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| Speaker: | Robert M. Kimmitt, Deputy secretary, U.S. Department of the Treasury |
|---|---|
| Presider: | Linda Robinson, Senior writer, U.S. News and World Report |
January 9, 2006
Council on Foreign Relations
Council on Foreign Relations
Washington, DC
LINDA ROBINSON: (In progress)—starting on time. I think we’re just about right. I first want to do the housekeeping notes: please turn off your cell phones and any other electronic devices. Tonight’s meeting is on the record and we will end promptly at 7:30. Please do not leave the meeting early as a courtesy to our speaker this evening. I’m Linda Robinson, and our speaker tonight is the deputy secretary of the Treasury, Robert Kimmitt. Many of you many know him; I have to say, I haven’t seen such a distinguished biography in quite a while.
Mr. Kimmitt had served with distinction in just about every capacity of the U.S. government. Just to mention a few highlights, since you all have his biography in front of you, he served during Gulf War I as the undersecretary of State for political affairs and he served as the National Security Council for a decade—from 1976 to ‘85—and he also served in Vietnam with—earning many awards there, and retired as a major general in the U.S. Army. So I would like to welcome you this evening and I’m going to start the program first by opening up with several questions and then we will turn to Q&A promptly at 7:00.
Mr. Secretary, I first want to give you a chance to describe your bailiwick as regards Iraq policy. I think probably many people in the room are not aware that you frequently sit in on National Security Council meetings regarding Iraq, so I’d like to start by giving you a chance to explain your involvement in Iraq matters and, if you wish, although we’re going to drill down into the economic/financial reconstruction issues tonight, I’d like to give you a chance to give kind of an overview of where you see the Iraq situation headed in the light of the December 15th elections, and particularly if you think a national unity government will be formed and what will be the prospects, broadly speaking, for the economy there.
ROBERT KIMMITT: Linda, thank you. Thanks to everybody for coming out on what turned out to be a balmy January evening. I’m sure there are other things you could be doing around Dupont Circle. (Laughter.) I wanted to thank the Council also for conducting this series on Iraq looking forward. I’m not sure that tonight’s discussion would necessarily have taken place 20 years ago because, in my view, at the time that I was starting as a full member of the Council, we didn’t have quite the integrated view of national security and foreign policy that we do today, and the piece that always seemed to get short shrift was the financial/economic component.
To me, I’ve always thought national security was pretty straight forward: the summation of our foreign, defense, and international economic policies resting on a strong intelligence base, and therefore I think it was really quite important when the president put out the strategy for success in Iraq and then later gave his speeches that the economic/financial reconstruction part figured very prominently in that.
Treasury is exceptionally more active in the workings of the National Security Council now than it was when I was there 20 years ago. I think 20 years ago, when I was there, Secretary Baker, David Mulford, I, and others, probably in that entire four years in the second Reagan term, went to a handful of National Security Council meetings each month or even every six months. I go to an average of three NSC principals’ committee or DC meetings a week now, almost always one on Iraq. It has to do both with the positive side of what Treasury does; that is, trying to stand up healthy economies in places like Iraq, Afghanistan, and elsewhere, but also the punitive side; and that is, how do we use the very important and very powerful set of financial sanctions that we have, whether it is in a place like Iraq to try to interdict the courier trade, or in a place like North Korea.
And so I guess the key point that I would want to make and one of the reasons that I had reached out to the Council to suggest this session was that I think you really can’t look at Iraq without looking at the challenging, yet promising economic dimension of the issue in front of us. And Treasury has been involved right from the start; in fact, long before I got to Treasury. I’ve only been back four months now. I see people like Peter McPherson, my successor several times removed, who spent a considerable amount of time in Iraq trying to lay the foundation for the financial system that is moving forward today.
We have people in Iraq right now, both in the Treasury attache’s office, sadly one of only two attache’s office Treasury has overseas today. We’re going to correct that. But right now, Iraq is one of them. We also have people—and those are people primarily in touch with the finance ministry, the central bank, and others working on macroeconomic policy, working on monetary policy, advising the government as it, again, lays the foundation for what we hope, and they certainly intend, will be a self-sustaining market economy.
We also, however, have people form the Internal Revenue Service working on transparency, good governance, on everything from contracting to auditing. And we also have people out of our terrorism finance operation working closing, again, with people who are charged with trying to disrupt the financial flows to the insurgents. We also have a good number of people in the Treasury Department, several of whom are here tonight, working very hard as part of this broader interagency effort.
