US embassy cable - 05BAGHDAD2987

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002987 
 
SIPDIS 
 
E.O. 12958: DECL: 07/13/2025 
TAGS: PGOV, PREL, ECON, IZ, Sunni Arab, IMF, ECON Development 
SUBJECT: DEPUTY SECRETARY'S MEETING WITH IRAQI PLANNING 
MINISTER BARHAM SALIH 
 
Classified By: Charge d' Affaires David M. Satterfield for reasons 1.4 
(b) and (d) 
 
1.  (C) SUMMARY.  Iraq's Planning Minister Barham Salih told 
Deputy Secretary Zoellick on July 10 that key hurdles in 
finalizing a constitution include Sunnis' role in the process 
and the differing views of federalism held by the main 
ethno-religious communities. Zoellick emphasized the 
importance of sticking to the TAL timetable; Salih said it 
will be difficult but not impossible to do so.  The Minister 
hopes that the IRFFI donors conference on July 18-19 will 
provide a venue to translate the political support shown for 
Iraq at the Brussels conference of June 22 into action, 
although he recognized new pledges were unlikely.  Salih 
agreed when the Deputy Secretary emphasized the need for Iraq 
to demonstrate a clear policy direction to honor its 
commitments to the IMF to reduce subsidies, cut the budget 
deficit, and carry out other economic reforms, but noted 
there is politically-motivated foot-dragging among Prime 
Minister Jaafari's staff.  The Minister highlighted the 
importance of private investment for reconstruction and 
development in Iraq.  Salih suggested that the next JCRED be 
held inside Iraq.  END SUMMARY. 
 
2.  (SBU) Deputy Secretary Zoellick met on July 10 with Iraqi 
Planning Minster Barham Salih on the occasion of the July 
10-11 Joint Committee on Reconstruction and Development 
(JCRED). 
 
3. (SBU) Participants: 
U.S. 
Deputy Secretary Zoellick 
Assistant Secretary/EB, Tony Wayne 
NSC Senior Director Meghan O'Sullivan 
D Executive Assistant Ross Wilson 
S/I Deputy Director Bob Deutsch 
Economic Minister-Counselor Anne Derse (notetaker) 
 
For Iraq: 
Minister of Planning and Development Cooperation, Barham Salih 
Chief of Staff Ahmed Salman 
 
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Constitution Drafting Process 
----------------------------- 
 
4.  (C) Salih told the Deputy Secretary that there are now a 
large number of Sunnis in the constitution-writing process, 
but questions remain with respect to how representative they 
are and how cooperative they will be.  Some of those brought 
into the process want to stop it, while others genuinely want 
elections as soon as possible.  Salih said he disagreed with 
some who want an extension of the timetable.  An election is 
needed as soon as possible to legitimize Sunni participation 
in the political process. 
 
5.  (C) The Minister said there is a move to change the 
elections law to have proportional representation at the 
governorate level.  The Shia support this move.  The Kurds 
would lose seats, but it probably would assure Sunni 
participation.  Even though the Sunnis retain a dim view of 
Kurds, Salih said the Sunnis "are our people, and we have to 
talk to them."  On other contentious issues related to the 
constitution, Salih noted the presence of a strong 
pro-federalist movement in the south of Iraq.  The Minister 
said with regard to Kirkuk that the Kurds had made a 
commitment to normalize the situation there after the 
constitution, and he made clear his view that there is no 
need for Kirkuk's status to be in the Constitution. 
 
6.  (C) Zoellick emphasized the importance of sticking to the 
TAL timetable.  Salih strongly agreed, saying it will be 
difficult but not impossible to do so. He said Speaker 
Hassani agrees it can be done.  Noting that the EU 
constitution had fallen of its own weight, the Deputy 
Secretary told Salih that not every issue needs to be 
 
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addressed in the Iraqi constitution.  It can put in place a 
basic structure, leaving some issues for the future.  The 
Minister agreed that it would make sense to have a 
constitution with basic structure and modalities, but not all 
the details, leaving some issues for the future. 
 
