US embassy cable - 03AMMAN2752

C O N F I D E N T I A L AMMAN 002752 
 
SIPDIS 
 
TREASURY FOR A/S QUARLES 
NSC FOR EDSON/HADLEY 
STATE FOR A/S BURNS 
 
E.O. 12958: DECL: 05/08/2008 
TAGS: EFIN, EAID, JO 
SUBJECT: SUPPLEMENTAL ESF FOR JORDAN 
 
REF: A. AMMAN 2717 
     B. AMMAN 2569 
     C. AMMAN 2363 AND PREVIOUS 
 
Classified By: AMBASSADOR EDWARD W. GNEHM.  REASONS 1.4 (B) AND (D) 
 
1.  (c)  On May 6, Embassy shared with Ministers Marto and 
Awadallah drafts sent from Washington of the bilateral 
transfer agreement that would govern the $700 million FY03 
emergency supplmental ESF transfer.  The most recent draft 
includes among the policy measures that the GOJ must execute 
prior to disbursing the final $200 million the stipulation 
that the "IMF Executive Board must approve completion of the 
Third Review under Jordan's IMF stand-by agreement and 
endorse a (Jordanian) fiscal and monetary program for 2004." 
Given that the IMF and Jordan are still in the process of 
negotiating a 2003 program and that discussions of a 2004 
program would not even begin until late 2003 (with Board 
approval sometime in 2004) and that the first review has not 
yet been completed, this would have the effect of delaying 
Jordan's use of the $200 million until well into calendar 
year 2004.  The Ministers reiterated to Emboffs that they 
need and are counting on receiving the total $700 million 
before the end of 2003 to meet war related budgetary 
shortfalls that will occur during calendar year 2003. 
 
2.  (c)  As reported in ref c, the government believes it 
will need to cover a war-related shortfall of at least $740 
million in order to meet its 2003 fiscal target agreed with 
the IMF.  Therefore, in order to meet the 2003 target without 
the full amount of U.S. assistance, they would have to cut 
into spending on healthcare, education, and water development 
contained in the 2003 budget.  This is exactly the outcome 
that we were seeking to avoid by making extraordinary 
war-related assistance available to Jordan.  Cutting social 
spending programs would have a severe social impact that 
would affect the broader economic and political stability of 
the country.  This would undermine the positive economic, 
political and social reforms that King Abdullah has been 
personally associated with since he took the throne in 1999. 
 
3.  (c)  At the same time, the government remains solidly 
committed to the plan described to the United States last 
November to raise consumer petroleum prices to world levels 
(ref b and c) and meet other conditions, including to 
continue economic reforms under IMF auspices.  Indeed, they 
have already started the process of raising oil prices.  They 
are also committed to not drawing on the final $200 million 
until the IMF Board has renewed its endorsement of Jordan's 
economic program and the cabinet has approved a three-year 
plan to eliminate oil subsidies.  Furthermore, they are 
committed to expending all sums through the national 
budgetary process. 
 
4.  (c)  Before the IMF staff is even in a position to 
recommend to its Board that it approve a 2003 fiscal and 
monetary program, the IMF will want reassurances from the GOJ 
that unanticipated shortfalls are covered so that the 
originally budgeted deficit target of 4.3% of GDP is 
attainable.  Without this, the IMF will not be in a position 
to begin discussion of a 2004 program or approve completion 
of IMF reviews under the stand-by arrangement, the first of 
which has not yet taken place.  In essence, Jordan might 
never be able to meet the conditions for using the final $200 
million suggested in the recent draft transfer agreement text. 
 
5.  (c)  Comment:  This issue must be satisfactorily solved 
prior the Secretary of State's visit on May 12.  If not, the 
King will most certainly raise it, introducing a negative 
issue to the agenda and dampening the atmosphere of the 
visit, as a whole.  We recommend that, as the Jordanians 
suggest, the provision in the draft agreement apply to the 
fiscal and monetary program for 2003 that the GOJ is 
currently in the process of discussing with the IMF.  This 
should be finalized and approved by the Executive Board by 
mid-2003, allowing the GOJ access to the full amount it needs 
to cover shortfalls and meet its targets this year and in the 
future, as long as it completes the other three measures 
listed in the transfer agreement. 
GNEHM