US embassy cable - 05KUWAIT4624

UNCLAS SECTION 01 OF 02 KUWAIT 004624 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARPI SWALKER, SA/A FOR MQUINN, SA/A FOR 
NKROMASH, LONDON FOR LTSOU, TREASURY FOR ASHOK PARAMESWARAN 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PGOV, PREL, KU, AF 
SUBJECT: OVERVIEW OF GOK ASSISTANCE TO AFGHANISTAN 
 
REF: A. KUWAIT 1677 
     B. KUWAIT 3850 
     C. KABUL 4049 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for internet distribution. 
 
1.  (SBU) Summary.  This cable provides an overview of GOK 
assistance to Afghanistan, including outstanding GOA arrears 
with the GOK's Kuwait Fund for Arab Economic Development 
(KFAED).  The following information is current as of October 
2005 and was provided to the Embassy by KFAED in response to 
Embassy Kabul's email request.  (Note: On September 27, Post 
forwarded KFAED data via email to Embassy Kabul Econcouns). 
According to KFAED, since 2002, the GOK has contributed $30M 
in multilateral grants (through UN and Asian Development 
Bank) for Afghanistan's reconstruction efforts.  However, 
bilateral GOK assistance to Afghanistan, initiated in 1977, 
has been on hold since 1993 following the cessation of 
payments by the GOA on a $29M concessional KFAED loan for a 
sugar factory in Baghlan, Afghanistan.  KFAED claims $19M in 
GOA arrears and is willing to sign a rescheduling agreement 
with the GOA to clear the way for renewed KFAED assistance. 
The GOA has not accepted the KFAED offer pending resolution 
of Russian debt claims. (Note: GOK rescheduling offer was 
submitted to GOA in October 2004 and revisited by Embassy 
Kabul in September 2005.)  End Summary 
 
GOK Bilateral Assistance 
------------------------ 
 
2.  (SBU) GOK bilateral assistance to Afghanistan dates back 
to 1977 when KFAED, the GOK's main development assistance 
entity, awarded the GOA a concessional loan for 8.5 million 
Kuwaiti Dinars (KD)--$29M or 1.3 billion Afghanis at current 
exchange rates--for the construction of a sugar factory in 
Baghlan, Afghanistan.  According to KFAED records, due to 
political instability in Afghanistan, GOA payments ceased 
shortly thereafter, resulting in the cessation of GOK 
assistance to Afghanistan in 1993 as a result of non-payment. 
 (Note: By 1993 GOA repayments totaled 7.2 million KD or 
$24M.) 
 
GOK Multilateral Assistance 
--------------------------- 
 
3.  (SBU)  According to KFAED records, the GOK pledged $30M 
in grants for Afghanistan during the 2002 Tokyo Conference, 
despite the GOA's bilateral arrears with Kuwait.  These funds 
have been distributed equally between the UN Trust Fund for 
Afghanistan and the Asian Development Bank's 
Kandahar-Spin-Boldak road construction project.  According to 
KFAED officials, these grants were provided in response to a 
U.N.-led multilateral effort.  KFAED has advised us that any 
additional bilateral GOK assistance would be possible only 
after a rescheduling agreement has been signed for the GOA's 
arrears. 
 
4.  (SBU) According to the GOK's MFA (ref A), the GOK pledged 
an additional $135M at the 2004 Berlin Donors Conference. 
However, KFAED records do not confirm this amount and it is 
unclear what amount, if any, has been approved by the Kuwaiti 
National Assembly and disbursed.  (Note: The latest donor 
assistance matrix provided to Embassy by SA/A does not list 
the 2004 GOK pledge and cites total GOK assistance at $45M.) 
 
Status of Afghan Arrears 
------------------------ 
 
5.  (SBU) KFAED has not resumed bilateral assistance to 
Afghanistan pending rescheduling of the 1977 loan arrears, 
which currently stands at KD 5.5M ($19M or 805M Afghanis). 
This amount represents the outstanding principal and interest 
that has accumulated. 
 
6.  (SBU) Based on Embassy's discussions (ref B), KFAED is 
eager to conclude a rescheduling agreement in order to 
re-activate its bilateral assistance to Afghanistan via 
concessional loans and technical grants.  On October 20, 
2004, the Director General of the Kuwait Fund, Bader 
Al-Humaidhi (now GOK Finance Minister) provided his GOA 
counterpart a rescheduling offer requiring an initial GOA 
 
KUWAIT 00004624  002 OF 002 
 
 
"good will" down payment of $514,000, followed by 40 
semi-annual installments over a 20 year period commencing on 
January 2006.  (Note: copies of the rescheduling agreement 
were forwarded via email to Embassy Kabul on September 27.) 
 
7.  (SBU) According to Embassy Kabul, the GOA, per guidance 
from the U.S. Treasury Department, is holding off additional 
bilateral settlements with creditors who are not members of 
the Paris Club, including Kuwait, pending resolution of the 
larger Russian claims (ref C). 
 
8.  (SBU) Post is confident of GOK's commitment to resuming 
concessionary loans to Afghanistan.  Post welcomes the timely 
resolution of the Russian debt claims in order to facilitate 
a rescheduling agreement with the GOK.  Post appreciates any 
updates from Treasury on the status of current USG guidance 
to GOK on bilateral arrears and the pending Russian debt 
claims that can be shared with GOK counterparts. 
 
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