US embassy cable - 05AMMAN9367

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 009367 
 
SIPDIS 
 
E.O. 12958: DECL: 11/30/2020 
TAGS: EFIN, PINR, JO 
SUBJECT: CBJ DEPUTY GOVERNOR ON BUDGET HOPES, NEW FINANCE 
MINISTER, AND THE 11/9 BOMBINGS 
 
REF: A. AMMAN 9036 
 
     B. AMMAN 8949 
 
Classified By: DCM Daniel Rubinstein for reasons 1.4 (b) and (d) 
 
1. (C) SUMMARY: Central Bank of Jordan Deputy Governor Faris 
Sharaf expects that next year's budget deficit could be lower 
than expected, thanks to the cautious assumptions made in the 
budget.  New Deputy Prime Minister and Finance Minister Ziad 
Fariz,s extensive banking and finance background will be of 
major help in addressing Jordan's fiscal problems and dealing 
with the Parliament.  Beyond the tourism sector, Sharaf has 
seen little economic impact from the 11/9 bombings in Amman. 
The attacks may help the government get the Anti Money 
Laundering law through Parliament.  END SUMMARY. 
 
------------ 
Budget Hopes 
------------ 
 
2.  (C) Ecouns called on one of the two Deputy Governors of 
the Central Bank of Jordan, Faris Sharaf, November 30. 
Sharaf welcomed the budget released two weeks earlier (Ref 
A), and expects this year's budget deficit to improve to 4.6% 
of GDP.  Looking ahead to 2006, he expects the projected 
budget deficit of 7.5% is too pessimistic.  Sharaf believes 
that the conservative approach of this budget -- counting 
only guaranteed foreign aid and assuming $60/barrel oil -- 
will mean the deficit could fall to 4.8% or even lower. 
Continued improvements in tax revenues and a tight lid on 
government spending will help make a lower deficit possible. 
This optimistic scenario is possible despite the expected 
slowing of economic growth to 5-6%, as the CBJ continues to 
raise interest rates to control inflation. 
 
3.  (C) Sharaf emphasized to Ecouns his concern regarding 
Jordan's continued reliance on foreign aid.  He believes the 
government needs to continue with structural reforms, tax 
reforms, and controlling government spending, rather than 
relying on others. Sharaf  prefers securitizing portions of 
the government's debt, particularly the debt which predates 
the Debt Management Law, passed in 2001, maintaining that 
such steps would address both the country's debt and fiscal 
problems. 
 
----------------------------------- 
DPM and Finance Minister Ziad Fariz 
----------------------------------- 
 
4.  (C) Sharaf expects new Deputy Prime Minister (DPM) and 
Finance Minister Ziad Fariz to be a strong leader of the 
GoJ,s economic team who  will bring to the job extensive 
experience in government and the private sector, having been 
Planning Minister, Trade Minister, Governor of the CBJ, and 
head of a successful Jordanian bank.  Sharaf said he dined 
with Fariz and former Finance Ministers Kodah and Marto the 
night before and was impressed by Fariz' understanding of 
Jordan's economy and awareness of the key role of fiscal 
policy in the economy.  COMMENT:  Due to the Jordanian 
Dinar's peg to the dollar, Sharaf sees little scope for 
monetary policy in Jordan, beyond fighting inflation through 
interest rate rises.  END COMMENT.  He expects Fariz will be 
a successful advocate for fiscal control within the Cabinet, 
and perhaps even more importantly, to work  effectively with 
the Parliament. 
 
5. (C) In Sharaf,s view,  Fariz will have a cultural and 
personality advantage over his predecsoor: he hails from 
Salt, an old and established town just outside of Amman. 
Salt natives are stereotyped as crusty, conservative and 
reserved, earning them a certain level of respect from other 
Jordanians. However, Sharaf claims that Fariz has a soft 
interior with a deft sense of humor which should serve him 
well in his interpersonal relations. 
 
6. (C) Fariz will not try to micro-manage central banking as 
CBJ Governor, according to Sharaf, and will not be distracted 
by his DPM duties from devoting sufficient time to the 
Finance Ministry.  On the contrary, Sharaf sees the elevation 
of the role of Finance Minister to the DPM level in the new 
government as an indicator of the importance the King places 
on the government's finances.   Under Fariz, coordination 
between the Ministry and the CBJ should continue to improve, 
especially in coordinating their CD and T-bill issuances in 
the future.  COMMENT:  This should help prevent another spike 
in interest rates like the one in October when the Ministry 
had to pay nearly 8% in order to clear the market of T-bills 
it had issued immediately after the CBJ had mopped up 
liquidity with a CD issuance.  END COMMENT. 
 
--------------------- 
The November Bombings 
--------------------- 
 
7.  (C) Sharaf told Econs he did has not yet seen major 
economic fall-out from the 11/9 bombings.  There was no 
pressure on the Dinar, no large withdrawals of cash from 
Jordan's banks, and no unusual activity in the stock market. 
There had inevitably been an impact on the tourism sector. 
Sharaf hopes that tourists realize that terrorism is not a 
Jordanian problem but a world problem.  In a sense, he was 
relieved the attacks had finally occurred.  Jordanians had 
long expected and feared a major attack, and expected that 
the country would collapse afterwards.  The fact that had not 
happened should reassure the public.  Sharaf's main fear was 
of a sustained series of terrorist attacks against Jordan 
which would hit the tourism sector hard.  Tourism is a major 
support of the Jordan economy, generating employment, foreign 
currency receipts and many indirect economic benefits.  A 
significant, long-term fall in tourism would hit Jordan's 
economy very hard. 
 
8.  (C) Ecouns asked whether the government would support 
implementing a cash disclosure system and adopting a system 
for banks to run namechecks against UN and other lists, 
including that maintained by the Treasury's Office of Foreign 
Assets Controls (OFAC).  Sharaf was not certain a cash 
disclosure system would be effective, but argued that it was 
a step Jordanian Customs could consider.  As for including 
the OFAC list among the lists against which banks should 
check potential account holders, Sharaf agreed to consider 
it.  He saw no difficulty in issuing a circular recommending 
the step; for jurisdictional reasons, he doubted the CBJ 
could make it a regulation.  In both of these areas, Sharaf 
believes that passage of the AML law currently before 
Parliament will give the government the legal and regulatory 
basis on which to move ahead with these and other 
initiatives.  Indeed, he suggested that the Jordanian 
government might want to consider folding the AML law into 
the Anti-terrorism Law package it will be presenting to 
Parliament shortly. 
HALE