On-the-Record Briefing by Deputy Secretary of the Treasury Robert Kimmitt

Effectively, Iraq, as of today, is moving from being a significant aid recipient to a significant development partner. The Stockholm conference, then, is not a pledging conference as were Madrid and Sharm el-Sheikh, but rather a review conference establishing the international compact with Iraq as the basis for this development partnership going forward. I thought Barham Salih made a very important point. This conference is an important part of Iraq’s reengagement with the international community.

I think, too, that economic progress by Iraq has accelerated the timetable laid out in the original Compact document for financial self-sufficiency. But as a number of participants, including Prime Minister Maliki, stated unlocking the potential of the Iraqi economy requires cooperation with and the support of the international community.

Specifically you heard people today not talking about new financial assistance but rather technical assistance, trade, investment and debt relief. Again, as Prime Minister Maliki said, the Iraqis are no longer seeking aid but rather partnership that will produce mutual benefits.

Just a couple of tangible points. We, at the Treasury Department, are doubling the size of our presence in Iraq primarily through our technical assistance teams, who will be working at the Finance Ministry of the Central Bank and elsewhere on a lot of nuts-and-bolts issues like budget formulation, execution, capacity building. I think that's the kind of technical assistance Iraq needs to use their tremendous resources to the benefit of their people in a capable and efficient manner.

The international community, since Sharm el-Sheikh, has signed agreements for over $17 billion worth of debt relief. Russia is the largest, Bulgaria and the Slovenia, Bosnia and Serbia. I thought it was quite interesting today to hear further statements from the Chinese with regard to their plans to move promptly toward debt agreement with the Iraqis. It’s quite significant that the Danish Minister has (inaudible) talked about full debt relief, that is 100 percent forgiveness not simply forgiveness of the (inaudible) terms. But as was noted, more needs to be done and particularly with Iraq’s neighbors, the Gulf states, also Egypt, Jordan and Turkey.

I think I'll probably stop there. The only caution I guess that I would throw out is that the conference is still going on. There will be a closing press conference – I would imagine you'll cover – by the two conference chairs. So I'm giving you an in-progress report. I'll be glad to answer your questions.

Please.

QUESTION: Two things, Mr. Kimmitt. Can you talk -- can you say how many people -- when you double the size of your presence in Iraq, how many that's going to be? And second, the vast majority of whatever it is, the $60 billion left in debt, right, is held by the Arab states, right? The Gulf, if I'm not mistaken.

DEPUTY SECRETARY KIMMITT: I would say a significant majority.

QUESTION: A significant majority, right?

DEPUTY SECRETARY KIMMITT: Mm-hmm.

QUESTION: So could you talk about their reluctance, what they’re telling you about forgiving that debt?

DEPUTY SECRETARY KIMMITT: Sure. The Treasury number will double from 12 to 24, which is oh, probably four to five times as many as we have in any country elsewhere in the world. We also have significant presence in Kabul and in a number of other countries around the world. I might just say as a side note, when I was at the Treasury in the second Reagan term, we had Treasury attachés in dozens of countries. When I came back in the summer of 2005, I found that we were down to just three countries, and that was Iraq, Afghanistan and Japan. We are in the process right now of building up that Treasury overseas presence. We’ve added our first ever attaché, for example, in Beijing. We now have someone in Singapore, someone in Sao Paolo, someone in New Delhi. We have people in Cairo, in Abu Dhabi. We are putting someone into Jerusalem very shortly. We have an attaché in Brussels. And yet, in spite of those other moves that we’re making, we realized that we need to do our part in providing this development partnership assistance that the Iraqis are seeking.

