US embassy cable - 05AMMAN5725

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 005725 
 
SIPDIS 
 
STATE FOR EB 
STATE ALSO FOR NEA FRONT OFFICE, NEA/ELA 
TREASURY FOR GLASER/ZARATE/QUARLES 
TREASURY ALSO FOR OASIA - LOEVINGER/MILLS/DEMOPOULOS 
NSC FOR ABRAMS 
 
E.O. 12958: DECL: 07/10/2015 
TAGS: EFIN, KTFN, ETTC, PGOV, PREL, EAID, JO 
SUBJECT: ASSISTANT SECRETARY WAYNE'S JULY 10 MEETINGS WITH 
JORDAN'S CENTRAL BANK GOVERNOR TOUQAN AND FINANCE MINISTER 
AL-KODAH 
 
REF: A. AMMAN 5626 
 
     B. AMMAN 4391 
     C. AMMAN 4440 
 
Classified By: CHARGE DAVID HALE FOR REASONS 1.4 (B) AND (D). 
 
1.  (C)  SUMMARY:  In July 10 meetings with Central Bank of 
Jordan (CBJ) Governor Umayya Touqan and with Minister of 
Finance Adel Al-Kodah, A/S Wayne repeated earlier calls (Ref 
B) for action by the Government of Jordan (GOJ) on anti-money 
laundering/counter-financing of terrorism (AML/CFT) controls. 
 On the Arab Bank's AML/CFT controls, Wayne once again asked 
for an update, to which Touqan responded the same day with a 
call to that bank.  Embassy later received a report from Arab 
Bank on its progress.  In a meeting with the Minister of 
Finance, Al-Kodah repeated GOJ support for a rigorous 
anti-money laundering law.  Al-Kodah also said that the oil 
prices and an increasing deficit would cause the reform 
process to become "stuck" and asked for increased U.S. 
assistance.  Al-Kodah noted plans for government spending 
cuts of 20 percent, enhanced tax collection and more 
privatization of government assets.  The GOJ was expecting to 
collect up to JD 1 billion (USD $ 1.41 billion) in proceeds 
from privatization, part of which he hoped could be used to 
settle Jordan's debts.  END SUMMARY. 
 
2.  (U)  Accompanying A/S Wayne in the meeting with Touqan 
were Acting Econ/C and Econoff (notetaker).  In the meeting 
with the Finance Minister, A/DCM Henzel and Acting Econ/C 
(notetaker) joined. 
 
CBJ Governor: Pushing AML, Supporting Fiscal Austerity 
--------------------------------------------- --------- 
 
3.  (C)  In his July 10 meeting with CBJ Governor Touqan, 
Wayne raised the subjects of anti-money laundering/ 
counter-financing of terrorism (AML/CFT) measures being put 
in place in Jordan and the GOJ,s plans to extricate itself 
from the fiscal hole in which it now found itself.  Touqan 
noted the importance of the AML bill being placed before 
Parliament (NOTE:  through an apparent GOJ snafu, AML failed 
to appear on the agenda for a special session of parliament - 
Ref A).  Touqan suggested that Wayne raise the matter in his 
other calls, saying that other ministers were worried that 
there was too much already slated for the upcoming 
extraordinary session of Parliament.  Overall, however, 
Touqan was pleased with the level of GOJ commitment to the 
law and hoped that it would be passed in the extraordinary 
session. 
 
4.  (C)  Touqan responded favorably to Wayne,s request for 
updated information on measures being taken by Arab Bank to 
improve its AML/CFT controls worldwide. (NOTE: He later 
called Arab Bank personally to obtain the requested 
information.  Embassy received a self-reported update from 
Arab Bank, which has been sent to NEA/ELA and EB/ESC/TFS). 
Touqan noted that many AML controls were already in place in 
other Jordanian banks -- for instance, unless banks already 
knew and were in an established relationship with their 
customer, they were not allowed to accept cash deposits.  His 
main source of heartburn on AML/CFT issues were transactions 
outside of the banking system; for instance, the purchase and 
sale of land for cash. 
 