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IRFFI Donors Conference/Economic Reform 
--------------------------------------- 
 
7.  (C) Turning to the IRFFI donors conference that Jordan 
will host at the Dead Sea July 18-19, Salih said that it will 
be an important test as to whether the political support for 
Iraq shown at the June 22 Brussels conference would translate 
into action.  Salih hopes to agree on priorities for the next 
six months.  Donors want priorities; but everything in Iraq 
is a priority, and Salih therefore hopes to focus on job 
creation--where construction and housing are key sectors--as 
the overarching theme.  The Minister recognized this will not 
be a pledging conference, but underscored the political 
desirability of finding some new pledges if possible. 
Assistant Secretary for Economic and Business Affairs Wayne 
noted that the USG has contacted all invitees to urge they 
make new pledges and disburse pledges already made. 
 
8.  (C) Noting his recent discussions with the IMF and World 
Bank leadership in Washington, Deputy Secretary Zoellick 
underscored the importance for Iraq of presenting to the 
IRFFI conference a short, prioritized, and action-oriented 
National Development Strategy draft, accompanied by an 
illustrative list of projects that lets donors know the ITG 
is focused.  A short document would be the most effective 
one.  He suggested the ITG present ranges or variables for 
the expected budget deficit so people know it is an issue 
that must be tackled.  The Deputy Secretary said the IMF and 
World Bank are pressing for integration of the development 
and operating financing budgets.  Progress on fuel subsidy 
reform, data provision, and the independent audit of the 
central bank are key for the IMF.  The ITG needs to 
demonstrate a sense of commitment and signal clear direction 
on subsidies, even as details remain to be worked out through 
the political process.  This will contribute to a positive 
IMF Board Review of Iraq in early August.  The Deputy 
Secretary offered to work with the ITG to encourage Fund and 
 
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Bank action with respect to Iraq. 
 
9.  (C) Salih agreed the ITG must make decisions and bite the 
bullet on subsidies and the budget deficit.  Any government 
would think politically six months before elections, but the 
risk of inaction would be the unraveling of Iraq's historic 
debt reduction agreement.  Salih said he and Finance Minister 
Ali Allawi are pushing for economic reform and compliance 
with the IMF's Emergency Post-Conflict Assistance (EPCA) 
program.  He predicted action on fuel subsidies.  Prime 
Minister Jaafari understands the situation is serious, that 
it not sustainable, and that Iraq cannot get enough fuel to 
the people as a result of the subsidies.  Jordan had acted 
and so must Iraq.  The Minister acknowledged he is worried, 
however, about those close to the Prime Minister who point to 
the downsides of reform, arguing elections are only six 
months off.  In this context, headline-grabbing new pledges 
are very important. 
 
10.  (C) Salih further agreed the budget process must be 
integrated, pledging that he and Allawi will integrate the 
budget, and the new donor coordination mechanism will be 
built around that process.  His vision is to spend $30 
billion over the next two years, with funding split equally 
between Iraq and donors. 
 
11.  (C) With reference to Iraq's need for resources, Salih 
said he is working hard on the investment law.  He sees no 
need to replace the CPA orders on foreign investment (nos. 39 
and 46) as some have pushed to do.  Rather, the law will be 
elaborated with regulations.  The new Investment Promotion 
Agency and OPIC Investment Incentive agreements will play a 
key part in empowering the private sector.  Further, 
according to the Minister, Iraq's financial problems are 
pushing it to explore alternatives like build-own-operate 
(BOO) and build-own-transfer (BOT) agreements.  Salih said 
the government cannot provide all needed investment in the 
oil sector. 
 
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Next JCRED 
---------- 
 
12.  (C) The Deputy Secretary suggested holding another JCRED 
meeting in the fall. Noting that USG engagement is very 
important to help push for reforms, Salih agreed but added it 
is politically important to conduct the meeting in Iraq -- in 
the capital or Irbil. He said the ITG is pushing the UN and 
World Bank to do more training in Iraq as well. 
 
13.  (U) REO Hillah, Basrah, Kirkuk, and Mosul Minimize 
considered 
Satterfield