With regard to Gulf Arab states, if you go back to what His Highness Prince Saud the Foreign Minister, said both in New York at a conference preparatory meeting during the UN General Assembly in the Fall of 2006 and then specifically what he said in Sharm el-Sheikh, I think it echoes really what all the Gulf Arab states have said, and that is that they are committed to debt relief according to Paris Club terms. What is going on right now are technical discussions between the Iraqis and each of the Gulf Arab states, including the Saudis, on exactly what the amount of the debt is, whether that would include interest, what are the documents that would support the actual claim. We think it is time to accelerate that process to bring the technical discussions to a close and to follow through on the political commitment made by Prince Saud, representatives also of UAE, Kuwait and other countries to pursue debt relief consistent with Paris Club terms.

QUESTION: Well, what is it? What’s the -- what is it? I mean, they’re stalling. I mean is it because they don’t want to help Maliki because he’s a Shiite and they don’t trust him? Is it because they’re worried that this would pave the way for a U.S. exit? I mean what are they saying?

DEPUTY SECRETARY KIMMITT: What they’re saying is that they’re in discussions with the Iraqis, that those discussions require some additional work at the technical level. The Iraqis have made it quite clear that they are prepared to send technical teams anywhere at any time.

There have been recent discussions at higher levels between the Iraqis and some of their Gulf Arab neighbors. Our view is consistent with the significant debt relief that has already come from all the Paris Club members, the accelerating debt relief including from the non-Paris Club members, whom I mentioned, that it’s time for anyone who is a creditor who has, particularly, made a commitment to reduce that debt to move forward to the decision and to wrap up the technical discussions as promptly as possible.

QUESTION: But when you say “accelerating,” you're implying maybe that they’re being slow for some reason, and we would like to know what the reason might be. What --

DEPUTY SECRETARY KIMMITT: I'm not giving any implication at all. What I'm saying is that there has been significant movement on the debt front. Let’s check the actual figure to be 100 percent safe here. That thus far there has been over $65 billion in debt forgiven both by Paris Club and non-Paris Club members. And the estimated debt remaining is a range of roughly 50 to 80, and a lot of that depends on how exactly how the debt is calculated. That is the process that is going on right now.

QUESTION: Fifty to 80 you said?

QUESTION: Billion?

DEPUTY SECRETARY KIMMITT: Between 50 and 80 billion --

QUESTION: Eighty billion?

DEPUTY SECRETARY KIMMITT: -- remaining. And that process – that is a particularizing the details around that – is a necessary precondition to following through on the commitments that people have made. We would urge all parties to that process to complete the technical discussions, to follow through on the political commitment.

QUESTION: If Iraq doesn’t need the money, why are they -- why are you pushing for -- to get them out of $80 billion in debt?

QUESTION: Yeah, what’s the significance of that?

QUESTION: I mean I'm just not -- I guess I don’t understand. And isn’t that an easy way to tell them -- if you say that, you know, you have to double the size of the Treasury personnel over there to help them with budget formulation and execution, well, hey, I've got a great way to spend some of that money. You have to pay back your debts. Why do we have to --

DEPUTY SECRETARY KIMMITT: First of all, they’ve been doing debt deals with many of their creditors according to Paris Club terms. They are having discussions with their other creditors right now. From a macroeconomic perspective, the reason that you need to get that debt of your balance sheet is that it is more difficult for you to go into the capital markets to borrow. And secondly, it is tougher to attract investment if private investors think that in some investment dispute they could fall behind a sovereign creditor.

So even though at this particular time many of the countries involved have been saying oh, this shouldn’t be a concern because we’re not really pressing the Iraqis to pay or expect them to pay, nonetheless, it has that macroeconomic effect on their ability to operate both in the capital markets and to attract the kind of investment they need.

QUESTION: When do these extra 12 people -- when are they going to show up?

DEPUTY SECRETARY KIMMITT: I would say we’re going to try to move them in over the next six to nine months.

QUESTION: So does that mean -- so do you know how, then, -- and they’ll all be at the Finance Ministry?

DEPUTY SECRETARY KIMMITT: No.

QUESTION: No?

