Cablegate: Minister of Finance Discusses Hold-Up in Government Funds

VZCZCXRO3977
PP RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #4140/01 3571142
ZNR UUUUU ZZH
P 231142Z DEC 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 4304
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0959
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS SECTION 01 OF 02 KABUL 004140

SENSITIVE
SIPDIS

DEPT FOR S/SRAP AND SCA/A
TREASURY FOR LMCDONALD, MNUGENT, JCASAL, AKIFAYAT

E.O. 12958: N/A
TAGS: EFIN EAID PGOV PREL AF
SUBJECT: MINISTER OF FINANCE DISCUSSES HOLD-UP IN GOVERNMENT FUNDS
FOR KEY SERVICES AND HIS HOPE TO REACH HIPC COMPLETION POINT BY THE
LONDON CONFERENCE

REF: KABUL 4137

1. (SBU) Summary: On December 16, Coordinating Director for
Development and Economic Affairs (CDDEA) E. Anthony Wayne met with
Afghan Minister of Finance, Omar Zakhilwal, to discuss why GIRoA has
been slow to release funds for a variety of important services,
including prison guards' wages and fuel for electricity generators
in Kandahar. According to Minister Zakhilwal, the issue has been
Parliament's refusal to pass the 1388 (current) midyear budget
supplement, due to a set of 18 concerns which the Minister called
"trivial." (Update: Minister Zakhilwal responded this week with an
issue-by-issue response to each of Parliament's 18 concerns.
However, passage of the midyear budget supplement remains unlikely
for at least another week, as Parliament is currently questioning
Cabinet nominees in plenary. He subsequently authorized use of $1
million to keep electricity flowing in Kandahar after urgent pleas
from local authorities, us and President Karzai.) In the meeting,
Minister Zakhilwal also discussed the London Conference, noting his
satisfaction with the current agenda and stressing his desire to
conduct the HIPC Completion review before the Conference. End
Summary.

DELAY IN MIDYEAR BUDGET LEADS TO
LACK OF FUNDS FOR KEY SERVICES
---------------------------------

2. (SBU) Ambassador Wayne noted concerns from Kandahar that the
Kandahar diesel generator plant operated by Da Afghanistan Breshna
Sherkat (DABS) could not buy fuel due to a lack of funds and that
electricity shortages were already hitting the major southern city.
Lack of funding has also left the Ministry of Finance of the
Government of the Islamic Republic of Afghanistan (GIRoA) unable to
release funds for the salaries of many Afghan prison guards for
several months. Minister Zakhilwal explained that both issues were
the result of Parliament's delay in approving this year's (1388)
mid-year budget supplement, which contains the allocated funds for
DABS' fuel purchase and for prison guards' wages. (Note: According
to the Afghan solar year calendar, the current year, 1388, runs from
March 21st 2009 through March 20th 2010.)

3. (SBU) The Minister explained that parliament has delayed passage
of the midyear budget supplement due 18 concerns with the document,
each of which Zakhiwal considers "trivial." They include concerns
about municipalities awarding building contracts without prior
Parliament approval (contra to the Procurement Law); the
establishment of several ANP security units (one for highways and
one for the Aynak Copper Mine) without prior Parliament approval;
dissatisfaction with an AFS79 million wheat procurement contract;
and concern about whether specific expenditures should be located on
the development or operational budget. (UPDATE: This week, Minister
Zakhilwal sent a document to Parliament responding issue-by-issue to
each of Parliament's 18 concerns. Parliament is expected to review
the document once the cabinet nominee questions are complete,
possibly early mid-January (reftel). In the interim, responding to
requests from President Karzai, local authorities and us, Zakhilwal
ordered the Budget Department at the Ministry of Finance (MOF) to
reallocate $1 million from other discretionary spending to the fuel
subsidy. However, this is only a short-term solution as daily
Kandahar electricity operations consume approximately 100,000 liters
of diesel fuel, which costs about $100,000. A similar interim plan
for paying prison guards does not yet exist.)

MINISTER SEEKS HIPC COMPLETION REVIEW IN JANUARY
--------------------------------------------- ---

3. (SBU) Ambassador Wayne and Minister Zakhilwal also discussed the
process necessary for GIRoA to satisfy the mining regulations
trigger needed to reach HIPC (Highly Indebted Poor Countries)
completion. (Note: Reaching the HIPC completion point would provide
GIRoA with approximately $1 billion in debt relief. GIROA has made
substantial progress on all of the triggers. However, the World
Bank still needs to sign off on new mining regulations for GIRoA to
satisfy the Mining Trigger (which requires that GIROA implement more
stringent mineral and hydrocarbon regulations). The new regulations
were only given to the World Bank for review in early December.)

4. (SBU) Zakhilwal urged Ambassador Wayne to encourage World Bank
staff to review the mining regulations quickly enough to allow a
HIPC completion point review to take place in January, before the
London Conference. According to Zakhilwal, doing the HIPC review in
January will add to a "spirit of reform" entering into the London
Conference and show the incoming cabinet that there is a reward for
taking tough actions.

5. (SBU) NOTE: The Mission has followed up with World Bank Staff on
the feasibility of reviewing the mining regulations within such a

KABUL 00004140 002 OF 002

short period of time. World Bank staff has responded that they will
likely be able to circulate HIPC documents prior to January 28,
which means that review of HIPC Completion might be possible before
the London Conference. We are consulting with World Bank staff on
the feasibility of this time line and urge Washington agencies to
support this schedule. End Note.

6. (SBU) Ambassador Wayne also followed up on Minister Zakhilwal's
recent request that the USG provide him with information pertaining
to recent allegations against the Minister of Mines. Based on an
assessment provided by embassy elements, Ambassador Wayne noted that
the Mission did not have any specific, actionable information
against the Minister of Mines.

MINISTER SATISFIED WITH LONDON CONFERENCE AGENDA
--------------------------------------------- ---

7. (SBU) Minister Zakhilwal expressed satisfaction with his recent
conversations with the British State Secretary for DFID on the
agenda for the upcoming London Conference. Zakhilwal is working
closely with the British to design the economic components of the
agenda. He said both sides are in agreement that the London
Conference should focus on the "what" or broad goals of reform,
while the Kabul Conference in March focuses on the "how" of reform,
that is, the specific benchmarks to implement these goals.

RICCIARDONE

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