I think I’ll probably let the questions take us into detail. I would say that obviously the elections in mid-December were the most significant date in the recent history of Iraq, and that process of government formation is on the verge of begetting—they of course have to first get a final certified count. I think that is expected by months end, and then the process laid out will move toward a government.
There is another important date, however, and that was December 23rd. That was the date the board of the International Monetary Fund unanimously approved a standby agreement for Iraq. This not only freed up hundreds of millions of dollars in assistance to Iraq, if needed, but it also was key to moving forward on the Paris Club debt renegotiation. This was effectively an international report card. Now, they subjected themselves to this. They had had what’s called an EPCA—an emergency post-conflict agreement—but they’ve moved now into a formal standby agreement. And certainly on the financial/economic side, we saw that as also a very important part of the foundation for the new government that will be elected and hopefully will move forward sometime this spring.
Why don’t I stop there Linda, and let you—
ROBINSON: Yes, I will cover in some more detail these issues you’ve laid out for us here, and I think particularly on this point. It would be interesting to hear your views about exactly—following on from the standby loan, which is $685 million, what do you foresee in terms of new lending coming? We have of course the debt-forgiveness piece, which has already been negotiated, but in term of new lending, whether from the World Bank, donor countries around the Gulf, or even private capital.
And one reason I think this is so critical: if, as has been reported, the U.S. government is not planning to go back for a very large amount of reconstruction funding when it takes a new budget up to the Hill, then what other major sources of lending and grant money is out there and when and how quickly can it be put together?
KIMMITT: Very good points. First, I would say the $685 million is available to the Iraqis. This has not been lent to them. They see it as a precautionary funding available to them to fall back on. But the point you’ve raised is an important one. When we think of the coalition, I think very often we think of the coalition in military and in security—excuse me—in military and in political terms, but there is also a very important economic/financial dimension to the coalition; and that is, not only has the U.S. provided generous financial and technical support, but so has the European Union as a group—quite a number of members of the European Union, the G7, with the Japanese being particularly generous. Also the Gulf Arab states in the GCC, and then you mentioned also the World Bank in addition to the International Monetary Fund.
I think what I would say right now, we’re in a posture where the month of January and maybe even February is being spent working on ensuring that people disperse and apply the commitments they have made. And we’ve just begun discussions about what might come next not just for others, but also for the U.S., but of course that’s really a discussion that is going to take place with the new government as it forms.
ROBINSON: Let’s go on to one of the key issues, perhaps the key issue involving the Iraqi economy; and that is oil. There have been—of course, the State Department puts out a weekly report giving the amount of oil production and in the last couple months it has been especially low: 1.1 and 1.2 million barrels a day. But even over the summer it was around two million barrels a day and that’s still below that benchmark of 2.5 million barrels a day pre-war. And then of course there was an even higher level pre-Desert Storm: 3.5 million I think was the figure that was being produced then.
Since this is really the key to Iraqi self-sustainment, can you lay out what you foresee in terms of the timetable for getting the production back online, up to those levels, and what you project there.
KIMMITT: I would just stipulate that statistics in Iraq are very difficult to agree upon. And I guess I go back to when we thought we had terrific statistics on the East German economy. It was called the crown jewel of the Warsaw Pact. Well, that was a very tarnished crown on which that jewel sat. I really can’t vouch for—and indeed the numbers I have are quite different for both the pre-Desert Storm and the pre-2003 output, or excuse me, production numbers for the Saddam state-controlled economy. Again, I would throw a little skepticism into the 2.5 and 3.5 numbers. However, the numbers that you cited subsequent to that time, I think the number averaged about 2.1 over the course of 2005, but you’re right—towards the end and right now it has dropped.
I think it has dropped in part because the Iraqis were having success, the insurgents saw that, and they’ve turned a lot of their attention to trying to disrupt those operations. I think the Iraqis, as well as we and other coalition members on the ground, recognize that this is the life-blood of the Iraqi economy. It has to be protected from a security perspective and I think that the effort is being made both from a security, but also an infrastructure development perspective to get back up to a level much closer to the two that was the average for 2005; that is, two million barrels per day.
ROBINSON: And in terms of the policy regarding the use of oil royalties, oil revenues, what is your preferred policy there?
