US embassy cable - 03AMMAN1774

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 001774 
 
SIPDIS 
 
TFIZ01 FOR EB ACTION OFFICER 
E STAFF FOR SECOR 
TREASURY FOR OASIA--MILLS, CHANG, SIMPSON 
COMMERCE FOR 4520/ITA/MAC/ONE/COBERG 
 
E.O. 12958: DECL: 03/24/2013 
TAGS: EFIN, ETTC, PREL, IZ, JO 
SUBJECT: TFIZ01: JORDAN FREEZE OF IRAQI ASSETS 
 
REF: A) STATE 74249 B) AMMAN 1620 
 
Classified By: A/DCM DOUG SILLIMAN, REASONS 1.5 (b) and (d) 
 
1.  (C) SUMMARY: Central Bank of Jordan (CBJ) officials have 
frozen Government of Iraq (GOI) assets in Jordanian banks 
pending resolution of the conflict in Iraq, and, in addition, 
are keeping a watchful eye on the Jordanian operations of the 
GOI-owned Rafidain Bank.  Banking sector exposure to Oil for 
Food (OFF) letters of credit continues to be high, and Jordan 
hopes an alternative delivery point for OFF goods can be 
established with the help of the UN (REF B).  The Central 
Bank also reports normal business transpiring for the banking 
sector in the first few days of the war.  END SUMMARY 
 
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GOI FUNDS BELONG TO THE IRAQI PEOPLE 
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2.  (C) CBJ Deputy Governor Mohammed Said Shahin confirmed 
March 24 that the Bank issued a confidential memo March 20 
directing Jordanian banks to freeze all GOI accounts until 
further notice.  The memo was coordinated with Prime Minister 
Abul Ragheb and the General Intelligence Directorate (GID). 
Shahin said he called the general managers of each bank to 
personally pass along Governor Toukan's instructions and to 
enjoin them to "keep the memo secret."  He said that he 
followed up with another call to bank officials March 23, 
asking them to call him immediately "with any fishy matters" 
that would suggest withdrawals from other accounts on the 
part of GOI officials.  In line with the points in REF A, 
Shahin emphasized to bankers that it was "in Jordan's 
national interest to safeguard the funds for the Iraqi 
people.  It belongs to them, not to Saddam and his 
entourage." 
 
3.  (C) Shahin stressed to us that while it had the full 
support of the Jordanian government, this was a very 
sensitive matter for the GOJ.  Thus, the Bank was not making 
a public announcement of this action. 
 
4. (C) Shahin also said the CBJ was keeping "a close eye" on 
the Amman branch of the GOI-owned Rafidain Bank, the only 
Iraqi bank with branches outside of Iraq.  He said the branch 
maintains accounts in Jordanian banks on behalf of the GOI 
and its front companies.  Shahin told us the CBJ is allowing 
Rafidain to transfer funds from one Jordanian bank to 
another, but that it cannot move money outside of the system. 
 He hoped that a post-Saddam Rafidain Bank would be 
"energized" to facilitate international commerce and trade 
for a normal Iraq. 
 
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OFF EXPOSURE: STILL HIGH 
------------------------ 
 
5.  (C) Shahin said the Central Bank of Iraq had no accounts 
with the CBJ and that the only relationship between the two 
was through the implementation of the bilateral oil for goods 
barter protocol.  He added that recent protocol trade was 
"not what it used to be."  He said that the CBJ worked 
diligently with the Ministry of Trade and Industry and the 
Customs Directorate to ensure proper valuation of protocol 
shipments, as over-valuation had been a problem. 
 
6.  (C) In a separate conversation, CBJ Director of Banking 
Supervision Mai Khamis estimated current exposure of the 
Jordanian banking sector to UN-authorized exports to Iraq 
under the OFF program at about $250 million.  She said she 
had no breakdown on how much of that exposure was related to 
trade currently held up by the conflict.  She requested 
Embassy assistance in determining the status of a GOJ request 
of the UN to permit OFF deliveries to the Port of Aqaba and 
stationing of a Cotechna team in Jordan pending resolution of 
hostilities (REF B). 
 
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BANKS REPORT BUSINESS AS USUAL 
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7.  (C) Shahin said the CBJ was monitoring bank activity 
daily and that bank business had been normal since the war 
began.  He said Jordanian banks had not faced problems 
clearing international transactions, attributing this to the 
high capital adequacy level of Jordanian banks, currently 
around 20% on average.  Shahin added that the sector has 
approximately $4.7 billion in foreign currency deposits 
abroad, which also made foreign banks comfortable dealing 
with Jordanian counterparts.  Shahin said the Bank had 
brought cash into the country earlier this month in case it 
was needed to meet customer demand for banknotes. 
 
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COMMENT 
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8.  (C) There continue to be no reports of unusual demands 
for foreign currencies or of efforts to transfer funds 
outside of Jordan.  Healthy bank capitalization and strong 
foreign reserves, should, for now, help the sector weather 
the storm.  However, a longer-than expected conflict will 
require the continued attention and diligence of the CBJ, and 
anything we can to support that effort will be in our 
interests as much as in the interest of the Government of 
Jordan. 
 
 
GNEHM