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Viewing cable 09KABUL3064, AFGHAN FINANCE MINISTER NOTES PROGRESS

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Reference ID Created Released Classification Origin
09KABUL3064 2009-10-01 13:32 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kabul
VZCZCXRO9110
OO RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHSL RUEHYG
DE RUEHBUL #3064/01 2741332
ZNR UUUUU ZZH
O 011332Z OCT 09 ZDK
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1788
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEHNO/USMISSION USNATO BRUSSELS BE
UNCLAS SECTION 01 OF 02 KABUL 003064 
 
DEPT FOR SCA/FO, SCA/RA, AND SCA/A 
DEPT PASS AID/ANE 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958 N/A 
TAGS: EFIN EAID PREL ETRD PGOV AF
SUBJECT: AFGHAN FINANCE MINISTER NOTES PROGRESS 
ON FISCAL REFORMS TO DEPUTY SECRETARY LEW 
 
KABUL 00003064  001.2 OF 002 
 
 
REFTEL: A) 09 Kabul 1029 
        B) 09 Kabul 2682 
 
1. (SBU) Summary: Finance Minister Omar Zakhilwal presented the 
progress the Afghan Government has made in its fiscal reform 
efforts, noting revenue collections have nearly doubled in 2009. 
The Ministry's revenue action plan and removal of underperforming 
staff have been key factors in this success.  He also briefed Deputy 
Secretary Lew on a major government reorganization plan.  Zakhilwal 
praised USG emphasis on sub-national governance and asked that the 
U.S. and other international donors directly channel more aid 
through the Finance Ministry.  While admitting the serious challenge 
of corruption, he noted the Afghan Government had made progress and 
could responsibly utilize increased USG assistance provided through 
the Finance Ministry.  Zakhilwal reiterated that Afghanistan remains 
committed to concluding a transit trade agreement with Pakistan, but 
asked for USG support against further Pakistani tariff increases. 
End Summary. 
 
2. (SBU) Afghan Finance Minister Zakhilwal, responding to Deputy 
Secretary Lew's question about the current status of reform efforts, 
proudly noted a series of better-than-expected accomplishments.  The 
Afghan Government nearly doubled revenue collection in 2009 and 
increased total revenue by eighty-four percent over the previous 
year's levels.  Authorities collected a total of $290 million in 
customs revenue between March and August, compared with $145 million 
in the same period of 2008.  The Minister described how had replaced 
ineffective Ministry staff and ordered investigation of complaints 
against staff members were fully investigated and action taken. 
 
Restructuring to Increase GIRoA's Presence Outside Kabul 
- - - - - - - - - - - - - - - - - - - - - - - - - - - - 
 
3. (SBU) Zakhilwal expressed satisfaction with most of the GIRoA's 
"civilian surge" paper, but commented it is not clear how assistance 
would be distributed and which GIRoA agencies are included.  He 
thanked the Deputy Secretary for USG commitment to creating 55 
advisory positions in Afghan Government departments.  The MOF is 
developing a restructuring plan and, after receiving President 
Karzai's approval, will present it soon to foreign ambassadors and 
United Nations Special Representative Kai Eide.  The plan calls for 
going from 17 inter-ministerial committees (IMCs), originally 
designed to support implementation of the various Afghanistan 
National Development Strategy (ANDS) sector strategies, down to 
three clusters.  This streamlined structure should boost 
effectiveness and focus in year two of the ANDS, he asserted.  The 
three clusters will be: 1) Agriculture and Rural Development, 
(Agriculture, Rural Development, Water, Counter Narcotics, and 
Finance); 2) Human Resource Development (Education, Higher 
Education, Labor, Women's Affairs, Finance); and 3) Infrastructure 
and Economic Development (Commerce, Transportation, Public Works, 
Power, Mines, Finance).  The Ministry of Finance will oversee 
national coordination. 
 
"We Must Acknowledge Progress on Corruption" 
- - - - - - - - - - - - - - - - - - - - - - 
 
4. (SBU) Commenting that the USG wants to channel more development 
funding through Ministries and local governments, Deputy Secretary 
Lew said the ability to sustain reforms depends on transparency. 
Zakhilwal responded that 20 percent of Afghanistan's foreign aid now 
comes through the Ministry.  Corruption remains a serious concern, 
but the levels have decreased from last year.  The media makes it 
sound twice as bad as it is, and it is important to acknowledge 
progress.  Zakhilwal said the Ministry's corruption hotline 
previously received two to five calls per day; now it receives only 
about one call a week.  Financial managers are less susceptible to 
corruption than police officers, judges, and land managers, he 
maintained. 
 
5. (SBU) The Minister noted that the International Monetary Fund 
concluded Afghan financial management stronger than most developing 
countries and that USAID auditors expressed satisfaction with the 
Ministry's balance sheets.  Deputy Secretary Lew said the USG's 
ability to sustain financing depends on GIRoA's sustained strong 
financial management.  Zakhilwal, in turn, encouraged the Deputy 
Secretary to continue making aid conditional on reform. 
 
Transit Trade: Progress and Roadblocks 
- - - - - - - - - - - - - - - - - - - - 
 
6. (SBU) Deputy Secretary Lew stressed that the transit trade 
agreement remains a top USG priority, but the Government of Pakistan 
had asked to make the talks bilateral rather than trilateral. 
Zakhilwal described three outstanding issues: Pakistan's refusal to 
allow Afghan trucks direct access to the Wagah border crossing 
 
KABUL 00003064  002.2 OF 002 
 
 
between India and Pakistan; Pakistan's distrust of third party 
monitoring; and punitive tariffs that have had a negative impact on 
Afghanistan's economy.  He noted Pakistan had imposed eighteen-fold 
tariff increases on Afghan fruits and vegetables the preceding week 
(ref B) and asked the USG to press Pakistan on this issue.  The 
Deputy Secretary said he had spoken to the Pakistani Foreign and 
Finance ministers while in Islamabad and that he would visit Torkham 
Gate crossing the following day where he would be able to see the 
situation first-hand. (Comment: upon leaving the meeting, the Deputy 
Commerce Minister called the new levies on Afghan produce "clearly 
designed to exploit vulnerable Afghan farmers and exporters" and an 
example of why the Pakistanis don't want the U.S. assistance 
monitoring progress between the two countries. End Comment.) 
 
The Importance of Local Governance 
- - - - - - - - - - - - - - - - - - 
 
7. (SBU) In response to a question by Ambassador Eikenberry on the 
ability of the District Development Plan to boost the capacity of 
local governments, Zakhilwal replied that district governments are 
unable to provide needed services, even though they understand local 
needs better than the central government.  The Minister stated the 
Plan is the most important initiative in the country's 
stabilization. 
 
HIPC and PRGF Moving Forward 
- - - - - - - - - - - - - - - 
 
8. (SBU) Zakhilwal asserted that Afghanistan, has met all conditions 
for full Heavily Indebted Poor Countries (HIPC) debt relief.  He 
asked for U.S. support within the International Monetary Fund and 
World Bank to ensure Afghanistan quickly receives full HIPC status. 
He added that Afghanistan will complete an IMF Poverty Reduction and 
Growth Facility program in March 2010. 
 
Participants: 
U.S.: 
Deputy Secretary Lew 
Ambassador Eikenberry 
Acting USAID Administrator Fulgham 
A/S Richard Verma 
Ambassador E. Anthony Wayne 
 
Afghanistan: 
Minister of Finance Omar Zakhilwal 
Deputy Minister of Finance Gul Sabit 
 
9. (U) This cable was cleared by D(L) staff subsequent to the 
delegation's departure. 
 
EIKENBERRY