DEPUTY SECRETARY KIMMITT: No. As I say, they’ll be part of the Ambassador’s team to be deployed wherever they can help with those functions on which Treasury provides advice. By the way, that runs the gamut from the Finance Ministry to the Central Bank. We also work closely with Deputy Prime Minister Barham Salih with the Planning Ministry. We also have people in Baghdad working on threat finance issues, making sure that we keep an eye on illicit financial flows.

Ultimately, the Ambassador will make a decision where they’re best be (inaudible). We also, if I recall correctly, have some IRS people there working on some forensic accounting issues and things of that sort.

QUESTION: Does Treasury still run the Secret Service or is that part of DHS?

DEPUTY SECRETARY KIMMITT: They moved.

QUESTION: They moved.

DEPUTY SECRETARY KIMMITT: You're an old Treasury guy like I am. Secret Service moved as part of the DHS reorganization. As you can imagine, since we make the money and they protect the money, we work very closely with them.

QUESTION: What did you say about China in terms of debt relief? Was that actually a pledge for debt relief or what was it?

DEPUTY SECRETARY KIMMITT: Well, actually --

QUESTION: I missed that part. It was in a speech?

DEPUTY SECRETARY KIMMITT: Well, yeah. The Assistant Foreign Minister who spoke today, I think his name was Liu, L-i-u, which I think in Chinese is Liu. It’s my counterpart -- used to be when I was at State. I didn’t get the details on it, and I haven’t seen the prepared speech yet. So I'd refer you to the details of what he said. But Foreign Minister Yang, in Sharm el-Sheikh, had indicated China’s intent to pursue debt relief agreements with Iraq.

What I heard today was specific mention of Chinese companies. Now, that, I believe referred to state-owned enterprises. I haven’t seen the details of it, but I thought it was significant that the Assistant Minister mentioned debt relief again, reiterating Foreign Minister Yang’s statement in Sharm and also mentioned companies specifically.

There have been, over the past year, at least three contacts at senior levels I know between the Iraqis and the Chinese, including an Iraqi delegation that went to Beijing. And so this has been an ongoing process. I took it as a very important statement by the Assistant Minister that that process seems to be proceeding well.

QUESTION: How much money is involved there?

DEPUTY SECRETARY KIMMITT: China. These are all open. I mean (inaudible) -- let’s say close to $10 billion.

QUESTION: But again, just to be clear, he didn’t say we’re going to forgive this debt.

DEPUTY SECRETARY KIMMITT: Well, again, you take a look at what he said, all right, and --

QUESTION: I will.

DEPUTY SECRETARY KIMMITT: -- and ask him the questions. But if I take a look at what people have said at past meetings, either preparatory meetings, some of the UNGA meetings or in Sharm, where for example the Bulgarians said something very similar what the Chinese said today, the Bulgarians have subsequently closed their deal. As have former Yugoslavia and Russia and others. I take those as important steps but we, as well as you, will want to --

QUESTION: You saw it as some kind of indication that they’re open to it or that they are thinking about it?

DEPUTY SECRETARY KIMMITT: Well, first of all, it’s very significant that the Danish Minister said they were looking at 100 percent forgiveness rather than Paris Club terms.

QUESTION: Okay, but I meant the Chinese.

DEPUTY SECRETARY KIMMITT: No. And on the Chinese, again, they first made a public commitment in the statement of their Foreign Minister in Sharm el-Sheikh. I think the reiteration of that statement today, and what I heard that I need to look at, is the mention of companies. Because in the past --

QUESTION: Did you say the companies -- forgive me. What companies would forgive debt owed to them? Why did he mention companies?

DEPUTY SECRETARY KIMMITT: Well, again, I'd like to see the exact wording and maybe see if you could get him to answer it directly. But in the past discussions, my understanding is that there was a segmentation of the debt between official government debt, debt held by state-owned enterprises, and then I think there were some private listed companies. Again, I was listening. He spoke in excellent English. When he mentioned Chinese companies, it seemed to me that he was leaving open a possibility that the debt discussions would include both official government-to-government debt but also the state-owned enterprises. Again, I had asked to get a copy of his speech. I just haven’t seen the exact words yet.

