US embassy cable - 05AMMAN5887

C O N F I D E N T I A L SECTION 01 OF 04 AMMAN 005887 
 
SIPDIS 
 
STATE FOR NEA FRONT OFFICE AND FOR NEA/ELA 
TREASURY FOR MILLS/DOWNARD 
NSC FOR ABRAMS 
USAID FOR NATSIOS 
 
E.O. 12958: DECL: 07/10/2015 
TAGS: EAID, EFIN, PREL, JO 
SUBJECT: THE DEPUTY SECRETARY'S MEETING WITH JORDAN 
MINISTER OF PLANNING SUHAIR AL-ALI 
 
 
Classified By: CHARGE D'AFFAIRES DAVID HALE FOR REASONS 1.4 (B) AND (D) 
. 
 
1.  (U) The Deputy Secretary met with Jordanian Minister of 
Planning and International Cooperation Suhair al-Ali July 10 
at 3:40 p.m. at the Ministry during a visit to Jordan in 
connection with the U.S.-Iraq Joint Commission for 
Reconstruction and Economic Development (JCRED) held July 11. 
 
2.  (U) Participants: 
 
U.S. 
---- 
The Deputy Secretary 
Charge Hale 
D Chief of Staff Wilson 
USAID Administrator Natsios 
EB Assistant Secretary Wayne 
NSC Senior Director O'Sullivan 
USAID Amman Mission Director Aarnes 
Notetaker Lawless 
 
Jordan 
------ 
Minister of Planning al-Ali 
Ministry Secretary General Maher Madadha 
Ministry Director of Bilateral Cooperation Nasser Shraideh 
Ministry Americas Desk Officer Ghaith Zureikat 
 
Summary 
------- 
 
3.  (C)  Minister of Planning and International Cooperation 
Suhair al-Ali gave an extensive presentation to the Deputy 
Secretary of Jordan's current budget challenges, which 
 
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threatened the new government's aggressive reform agenda. 
Al-Ali noted the decision to eliminate oil subsidies had been 
taken even before the new government faced parliament for the 
first time, to show its resolve.  She outlined plans for tax 
reform, privatization, government cost-cutting and pension 
reform.  A deficit estimated at $950 million, however, 
undermined the government's effectiveness.  The GOJ was 
continuing to seek debt swaps but was focusing more on debt 
relief -- especially for the $1.6 billion owed to Japan. (The 
minister's request for relief from U.S. debt was withdrawn in 
subsequent bilateral meetings.)  She outlined Jordan's 
comprehensive plans through a National Agenda to enhance 
economic freedoms and a market economy, to involve its people 
at the grass roots in an inclusive political system, and to 
build government institutions marked by accountability and 
justice, with stronger anti-corruption measures. 
 
4.  (C)  The Planning Minister touched briefly on continued 
GOJ requests from Saudi Arabia for 50,000 - 100,000 barrels 
in crude oil assistance per day.  The Deputy Secretary 
encouraged Jordan to apply for assistance under the 
Millennium Challenge Account.  He also emphasized our 
continuing efforts to assist Jordan, noting our support for 
higher debt swap ceilings at the Paris Club, our requests to 
Gulf neighbors for oil support to Jordan, and our willingness 
to engage on debt relief to the extent  possible.  The Deputy 
Secretary emphasized that part of the  success of past GOJ 
 
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requests had derived from an excellent bilateral relationship 
that had been built on careful dialogue and feedback.  End 
Summary. 
 
Planning Minister:  Reforms Might be "Wiped Out" 
--------------------------------------------- --- 
 
5.  (C)  Minister of Planning Suhair al-Ali expressed the 
Jordanian government's gratitude for U.S. assistance which 
had helped promote reforms in Jordan in legal, regulatory and 
other areas.  The government was particularly grateful for 
the $100 million included for Jordan in the FY05 Supplemental 
and its $70 million cash transfer component.  It was now 
important for the people on the ground to see the fruits of 
the assistance-supported efforts, even as Jordan faced its 
most serious challenges in very trying times.  Jordan was 
facing significant challenges because of the rise in oil 
prices, she said.  Even if revenue topped JD 2.1 billion, the 
oil subsidies originally had amounted to over 16 percent of 
the budget's current expenditures (before the recent 
reduction in subsidies) and that share was growing as oil 
prices grew.  Jordan's very strong program of reform would be 
"wiped out" if the Government of Jordan (GOJ) does not take 
tough measures to meet the challenges, she said. 
 
