US embassy cable - 05BAGHDAD2821

UNCLAS SECTION 01 OF 04 BAGHDAD 002821 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB 
USDA FOR FAS/OA/ESTERPSTRA, 
FAS/FAA/CALEXANDER/JDEVER 
FAS/EX/MMCAMBLISS, 
FAS/ITP, 
CMP/G&F/PLETARTE, LBACHELDER, DWILLIAMS 
FAS/IRAQ TASK FORCE/LASCHATZ 
 
E.O 12958: NA 
TAGS: EAGR, ETRD, PREL, PGOV, IZ, Reconstruction 
SUBJECT: IRAQ'S PDS: USG NEXT STEPS 
 
REF: A. 2004 BAGHDAD 1578 
B. BAGHDAD 1206 
C. BAGHDAD 2299 
D. BAGHDAD 2527 
 
THIS CABLE CONTAINS SENSITIVE BUT UNCLASSIFIED INFORMATION 
 FOR GOVERNMENT USE ONLY  NOT FOR DISTRIBUTION ON THE 
INTERNET. 
 
1. (SBU) SUMMARY: Despite the efforts of the Iraqi and U.S. 
Governments, Iraq's Public Distribution (food ration) 
System (PDS) continues to deteriorate, leaving a 
significant portion of the population with few options to 
o 
supplement their food needs.  As the Iraqi Transition 
Government (ITG) attempts to keep the PDS functional, we 
believe USG and ITG efforts should be targeted to support 
those in Iraq who are truly dependent on the PDS to 
survive.  We will continue to urge ITG policymakers to 
undertake fundamental reform of the PDS at the earliest 
possible opportunity.  At the same time, the focus of the 
Embassy's efforts will shift from intensive daily 
monitoring of the PDS' functioning to encouraging and 
assisting the ITG towards put programs in place now that 
can create a rudimentary safety net for those most 
vulnerable as they continue to see less and less of the PDS 
benefit.  END SUMMARY 
 
------- 
THE PDS 
------- 
 
2. (SBU) Iraq's Public Distribution System (PDS) was set up 
to provide a food ration basket to all Iraqis when U.N. 
sanctions were imposed following the first Gulf War.  While 
it is reported to have worked relatively well during much 
of the 1990's, anecdotal and spot reporting from both 
Baghdad and Regional Embassy Offices over the past several 
months indicate monthly food ration deliveries are now 
spotty, at best.  Sources at the Ministry of Trade (MOT) 
report that of an estimated USD 2 billion needed to fund 
the PDS in the first half of 2005, only approximately USD 
341 million was allocated and spent with another $250 
million promised.  There have been reports of shortages of 
individual ration products as well as some that are missing 
completely from the basket. 
 
3. (SBU) Abd' al-Bassit Kareem, the new Iraqi Minister of 
Trade told us on May 25 (REFTEL C) that many warehouses are 
empty and deliveries in some areas have not been made in 
over 2 months.  (NOTE: The Minister's information is not 
always complete, as evidenced by his statements, reported 
in REFTEL D, that there were sufficient wheat and rice 
supplies for June and July.  END NOTE)  Kareem is convinced 
that close to 40% of Iraq's population has difficulty 
meeting its food needs without the PDS and tells us that he 
is committed to reinstating food procurement and 
distribution as soon as possible.  In a recent USAID food 
security field assessment, 51% of respondent households in 
17 poor districts in Iraq indicated that they either 
"sometimes" or "often" did not have enough food to eat in 
January, February, and March 2005. 
 
4. (SBU) To address this problem, Minister Kareem is 
working closely with the Ministry of Finance to ensure 
funding for new food procurements as well as reforming 
internal Ministry processes.  He expects this process to be 
completed by the end of July.  In the interim, the Minister 
intends to prepare the public for continuing shortages in 
food basket products and to make procurements from 
"reliable suppliers of quality products".  While the 
Minister understands our concern about the PDS system and 
our willingness to assist him, he has not invited our 
participation in closely monitoring the whole system as we 
did in 2004 (REFTEL A). 
 
5. (SBU) Given that the Minister has been out of Baghdad 
for the past several weeks (defending his Ph.D. thesis in 
Kurdistan), we are not sure what actions are being taken to 
solve these problems above and beyond his statements. 
Others within the ITG, however, seem to be moving to at 
least secure wheat, rice, sugar, ghee and pulses for 
Ramadan in September of this year.  A key test will be 
current wheat and rice tenders.  ITG reps say they will 
avoid delays in financing by having funds available to the 
Ministry of Trade as soon as contracts are awarded.  If 
this occurs, it will be a significant ITG improvement in 
the management of the PDS.  In an effort to ensure that 
essential products of the PDS are delivered in an 
environment of limited cash flow, the MOT apparently has 
already decided not to fund some PDS items including soap, 
detergent and other non-food items. 
 
------- 
REFORM 
------- 
 
6. (SBU) Senior officials in the Iraqi Interim Government 
(ITG) tell us they remain are disposed to reform the PDS 
and recognize that this $4 billion burden on the budget is 
rife with corruption and inefficiency (REFTEL A).  They 
report that the cost of the actual commodities provided is 
a fraction of the total $4 billion, which instead goes to 
distribution and transportation costs, with a significant 
degree of corruption built in.   Former Deputy Prime 
Minister and current Planning Minister Barham Saleh has 
committed to putting PDS reform on the ITG agenda, but in 
the current political environment both he and Minister 
Kareem, his former chief of staff and good friend, doubt 
that large-scale reform is possible.  In a recent 
discussion with Embassy and USAID representatives Minister 
Kareem indicated that he saw "no need to reform" the PDS 
until 2007 because "the reforms are theoretical."  This 
contradicts the outlook of Dr. Saleh and DPM Chalabi, who 
indicated that PDS reform is necessary now and should have 
private sector participation. 
 