QUESTION: But he reiterated an earlier pledge to do what?

DEPUTY SECRETARY KIMMITT: Yeah. Foreign Minister Yang -- what?

QUESTION: A pledge to do what?

DEPUTY SECRETARY KIMMITT: Basically to forgive Iraqi debt. I can’t recall if Foreign Minister Yang last year, that is at Sharm, mentioned specifically according to Paris Club terms, but they basically said they were going to enter into that process. And it’s a process that has been underway.

QUESTION: The Iranian Foreign Minister talked about Iranian companies investing in Iraq, and I know that you’ve encouraged all countries to do that in Iraq. But you've also encouraged countries not to do business with Iran. So how do you reconcile these things? I mean are you happy with the fact that the Iranians are investing in Iraq? Are they helping the Iraqis? Is it more self-beneficial for them? What’s the deal on that?

DEPUTY SECRETARY KIMMITT: First, look, not we, but the world community has said now in three unanimous Security Council Resolutions is that no company, no bank should do anything to facilitate advancement of Iran’s proliferation program. And the three resolutions are very focused on that, mentioning both individuals, institutions, companies and banks. That really is the focus of what the international community is trying to do right now with sanctions that are targeted at proliferation activities, that are multilateral—that is the UN foundation in which we and other governments working very cooperatively with companies and banks. I don’t have the details. I've heard the same thing that you heard today. I don’t have any details on that. Certainly any activity anywhere in the world, including Iraq, that could have in any way a facilitating effect on the Iranian proliferation program would be prohibited by the UN Security Council Resolutions, and Iraq is a member state of the UN.

QUESTION: (Inaudible) it depends whether these companies are state-owned or private, the Iranian companies who are investing in Iran-- in Iraq. Would that make a difference?

DEPUTY SECRETARY KIMMITT: It doesn’t under the UN Security Council Resolutions. The UN Security Council Resolutions basically say you can provide no assistance to any individual or entity that is facilitating the advancement of the Iranian proliferation program.

QUESTION: Yeah, but as I understand it, this goes for foreign companies who would be doing business with Iran. We’re talking about Iranian companies doing business with Iraq. So in other words Iraq is the recipient, right, not Iran. So I understand that even in that case the Iranian companies can still make money that could be used to further their nuclear program. It’s not very direct, but it’s possible. So if it makes -- you know --

QUESTION: Are you suggesting that --

DEPUTY SECRETARY KIMMITT: I don’t -- I guess I don’t see the contradiction that you're trying to draw. I mean, again, all of us are under UN Security Council instructions with regard to what can and cannot be done with regard to trade with Iran. The U.S. has gone further unilaterally than the UN has, but the UN has focused very much on the proliferation activities. Assuming that Iranian companies are doing business in Iran not inconsistent with the UN Security Council Resolutions, and that is it was contributing to the Iraqi economy in a way it created economic opportunity for the Iraqi people, that I think would be a choice that the Iraqi Government should be free to make. And it wouldn’t be in any way in contradiction with UN Security Council Resolutions.

QUESTION: That's what I was getting at. Because I was thinking in the line of thought that we had before that Iraq would be in violation.

QUESTION: Yeah. Are you worried that Iraq would -- that Iraq’s going to get into an area where they would be violating those resolutions?

DEPUTY SECRETARY KIMMITT: We have had conversations with dozens of countries around the world, including the Iraqis, about our mutual responsibilities under the UN Security Council Resolution, and I think the Iraqi Government, certainly led by the Foreign Minister Zebari, is very well aware of their responsibilities under those UN Security Council Resolutions. And my guess is just as we, any European, Asian or other country would judge activities to make sure that they were consistent with UN Security Council Resolutions across the board, whether they’re UN Security Council Resolutions that apply to Iran, North Korea or others.