6.  (C)  She noted that the Deputy Secretary's visit was 
taking place on the eve of the special session in parliament, 
where the government would have to show results.  Needless to 
say, parliament would be very tough, she said.  A vote of 
confidence would likely take place around July 21, depending 
on how many MP's spoke and for how long.  Despite the pending 
political pressure, the GOJ had committed to a three-year 
plan to eliminate oil subsidies so that there was nothing 
that the MP's could say to sway the government to not take 
the right steps (to get rid of subsidies). 
 
Reforms on the Revenue Side 
--------------------------- 
 
7.  (C)  Tax reforms were at the top of the GOJ's agenda, 
said al-Ali.  The GOJ would streamline the system to remove 
the loopholes.  People were not paying now, but if the system 
were simpler, more would pay.  The GOJ was also considering 
an increase in the general sales tax next year.  Increasing 
the sales tax on hotel accommodations was also planned as 
that sector was doing extremely well, she said.  The goal was 
to achieve a revenue rate that was about 33 percent of GDP, 
she added.  (NOTE: In the 2005 budget, approved last 
December, revenues were estimated to be less than 25 percent 
of GDP.) 
 
8.  (C)  The GOJ would accelerate privatization, including by 
selling Jordan Telecom and divesting about 40 percent of its 
holdings in Jordan Phosphate Mines.  Other sales would be 
made from among holdings in the electricity sector.  She 
hoped that privatizations in these three largest areas would 
start by the end of the year.  When asked by the Deputy 
Secretary about the process -- including Parliamentary 
 
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consent -- Minister al-Ali said that it might typically be a 
two-or-three step divestiture.  Parliament would be 
consulted, she said, so that none could accuse the government 
of "selling the jewels for almost nothing."   Proceeds from 
privatizations would go to more useful purposes, such as 
buying back debt or key capital expenditures, she noted. 
 
Austerity Measures, Cost Control, Pension Reform 
--------------------------------------------- --- 
 
9.  (C)  Minister al-Ali outlined a series of belt-tightening 
measures (reported septel) that showed the GOJ was serious 
about fiscal restraint.  These measures (e.g., cutting 
government expenditures by 20 percent) were not meant to 
imply that the GOJ had solved its problems, she emphasized. 
Rather, it was to show the people that the government would 
lead by example.  The World Bank has already outlined a 
program for reform of the GOJ's overly generous pension 
system and this would be pursued by next year.  (NOTE: 
Pensions constitute 15 percent of expenditures in the FY 2005 
budget.) 
 
10.  (C)  Jordan's debt stock of USD $7.5 billion was another 
area requiring serious review, she noted, pointing to $4.6 
billion owed to industrial nations of which $1.6 billion was 
debt to Japan.  It was Jordan's intention to phase out its 
dependence on grants.  Recapping her recent trip to Japan, 
she said that she found Japanese officials to be cooperative 
about debt relief.  She added that they had said such relief 
for Jordan should be on the positive agenda of the U.S. 
 
Debt Relief, More Aid Now...Phase Out ODA Later 
--------------------------------------------- -- 
 
11. (C)  Al-Ali requested that the USG consider debt relief 
of about USD $400-450 million in monies owed by Jordan to the 
United States, including export credits and direct 
assistance.  Later in the discussion, the Deputy Secretary 
clarified that U.S. legislation requires budget scoring of 
debt relief according to a formula, and that Jordan might 
find better uses for U.S. appropriated funds than debt 
relief.  (NOTE: In subsequent conversations with Charge, 
al-Ali has made clear that the GOJ is no longer interested in 
pursuing relief of U.S. debt but is still seeking strong 
support for the GOJ's appeal for debt relief from Japan.  END 
NOTE.) 
 
