US embassy cable - 05BAGHDAD4108

C O N F I D E N T I A L BAGHDAD 004108 
 
SIPDIS 
 
E.O. 12958: DECL: 10/04/2015 
TAGS: EAGR, ECON, EFIN, IZ, Reconstruction 
SUBJECT: MINISTRY OF TRADE FOOD SUBSIDY REFORM PLANS 
 
REF: BAGHDAD 4041 
 
Classified By: ECON MINCOUNS Thomas Delare, Reasons 1.4 b/d 
 
1.  (C) Summary:  State and MNF-I representatives met with 
Ministry of Trade (MoT) on October 3 to discuss Public 
Distribution System (PDS) reform.  Minister Abd al-Basit 
Karim Mawlud told us that Prime Minister Jafari tasked an 
inter-ministerial committee to develop a reform plan by the 
end of the year.  Abdul Kareem Fajer, Acting Director General 
for Foodstuffs, a state-owned enterprise operated by MoT, 
seemed supportive of PDS reform so long as it happened in 
small steps, and he agreed to informally participate on the 
PDS Reform Strategy Team with the Embassy.  End summary. 
 
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Garnering Support 
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2.  (C) During an October 3 meeting with MoT, we discussed 
PDS reform with Minister Karim.  Minister Karim told us that 
the Prime Minister has assigned an interministerial committee 
to provide a reform plan by the end of the year.  The 
committee consists of the Minister of Planning, the Minister 
of Finance, the head of the Trade Bank of Iraq (TBI), and 
Minister Karim.  Minister Karim told us that the committee 
has met once, but that nothing has been achieved. 
 
3.  (C) In a separate meeting, Abdul Kareem Fajer, Acting 
Director General for Foodstuffs, a state-owned enterprise 
operated by MoT that controls a significant chunk of the PDS, 
was also supportive of PDS reform.  He agreed to informally 
participate on a PDS Reform Strategy Team that is being 
chaired by the Embassy Economic Section.  The goal of this 
team, which consists of State, MNF-I, USAID, FAS, and GOI 
representatives, is to engage the GOI on PDS reform aimed at 
eventual termination of the program in favor of a mechanism 
less prone to corruption and, ideally, targeted at the 
genuinely poor. 
 
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Avoiding Instability 
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4.  (C) Earlier, Kareem had stated that PDS reform would need 
to happen in small steps.  He argued that the Iraqi private 
sector is not prepared to fill the void that PDS reform 
undertaken too quickly would create.  (In the past, Minister 
Karim has also expressed that reform would need to be slow.) 
Kareem believes Iraqis lack the knowledge and skills required 
to create a successful private-sector system to purchase, 
import, process, and distribute food throughout Iraq.  In 
addition, he believes there is not enough capital available 
to entrepreneurs to acquire the necessary ships and trucks or 
to build the proper infrastructure.  We agreed that the 
transition would be difficult, but told him we believed the 
change needed to start because the current PDS is failing and 
its funding is likely to diminish substantially (reftel). 
 
5.  (C) Kareem expressed concern that rapid reform could lead 
to instability.  He said that Iraqis often disrespect the 
government authorities who operate the current PDS, and he 
worries that the situation could be worse if private-sector 
development is forced too quickly.  Kareem believes that too 
many Iraqis currently view democracy as simply meaning that 
people can take matters into their own hands and no longer 
must bow down to authority. 
 
6.  (C) Comment:  Kareem was receptive on PDS reform.  As 
Acting Director General of Foodstuffs, he controls a large 
part of PDS operations, and considering the strong likelihood 
that he will be involved in the new government, we are 
pleased that he agreed to further engage us on PDS reform. 
In fact, the PDS appears increasingly dysfunctional, with 
spotty and lagging deliveries now the norm.  It is also 
possible that budget cuts put in motion by the Ministry of 
Finance will force Kareem to make rapid changes in the PDS 
not currently envisioned in a slow reform process.  End 
comment. 
Khalilzad