7. (SBU) Dr. Said Hakki, Senior Advisor to Prime Minister 
Ja'afari, told us on June 29 that the government estimates 
the total PDS food basket costs $50 per person but it is 
worth closer to $15 by the time it reaches the final 
consumer.  Dr. Hakki suggested to the PM that the Red 
Crescent Society, of which he is a member, should manage 
the PDS program.  According to Hakki, the Society could 
receive $25 per person and be responsible for delivering 
$20 of goods to the public, enabling it to use the $5 
difference for other humanitarian purposes. He acknowledged 
however, that this is "just an idea." 
 
------------------------------------ 
LIMITED INFORMATION, LIMITED OPTIONS 
------------------------------------ 
 
8. (SBU) Our current access to information and resources 
limit our ability to track the PDS as intensively as we did 
in the past (REFTEL B).  However, we are working with 
Minister Kareem and Minister Saleh to obtain support for 
the reinvigoration of plans to carry out two PDS 
monetization projects, one in the Kurdish North and one in 
Iraq's South.  During a recent meeting and follow-up 
correspondence with Minister Kareem, USAID proposed a small 
pilot monetization project in the North, but the Minister 
indicated that he sees little use in supporting a pilot 
project that would give his Ministry data by which they 
could make policy decisions. Barham Saleh continues to be a 
proponent, and with both Kareem and Saleh's strong ties to 
Kurdistan, we will continue to support the pilot 
monetization project in the North as the most realistic 
immediate option.  USAID will not move forward without top- 
level government buy-in.  In addition, close inter- 
ministerial cooperation will be necessary and may take some 
time to achieve. 
 
9. (SBU) To that end, at the recent U.S.-E.U. Conference on 
Iraq in Brussels on June 21-22, 2005 Iraq's Strategic 
Vision for National Development document clearly states as 
an objective: "The Government also expects to remove 
ancillary products included in the PDS basket, as well as 
implement pilot project for monetization of the PDS's 
benefits."  Also, they intend to "Enact a social safety net 
program for the poor and vulnerable, which may extend from 
reform and monetization of the PDS basket."  Moreover, 
Iraq's Vision foresees "removing constraints to private 
sector development...the future engine of job creation and 
economic diversifications."  This last point is relevant 
when considering replacing the PDS with a private 
enterprise driven food system for Iraq.  USAID remains in a 
position to provide some support for a ITG-led reform 
program for the PDS. 
 
10. (SBU) Over the past 12 months we have made extensive 
efforts to combine IRMO, FAS, ECON, FCS, MNF-I and USAID 
resources to obtain as clear a picture of the PDS system as 
possible.  The results vary depending on Iraqi cooperation. 
Although we are often invited to help the MOT "in a pinch" 
the Iraqis have made it clear that the system is now theirs 
to manage and theirs to dismantle.  To a great extent, the 
PDS, as noted above, is dismantling itself.  It continues 
to fray at the edges with consistent food deliveries 
replaced by regional shortages of different commodities at 
any one time.  Prices continue to rise, putting some 
commodities out of reach for the poorer strata of the 
population and private traders are without the 
financing/tools/infrastructure to import foodstuffs into 
the country. 
 
--------------------------------------------- --------- 
WHAT CAN WE DO? POST CAPABILITIES AND WHAT MAKES SENSE 
--------------------------------------------- --------- 
 
11. (SBU) With limited ability to influence ITG actions on 
the PDS and limited resources at the Embassy; we must 
target our efforts in the areas where we can affect 
positive change.  The Iraqi Brussels Vision Statement 
clearly sets out goals on the PDS that we can support. 
(PARA 6) These include: 
 
-- Continue to urge the ITG to pursue PDS reform.  By 
supporting monetization pilots as a first step we will be 
well placed to continue to push monetization as the first 
step towards the elimination of the PDS.  We should support 
the intentions of some in the ITG to limit recipients 
and/or reduce the number of products that make up the PDS 
food basket. 
 
-- Identifying funding for USAID/NGO/WFP/ITG nutritional 
programs for primary school children, pregnant and 
lactating mothers, and malnourished children and their 
families.  This will help provide support to vulnerable 
populations in targeted districts.  We will look for a 
means by which to expand food security, employment 
generation, and livelihood improvement programs that either 
reach or ease the pressure on the 40% of Iraq's population 
reliant on the PDS for basic necessities.  For example, a 
World Food Program School Feeding Program is currently 67% 
under funded and with additional financial support could 
expand quickly to cover more of Iraq's vulnerable 
population. 
 
--- Exploring other USG program possibilities.  Title I 
subsidized loan programs from USDA could also be considered 
as a short- to medium-term mean by which to provide the ITG 
with another option to address the needs of those left 
behind by a failing PDS. 
 
--- Continue to assist the Ministry of Trade when 
requested.  On several occasions we have been instrumental 
in facilitating communications between various Ministries 
involved in the PDS process, obtaining producer and/or 
contact information, expediting the L/C process or 
providing training for key players in the PDS contracting 
and procurement process. 
 
-- Continue to initiate reform dialogue across the ITG, 
engaging the Ministries of Trade, Planning, and Finance and 
the office of DPM Chalabi. 
 
--- Continue to monitor the PDS to the best of our ability 
and share information with the ITG.  Although our resources 
are limited, we will continue to collect information from a 
variety of sources and pass it along to the ITG. 
 
12. (U) REOs Basrah, Hillah, Kirkuk, Mosul minimize 
considered. 
 
SATTERFIELD