KIMMITT: We don’t have a preferred policy. I mean, essentially the constitution talks about this being an asset for all the people. I think it is going to be one of the very important issues taken up by the new government. Whether it will require a constitutional change is up to the new government, but certainly enacting a petroleum law based on best standards throughout the world we think should be, and I think will be, a very high priority for the new government.
ROBINSON: You mentioned the support that Treasury is giving to ministries and consultations on macroeconomic policy, more broadly I’d like to ask you about the Iraqi governing capacity because that is something in my interviews with officials there they keep coming back to. And there is an issue again with the basic water—the basic services: water, infrastructure, electricity. And in the case of electricity, they are now above the pre-war levels, but not yet up to their target. I think it is 6,000 megawatt production. But there is also the training, the capacity/capability issue, and some of the training programs at least have not gone as well as hoped, but in your time in the saddle, what is your appreciation of the Iraqi governing capacity throughout the government?
KIMMITT: I think the governing capacity is improving steadily, but they will be the first ones to say they have a long way to go. I think it starts with making sure that as the new government is formed that you get the best qualified people that you can at the top of those ministries. For us, not surprisingly, that would include the finance ministry, the planning ministry, the oil ministry, the electricity ministry.
And I can tell you from discussions with the senior leadership there, they recognize how important this is; and not just the capacity, but to ensure that they run these ministries and their operations in as open and transparent a way as possible both because it is the right thing to do, but secondly it is the easiest excuse that someone will use to tell you that they can’t support the Iraqis any further. So it has to be a clean operation. I think they recognize that as a priority and the new government will continue, I think, to give a lot of attention to this issue.
I would say, though, mentioning electricity, one thing we don’t see written that much about is—let’s not forget how much more demand there is. The estimate was in the Saddam time there was about 1.5 million cars in Iraq. There are now three million, so no surprise that there is a demand pressure on the petroleum reserves that they have. They went from about zero to now we estimate they will top five million cell phones. I don’t know if that is good or bad, but they’re certainly moving that direction. And on the electricity side, I was just talking with our attache today, and he said, “Let me just tell you, people didn’t have a lot of appliances or air conditioners before.”
There is a growing sort of consumer expectation that I think is going to tax the system. It does put a challenge on those ministries, but as we take a look at those figures, particularly pre-war/post-war, let’s make sure we look at the demand as well as the supply side.
ROBINSON: Absolutely. I want to acknowledge that, and that has certainly been one thing—as people try to get a handle on the policy tools some people have suggested they actually need measures to either limit the amount households can use or charge them accordingly. And we didn’t mention, I guess, the oil—the gas price subsidy being lifted as one of the measures to get the IMF standby agreement, but that is part of macroeconomic policymaking and presumably they would need to be looking at some measures of that sort. I don’t know if you would agree to that.
KIMMITT: Sure. Well, first of all, they committed to take certain steps in the standby agreement. They’ve taken those steps, just like price increases anyplace, they’ve caused great concern. Those of you who follow Southeast Asia saw that when the Indonesians did that in the middle of last year, they had a lot of protests, even some violence at certain stations. We’ve seen that in Iraq. It seems to have passed by, but let’s look at the statistic: this is 30 percent of their GDP is going towards subsidies; both fuel, food, and other subsidies. There is no doubt that to get this economy moving forward, they’ve got to reduce those subsidies over time. They are committed to two more subsidy reductions if I recall correctly, maybe three, in the standby agreement. I expect that they will continue to live up to their commitments as they have, but certainly that subsidy reform in addition to the petroleum law, in addition to capacity building, in addition to anti-corruption moves are among the most important steps that they need to take from our perspective; that is, from the Treasury perspective, early on.
And again, in conversations with both people who may leave, but also people who are staying like the central bank governor, there is no illusion on their part about the challenge they face, but I would say they’ve got a very good idea of what are the issues that they need to tackle.
ROBINSON: Another issue that I hear about frequently is the demands for U.S. civilian personnel to support the Iraqi government, and often you hear this from the people over there in uniform, and they are looking over their shoulder at their civilian counterparts, and I know in the case of the Treasury attache, I think he has been there two full years, but there has been some issue of a musical chairs, where people come and go, but also now as they are trying to set up the provincial reconstruction teams, a dearth of civilian personnel, and there is some talk about, at least over at the State Department, do they want to require some of their more experienced people to go over?
And I know the foreign service officers’ union may balk at that, and there are issues involved there, but as the relative importance of these reconstruction and government advisory tasks grows, what do you think is the answer there to filling these shortages?
