US embassy cable - 02AMMAN5964

S E C R E T SECTION 01 OF 02 AMMAN 005964 
 
SIPDIS 
 
NSC FOR GARY EDSON 
NEA FOR A/S BURNS 
EB FOR A/S WAYNE 
FOR U/S LARSON 
 
E.O. 12958: DECL: 10/14/2007 
TAGS: EFIN, ECON, PREL, JO 
SUBJECT: JORDAN: U/S LARSON MEETINGS ON ECONOMIC PLANNING 
 
 
Classified By: DCM Gregory L. Berry.  Reasons 1.5 (b) and 
(d). 
 
1.  (C)  Under Secretary Larson had meetings in Amman 
October 13-14 with Prime Minister Abul Ragheb and key 
members of the Jordanian ministerial "economic team," 
including Finance Minster Marto, Planning Minister 
Awadallah, Trade Minister Bashir and Central Bank 
Governor Umayya Toukan.  He also met Foreign Minister 
Muasher and had a two-hour session with business leaders. 
 
2.  (S)  The meetings were an opportunity to develop a 
deeper understanding of the points raised in the 
Jordanian paper on the economic impact on Jordan of 
potential coalition military operations in Iraq.  In 
preparation for Deputies-level discussions this week, 
following are the main themes that emerged from Larson's 
discussions.  These should be read in conjunction with 
the State Department-prepared paper on economic 
assistance to Jordan that has been submitted for the 
Deputies' deliberations. 
 
--   Sense of urgency.  All the ministers, but especially 
the Prime Minister, stressed a strong desire to have 
emergency U.S. assistance in hand well in advance of any 
conflict, that is, ideally before year's end (given the 
widespread assumption that operations would not begin 
before that time).  The PM described at length how he 
needed this both to prepare for economic consequences and 
to reinforce domestic political support for the policies 
Jordan would follow in the event of a conflict.  Larson 
described the mismatch between this Jordanian timeline 
and the U.S. budgetary process.  Understanding, however, 
that it would be easier to sustain domestic political 
support if there were a publicly useful show of U.S. 
support for Jordan, a clear indication that a plan was in 
place would be helpful, economically and politically, to 
bridge the gap. 
 
--   Oil.  The ministers, particularly Marto, recognized 
that Jordan's current oil arrangement with Iraq was not 
sustainable in any case.  However, an abrupt transition 
to market prices would be a major fiscal and economic 
shock.  The foreign minister reported a slight opening 
regarding supply alternatives:  The visiting Kuwaiti 
minister of state for foreign affairs told the Jordanians 
that he would propose a formula to his Saudi and UAE 
counterparts for dividing up a package of 80,000 barrels 
of crude per day for Jordan.  This could create an 
opportunity to work with the Gulf producers to develop a 
temporary plan for price mitigation.  Under Secretary 
Larson will also raise Jordan's needs in meetings this 
week in Saudi Arabia and the UAE.  Nevertheless, the 
Jordanians are extremely dubious that the Gulf states 
will provide oil on a discounted basis and thus mitigate 
the sharp economic shock inherent in having their import 
bill increase by 5% of GDP. 
 
--   Export Disruption.  Members of the business 
community as well as the ministers highlighted the 
importance of avoiding or minimizing a disruption of 
Jordanian exports, particularly the booming textile 
exports to the U.S. under the QIZ initiative.  Concerns 
included reluctance of U.S. importers to place orders 
during what is perceived to be a crisis period and the 
risk of air and seaport closure, as well as war risk 
insurance premiums that discourage port calls in Jordan 
and Israel.  Larson described the U.S. experience last 
year in dealing with similar issues involving exports 
from Pakistan.  It could be useful to include such work 
with insurance companies and leading importers in a plan 
to address Jordan's needs. 
 
--   Bank Exposure.  Another specific concern was the 
exposure of Jordan's banking system in the form of 
letters of credit extended to finance Oil-for-Food 
program exports to Iraq.  The Central Bank Governor 
estimated that Jordanian banks had $500-700 million in 
such credits outstanding at any one time.  Currently, the 
banks are paid from the O-F-F account only after the UN 
certifies delivery of goods in Baghdad.  As the governor 
suggested, the UN could explore alternative procedures to 
allow UN officials to certify delivery at the Iraqi 
border or in special warehouses in Amman if it became 
impossible to do so in Baghdad.  This could mitigate the 
risk borne by the banks and facilitate the continued flow 
of humanitarian goods to Iraq. 
 
--   Bilateral Jordanian Exports to Iraq.  Jordan 
currently exports $200-$300 million in goods and services 
to Iraq in partial payment for oil received under the 
bilateral oil for goods barter arrangement.  This is a 
declining but nevertheless substantial share of Jordan's 
exports, as well as of employment and the company base. 
Since alternative markets probably do not exist for these 
generally low-quality goods, it is not immediately clear 
how to address what is essentially a political risk. 
--   Domestic Trucking.  Managing the reaction of the 
politically important trucking industry that currently 
moves the oil and goods trade with Iraq was clearly one 
of the Prime Minister's main political preoccupations. 
Further work could be done to sharpen our appreciation of 
the demand for trucking services in the event of a 
conflict, such as to move humanitarian or other goods 
from Jordan to Iraq.  Such planning could allay some of 
this concern. 
 
3.  (C)  Larson stressed in all his meetings that 
Jordan's concerns were receiving serious, top-level 
attention in Washington.  He hoped that his trip could be 
the beginning of a deeper exchange.  Once the U.S. was 
ready, Jordanian ministers expressed their readiness to 
travel to Washington or Europe to discuss economic 
planning in greater depth. 
 
4.  (C)  Under Secretary Larson reviewed this message and 
requested that it be distributed to participants in the 
Deputies meetings. 
GNEHM