MODERATOR: We have time for one more question.

QUESTION: On Saudi Arabia and Kuwait, how much money is --

DEPUTY SECRETARY KIMMITT: The Saudi debt is believed to be in the neighborhood -- the principal of the debt -- a-l of the debt, about $15 billion. The question is is there interest or penalty interest on top of that? That is something under discussion between the technical experts based on documentation that goes back a pretty good distance, that is to the Saddam era.

QUESTION: And Kuwait?

DEPUTY SECRETARY KIMMITT: Kuwait, I would say about half that.

QUESTION: Seven?

DEPUTY SECRETARY KIMMITT: Around eight.

QUESTION: In addition to reparations?

DEPUTY SECRETARY KIMMITT: Reparations are compensation under the UN Security Council Resolution. It’s a separate issue, right. That's just a debt figure.

QUESTION: Right.

QUESTION: In helping Iraq implement its budget process, you want to make sure the money flows everywhere, to Sunnis as well as Shias, to villages. This is the main idea, I take it. Everybody benefits from the Central Government largess. I think the problem has been it’s not flowing to small places, isn’t it?

DEPUTY SECRETARY KIMMITT: First of all, it is the Iraq Government’s responsibility to ensure that they provide the basic services and infrastructure to the people. Our goal is to help them do that effectively. I think that one of the reasons that we put in the Provincial Reconstruction Teams is to make sure that the effort is working both in Baghdad and then throughout the country.

So certainly one of the things that is being looked at most closely is the ability to have the capacity to execute the budget in a way that makes sure that as the money moves from the Finance Ministry through the ministries down to the provinces, that it, indeed, is spent for the purposes intended, the operating side for salaries and things of that sort.

But there’s a very significant increase in their investment budget. The budget this year is a -- just to make sure I've got my figures right since you guys are pinning me down on figures -- in 2008 their budget is $50 billion. That's a 21 percent increase over last year. Of this, $13.2 billion would go toward investment spending, which is 32 percent more than was budgeted last year.

Now the other figure I would give you is that in 2006 the -- well, I'll put it this way. The Government has made substantial improvements in executing its budget. They executed a budget of about 23 billion in 2006. It rose to 27 billion in 2007. And the real focus this year is on executing the budget well, but really producing the results down at the provincial level. And again, our view is that you need assistance, that is capacity building assistance, both in the center and in the provinces.

MODERATOR: Thanks, guys. He has a second meeting.

QUESTION: Can I ask one question on -- before you go on a separate but important topic if you have a second? I wanted to ask you about Secretary Paulson’s trip to the Middle East and the message he’s going to take on high oil prices and the impact it’s having on the U.S. economy and to the Saudis and is (inaudible) pumping enough and --

DEPUTY SECRETARY KIMMITT: Okay, I've been on the road. Dave McCormick, our Under Secretary, gave a long briefing yesterday. I read a good Bloomberg report on that. I think I better stick with that just because I've been out of touch with (inaudible). He leaves tonight. He goes to Saudi Arabia. He goes to Kuwait. He goes to UAE. Dave laid out a number of issues. You’ve raised one. But also the importance of open investment and a number of other issues are going to be raised.

Again, I think Dave’s background briefing is what the Department has laid out at this point. And I think there are press availabilities at every stop. And indeed Andy is just about to leave to join up with the Secretary.

QUESTION: And in fact, I think he might be going to Qatar now instead of Kuwait. I think that ended up being changed.

DEPUTY SECRETARY KIMMITT: Okay.

QUESTION: Have there been any contacts with the Iranians today between the delegations with the Iranians?

DEPUTY SECRETARY KIMMITT: I am glad to say that I'm at the Treasury Department. That's a question for the State Department.

QUESTION: Thank you.

DEPUTY SECRETARY KIMMITT: It was good to see you all. Thanks.

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