KIMMITT: Well, I think we at Treasury have not had trouble finding highly qualified, highly motivated people who want to be part of helping build the new Iraq. I might say that I think our friends in military would give us pretty good grades. They asked us to send a liaison down to CENTCOM in Tampa; we did that. We have someone from CENTCOM in our offices. They asked us to send a couple of people out to help, particularly on the courier interdiction side; we’ve sent people out straight away. I think, though, the key point is that type of advisory assistance—and in our area it is called technical advice, technical advisory services—is exceptionally important. We’re doing a good bit now. I think we’re going to have to do more in the future. That was exactly the conversation we had with the Treasury attache today, and that is, how do we find new and more people to go out to provide that assistance?
But I hope over time that we will also see a willingness of other countries to help provide that kind of support, and not just people from the G7 or elsewhere, but particularly some of the Gulf Arab states and others who themselves have gone through transitions in their own economies, I think could be of tremendous assistance. I think again there is a “wait and see” attitude right now till the new government forms, but I would expect in the wake of that that we would see not just, as you mentioned earlier, an additional look at debt forgiveness, outright assistance, financial assistance or loans, but I think technical assistance is going to be very important and, as you also mentioned, not just in the capital but throughout the country.
ROBINSON: I’d like to ask you, before we open this up; you’ve mentioned at a few points the support Treasury is giving to tracking terrorist financing. And I know this is true not only with regard to Iraq, but in the broader counterterrorism effort. I think it is one on the more unusual aspects of what you are doing, but I think also perhaps less attention has been paid to this than is warranted.
There is such focus, and some people who argue an over-amount of attention being paid to the counter-IED, or the trying to prevent the bombs from exploding when that is a very, very difficult thing to do: to get after a bomb once it has been planted. And a more sophisticated counterinsurgency policy, if you will, would look at the other ways of trying to get at insurgents and their activities, and one of them is the money. In my job they always say, do your stories by following the money. What have you found and what are the mechanisms you’ve set up?
KIMMITT: Well, before I came to Treasury—I take it back. When I was last at Treasury, we had an assistant secretary for enforcement and I recall working most closely with that individual when we put economic sanctions in place against Libya after the massacres in the Rome and Vienna airports in December of ‘85. And we put economic sanctions in place in January of ‘86. We also froze, if I recall, something more than $2 billion worth of Qadhafi’s money that eventually was paid out, but we held it for a fairly good period of time, and it really gave us our first look into the underbelly of terrorist financing.
And fast forward to 9/11, I was not in government at the time, but one of the major changes at Treasury subsequent to that time is the creation of an office that is now called the undersecretary for terrorism and financial intelligence. There is an undersecretary, there is an assistant secretary for terrorist financing, an assistant secretary for intelligence. It is an exceptionally important part of what we do. We use authorities going back—and, by the way, we still have economic sanctions authority through the Office of Foreign Assets Control, but we now have a Financial Crimes Enforcement Network. And the basic point is this: and that is, the lifeblood of the world’s financial system is a banking system, a financial system, a payment system that people can rely upon and it should not be abused, either by terrorists or drug dealers, or proliferators, or organized crime.
And so although the office is called Terrorism Financing, we look at anybody who wants to abuse the world’s financial system for illicit purposes. Clearly, the insurgents are doing that in Iraq, but it is being done many other places in the world.
ROBINSON: I don’t know, I want to follow up with you, to press you a bit more with regard to Iraq and there obviously has been a great deal said about the role of neighboring countries as conduits as well as centers for finance and logistical support for the insurgents within Iraq, whether they be from the former Saddam regime or the jihadist movements. Can you tell us any more about, specifically on Iraq, what your assistance there is?
KIMMITT: Let’s just say we look for any person or entity that is looking to abuse the financial system for illicit, or in this case dangerous, purposes. I would rather probably not go into particular detail because obviously there is an intelligence component of this in addition to the financial component of it, but I think we’ve put people on notice that we will not tolerate abuse of the financial system. And I will tell you, it is the issue on which I’ve seen no disagreement with any foreign government.
Because if you ask a foreign government to choose between protecting its financial system and its access to the world financial system and a terrorist, proliferating, organized crime, or other activity, they usually make the right choice. And remember, the way that we do this is not the old economic sanctions way of trying to tell companies abroad what they can and cannot do; we just tell people they cannot deal with U.S. banks. We instruct the U.S. bank that it cannot have a correspondent relationship with that particular entity, and effectively that cuts them off from access to the U.S. It cuts them off from access to the dollar-based system that has tentacles out into many areas, including a place like Iraq, but it is really a worldwide effort.