12.  (C)  Al-Ali said the request for debt relief should be 
viewed in the context of the GOJ's aggressive program to get 
rid of fuel subsidies and to phase out Jordan's dependence on 
overseas development assistance (ODA).  With rising fuel 
prices, Jordan was going to have an FY 2005 deficit of $950 
million, she stated.  Next year, aid levels would need to 
increase.  But there was light at the end of the tunnel and 
Jordan will phase out its grant needs.  In the short term, 
however, Jordan was in a tough spot but it was taking tough 
actions and would continue to take tough decisions.  What 
Jordan needed now was an increase in baseline assistance 
funds to help it through a difficult stretch.  Some in the 
U.S. Senate seemed sympathetic to such an increase in the 
USG's FY 06 budget, she noted.  Jordan's elimination of fuel 
subsidies was testing the limits, given a 14.2 percent 
poverty rate and 13.4 percent unemployment.  She later said 
Jordan would require even higher levels in FY 07, but that in 
three to four years, the GOJ would "require less." 
 
Millennium Challenge Account (MCA) 
--------------------------------- 
 
13.  (C)  Minister al-Ali reviewed at length Jordan's 
preparation for the MCA, noting its commitment to economic 
reform, its interest in a more inclusive political system, 
and its stronger national government structures that 
emphasized accountability, judicial reform, and 
anti-corruption measures.  She emphasized that the ongoing 
National Agenda exercise (an action plan for major reform 
based on nationwide committees, due to be published in 
September) was the type of bottom-up process that was in 
keeping with MCA concepts.  To overcome the significant 
challenges ahead, however, the GOJ would need the full 
support of the United States including in debt relief, 
enhanced aid, and through the MCC. 
 
Deputy Secretary: Continued USG Assistance 
------------------------------------------ 
 
14.  (C)  The Deputy Secretary noted that his first major 
experience with Jordan -- on the Free Trade Agreement, as 
USTR -- had been a good one because of the excellent rapport 
between the two nations and the ability to have good feedback 
that allowed both sides to understand the probabilities for 
success.  On debt, we had supported the GOJ request to the 
Paris Club for a higher ceiling on debt swaps, but Germany, 
Japan, and Canada had reservations, he noted.  He promised to 
keep checking on the GOJ request, but noted that the Japanese 
had been "unchanging" in their position and Germany might not 
be approachable until after the upcoming elections.  (NOTE: 
A longer discussion on debt relief ensued, as noted above.) 
 
15.  (C)  On increased assistance levels, he noted that 
Jordan as a front line state in the war on terrorism had 
benefited from supplemental assistance in the past two budget 
years.  This was on top of the regularly appropriated 
amounts.  While the USG would remain alert to the possibility 
of increased assistance, he could not say if there was going 
to be a Supplemental in FY 06.  The higher oil prices had 
been a shock to the U.S. economy, too, he noted.  Thus, it 
was a hard argument to make in Congress that Jordan needed 
help because of high oil prices.  Nonetheless, the USG was 
committed to supporting governments making tough decisions 
and strategic decisions, he added. 
 
16.  (C)  The Deputy Secretary said that Jordan appeared to 
be well positioned to compete in the MCA, but said the real 
challenge might be for the USG to determine how to assist all 
of the nations that qualify and whether the MCC funds would 
be spread thin or whether substantial investments would be 
made in a smaller number of countries. 
 
17.  (C)  Minister al-Ali and the Deputy Secretary had a 
brief exchange on the GOJ's continuing requests to the 
government of Saudi Arabia for grants of crude oil, a need 
al-Ali calculated to be between 50 to 100 thousand barrels a 
day.  The Deputy Secretary noted our own efforts in this 
regard and suggested that the GOJ continue to appeal to 
Kuwait and the UAE, as well. 
 
18.  (C)  The Deputy Secretary closed by thanking the 
Minister for her presentation, noting that the USG understood 
well the importance of Jordan as a friend and ally in the 
region, and the difficult decisions the GOJ was taking and 
that the United States remained open to bilateral discussions 
of these and other opportunities for assistance and 
cooperation. 
 
19.  (U)  D staff has cleared this message. 
HALE