US embassy cable - 03AMMAN2569

C O N F I D E N T I A L AMMAN 002569 
 
SIPDIS 
 
E.O. 12958: DECL: 05/02/2008 
TAGS: EFIN, EAID, JO 
SUBJECT: JORDAN OFFICIALS REITERATE COMMITMENT ON OIL PRICES 
 
Classified By: Gregory L. Berry, Charge d'Affaires, a.i.  Reasons 1.5 ( 
b) and (d). 
 
1.  (c)  In public and private statements, senior Jordanian 
officials continue to reaffirm their commitment to eliminate 
subsidies and move to a market-based system for distributing 
petroleum products.  In remarks to Jordanian newspaper 
editors published in each of the three Arabic dailies on 
April 29, Prime Minister Abu Ragheb was quoted as saying that 
the government would eliminate petroleum subsidies over a 
three year period until local prices reach global market 
levels.  According to one of the newspapers, al-Destour, Abu 
Ragheb said this would start with a 7% increase in prices in 
2003.  Abu Ragheb also told the editors that he hoped it 
would be possible to continue the 2003 concessional 
oil-for-goods protocol with Iraq. 
 
2.  (c)  In a conversation with the Ambassador on April 29, 
the Prime Minister referred to these comments and reaffirmed 
his commitment to meet IMF deficit reduction targets and 
promises to the United States to eliminate petroleum 
subsidies.  He stressed that the idea of the possible 
continuation of the concessional oil for goods protocol for 
2003 was not in any way a step back from these commitments. 
Finance Minister Marto repeated the same points in a meeting 
with USAID Director and Econ/C on April 30.  He said there 
would be no backing away on these or other economic reforms, 
which "were being made in Jordan's national interest, not the 
United States'." 
 
4.  (c)  Marto said that if Jordan were to receive additional 
concessional support of any kind in 2003, it would be used to 
offset budget shortfalls that are not covered by 
extraordinary assistance from the United States or other 
donors.  He reiterated that those costs were much more severe 
than he had originally foreseen.  Government accounts data 
for April that he had just received from the Central Bank 
showed a fiscal shortfall of over JD 150 million ($210 
million) for the month of April alone.  Marto was very 
surprised by this since he had expected a shortfall of no 
more than the equivalent of $40-50 million.  He pointed out, 
however, that the economic worst case scenarios many had 
feared in the months leading up to the war (collapse of the 
banking system, transport interuptions causing major export 
losses, exhaustion of fuel supplies, etc.) had been avoided. 
 
5.  (c)  Comment:  We remained convinced of the Jordanian 
commitment at the highest levels to eliminate oil subsidies. 
While the worst case scenarios were avoided -- thanks, in 
part, to expectations of U.S. assistance -- it does appear 
that Jordan's budgetary needs as a result of the war are 
greater than first expected.  This is likely due to a deep 
contraction in domestic consumption and investment that began 
in late 2002 as uncertainty grew about whether or not the 
coalition would take military action against the Saddam 
regime.  Raising the the oil-for-goods protocol serves two 
purposes: 1) its concessional element could help meet a 
genuine financial need, and 2) raising the issue serves the 
domestic political purpose of demonstrating to politically 
influential segments of the business community that relied on 
Iraq barter business that it was not Jordan's, but Iraq's, 
decision to end the trade. 
BERRY