"Deficit Hawk" 
-------------- 
 
5.  (C)  Touqan portrayed himself as a "deficit hawk" who had 
pressed for even more stringent austerity measures than had 
the IMF in its recent visit to Jordan.  He expressed his 
opinion that the deafening silence from GCC donor countries 
was probably a good thing in the end:  "it is high time we 
stopped depending on them."  He said that the new (from July 
9) fuel prices would lead to JD 120 million ($170 million) in 
savings over 2005 -- less than the CBJ had wanted, but still 
a step in the right direction.  The price rises posed new 
challenges for the CBJ, however;  cement prices had already 
gone up 5% in one day, and further inflation was likely.  On 
other measures, Touqan was more ambivalent.  While the 20% 
reductions in ministries, use of utilities, vehicles, 
travel, and other contributors to operating expense might 
save a further small amount, Touqan felt that significant 
savings might be realized from alterations to and improved 
management of large capital projects. 
 
6.  (C)  Touqan added that increases in revenue might also be 
realized through reforms to the tax system.  Income taxes 
currently were producing virtually no revenue because few 
paid them; the solution would be to go to a 10-15% flat tax, 
to encourage compliance.  As the Jordanian constitution 
required that income tax be progressive, Touqan allowed that 
the new structure might be given two tiers instead of just 
one.  On the other hand, Touqan said, the general sales tax 
(GST) and value-added taxes (VAT) were producing substantial 
revenue; perhaps the GOJ should look at raising rates and 
improving collection of a tax that could produce 
substantially more income if these actions were taken. 
 
Meeting with Finance Minister Al-Kodah 
-------------------------------------- 
 
7.  (C)  With Finance Minister Al-Kodah, A/S Wayne noted the 
high level of interest in Jordan's economic situation and USG 
efforts to support Jordan's economic reform program, 
including with cash support from supplemental assistance.  In 
addition to the $70 million cash grant (on top of $30 million 
in program support), which would give Jordan more 
flexibility, the USG had responded positively to Jordan's 
request for a higher debt swap ceiling in the Paris Club. 
However, other donors remained unconvinced;  the U.S. would 
support Jordan as it continued to press on the debt swaps. 
 
8.  (C)  Minister Al-Kodah expressed his government's 
gratitude for U.S. assistance and praised the friendly 
bilateral relations marked by improving trade and economic 
ties.  The GOJ was making strong efforts to open the economy 
and had been serious in its follow-on program with the IMF. 
Economic growth would help fight unemployment and poverty. 
The government was serious about public reforms, he said, 
noting that financial management would be one pillar 
supporting that effort.  Fiscal discipline, efficient 
resource allocation, and more efforts to make the population 
self-reliant would be hallmarks of the new program.  A 
consultant from Bearing Point was assisting the ministry with 
its own financial management program.  He noted examples of 
fiscal reform such as the Medium Term Fiscal Framework (MTFF) 
planning exercise, privatization efforts, tax reform and 
employment of a Government Financial Management Information 
System (GFMIS). 
 
Reform Stuck Due to Oil Prices, Debt 
------------------------------------ 
 
9.  (C)  Jordan was well on its way to reform, the minister 
continued, but these efforts were now "stuck" due to the high 
price of oil.  The GOJ needed the assistance of the United 
States to support the three-year phase-out of oil subsidies, 
ending in the 2007 budget year.  In phase one this year, the 
government had already announced a reduction in oil subsidies 
by JD 120 million ($ 170 million), he said.  He cited some of 
the resulting increases in prices of fuel products in Jordan 
that went into effect July 9, from a 33 percent increase in 
diesel to a 59 percent increase in fuel oil for industries. 
 
10.  (C)  At the same time, the Government was embarked on a 
very serious effort to cut expenses, he said.  Starting with 
a 20 percent cut in government expenditures in FY 2005 by 
rationalizing government employees' use of cars, telephones 
and travel allocations, and reducing furniture purchases. 
The GOJ had to set a good example, and show that it was 
serious about cutting the budget deficit, Al-Kodah said. 
 
11.  (C)  A/S Wayne welcomed the three-year plan to eliminate 
oil subsidies, noting that it would not be easy for the GOJ. 
More public outreach that explained to the public why the 
subsidies had to go might create better understanding and 
make the exercise easier, he added. 
 
12.  (C)  Two important issues for Jordan were the increase 
in the price of oil and the need for support on the GOJ's 
external debt, Al-Kodah said.  He noted that each increase in 
the price of crude oil in the international marketplace had 
an impact on the oil subsidy deficit.  (NOTE:  The MOF is now 
citing the budget impact of oil price increases over the 
second half of 2005 as JD 13 million (USD $18.33 million) per 
USD 1 dollar increase in the price of a barrel of crude.  END 
NOTE.) 
 
