumbles because 
of its fiscal stresses (produced by high oil prices), the 
enemies of reform, here and in neighboring countries, will 
point to the folly of the reform process. 
HALE