Anti-Money Laundering Law 
------------------------- 
 
13.  (C)  A/S Wayne noted the USG's strong interest in a 
proposed anti-money laundering law (AML) and urged its 
passage by the GOJ parliament in the special session, if at 
all possible.  Al-Kodah spoke of the cabinet's consideration 
of the AML and noted the cabinet's support for the law.  AML 
was on the cabinet's agenda for parliament, he emphasized, 
and the aim was to win approval.  (POST COMMENT:  As reported 
Ref (A), the AML is not on the agenda for the two-week 
special summer session of parliament.) A/S Wayne replied that 
the AML was an essential tool to fight terrorists and other 
criminal elements and that it was important to the USG to 
know the progress of Jordan in furthering its efforts to 
thwart terrorists through systems that were as rigorous as 
possible.  Al-Kodah agreed. 
 
14.  (C)  Al-Kodah noted that the Central Bank of Jordan 
(CBJ) was getting its systems in place and that the proposed 
anti-money legislation would allow the CBJ to act vigorously 
against money laundering. 
 
USG:  Cooperation and Support 
----------------------------- 
 
15.  (C)  Wayne replied that the USG and GOJ enjoyed good 
cooperation, noting that an AML would make such coordination 
easier.  A/S Wayne expressed gratitude for the GOJ's efforts. 
 On debt, A/S Wayne said that the G-7 was divided on the 
issue of debt swaps and forgiveness, but that the USG would 
try to be supportive of Jordan's request for debt relief. 
Similarly, the USG had been trying to seek oil assistance for 
Jordan from Gulf partners and would continue to do so as the 
opportunity arose. 
 
Tax Reform and Privatization 
---------------------------- 
 
16.  (C)  In response to a comment by A/S Wayne that tax 
reform would help the GOJ with its budget problem, Al-Kodah 
said that the "number one item on the agenda" was how to 
improve tax collection.  The GOJ had to start by tackling tax 
evasion, he noted, citing past experience as Director General 
of Customs and as an Auditor.  Equally important to the 
budget would be the privatization of major government 
entities, from telecom, where the GOJ was selling 41.5 
percent of its Jordan Telecom stock, to the Jordan Phosphate 
Mine and the Central Electric Generating Company (CEGCO) 
plant, as well as the Queen Alia International Airport hotel 
and other real estate.  The Jordan Telecom privatization was 
on a fast track, he said.  He was expecting altogether up to 
1 billion JD (USD $ 1.41 billion) in proceeds from 
privatization, part of which he hoped could be used to settle 
Jordan's debts.  Jordan Petroleum Refinery would not be sold 
until 2008, when the 50-year concession would expire. 
 
The Budget Deficit 
------------------ 
 
17.  (C)  The original budget deficit for FY 2005 had been 
targeted at 270 million JD (USD $381 million), he said.  But 
with the decline in grants it might reach JD 524 million (USD 
$ 739 million) or six percent of GDP. (COMMENT:  The budget 
deficit remains a moving target, depending on what other 
cost-savings or revenue-enhancing measures one includes.  The 
figure given by Al-Kodah for a revised deficit appears to be 
based on oil price rises alone;  it reflects the difference 
between the original budget deficit based on USD $42 per 
barrel of oil and a more recent projected budget deficit 
based on USD $60 per barrel.  END COMMENT.)  The Finance 
Ministry subsequently reported to Embassy the current state 
of play regarding the budget, to be reported septel. 
 
Iraqi Debt 
---------- 
 
18. (C)  A/S Wayne inquired if the GOJ had talked to the 
Government of Iraq to reconcile Jordan's outstanding claims 
against Iraq.  (He noted that the characterization of those 
claims -- whether they were sovereign debt or trade ledger 
accounts -- was still an unresolved matter.)  Wayne noted the 
two sides had talked before on this issue but had not agreed 
on an outcome.  One of the minister's aides responded that 
the Central Bank was now on the front lines of the Iraq debt 
issue.  (COMMENT:  If an accurate depiction of the situation, 
this is a new development, as Finance Minister Abu Hammour 
had tracked this issue carefully up until his replacement by 
Bassem Awadallah in early April, 2005.  END COMMENT.) 
 
19.  (U)  A/S Wayne cleared this cable. 
HALE