ROBINSON: Great. I’m going to open it up now, and the ground rules here are please wait for the microphone to come to you, then stand, state your name and affiliation, and please keep you questions concise so that as many members as possible can ask questions. Yes, sir?
KIMMITT: Here you go. I think right behind you.
ROBINSON: Three converging on you. (Laughter.)
KIMMITT: You don’t want Arnaud in stereo, believe me. (Laughter.)
QUESTIONER: Arnaud de Borchgrave, CSIS. Bob, do you have any accurate figures as to how much they have made from oil since the liberation of that country? Like $50 or $60 billion? And do we have a fairly accurate accounting as to where that money went? And secondly how much do we know about the arms contracts that have been awarded by the defense ministry for the purchase of arms from the former Soviet republics, Poland, Ukraine, et cetera.
KIMMITT: Arnaud, I don’t have any information on the last point you raised. Essentially, oil exports are about 90 to 95 percent of their revenues. Their revenues are running, I guess—what?—‘04 about 27, a little lower. Twenty-three. That’s right, there’s donor. Okay, so the bottom line is I would say that the—I’m thinking of the budget figures right now. I was trying sort of get down—my guess is that in ‘04 and ‘05, there would have been an excess of $40 billion in oil revenues generated and I think that we and they have a pretty good idea of where that money went, but some of that money was not accounted for properly. They will admit that. They have reached out. That’s one of the reasons, again, we have some forensics specialists over there helping them both track money that went the wrong direction and try to avoid that in the future.
But this will be an economy for some time that will be based on oil export revenue, but we’d like to see growth in other sectors, particularly agriculture, which we think will be a real growth opportunity for them in the future. I’ll put trade round discussions aside; nonetheless, for the Iraqi people that’s a quite verdant and I think has the foundation for a good economy in that area too.
QUESTIONER: (Off mike.)
KIMMITT: I don’t have any particular information on that. I mean, my guess is that would be out of the ministries of defense and perhaps interior; probably defense. Again, I would imagine our people on the ground have been involved more on the contracting side, but in terms of the detail and with whom their contract, I just don’t have that.
ROBINSON: Georgie Anne?
QUESTIONER: Yes, Georgie Anne Geyer, Universal Press Syndicate. Mr. Ambassador—and I remember you as an excellent ambassador to Germany mostly, but I’m from south side of Chicago and we’re very practical. And I run into people from the contract groups on the streets here, and they say, “God, all we can do is protect ourselves. We can’t do anything. You can’t do anything there.” How can you tell us that there are investments going in there, that things are being developed, that industries are being developed? I hear all the opposite. And with great respect for you, as you know, but how can you possibly have a developing country when you have an insurgency which is going to attack them at every single point?
KIMMITT: Sure. Georgie Anne, I thought I was careful not to overstate certainly the inbound investment part of it. That’s a challenge; there is no question about it. That’s one of the reasons why the central bank and the finance ministry have really focused much more on the macroeconomic side: getting a stable currency, keeping inflation as much under control as possible. I think in many of those areas they’ve done a quite good job, but there is not doubt that the conditions are not ripe yet for the kind of broader foreign investment that we’d like to see be part of their future.
At the same time, I think that they recognize that having an Iraq that is open to foreign investment and having the laws and the procedures and the judicial mechanisms to advance that is an important part of their success in the future. The thing is, you have to be careful about talking about Iraq. I mean, essentially you have 18 provinces and in all but four of them, the security situation is relatively positive enough that we are seeing development: primarily in the north, in the south, and to a lesser degree to the east of Baghdad.
And if you take a look right now—I talked to an investor in London today who is assembling a group of people from the region who are investing in basic infrastructure projects. They’ve got permits out for I think four—there are actually four cement factories being constructed; permits out for another 22. Some good progress has been made on the basic infrastructure. I heard from someone today who just came back from Kuwait that the Kuwaitis were saying that there are now 1,000 trucks a day that cross from Kuwait into southern Iraq. A lot of this is anecdotal and if I did, I did not mean to overstate the investment climate. It is very difficult, but I will also tell you from meetings that I have had just over the past, oh, two and a half months with people from the U.S. energy sector and elsewhere: companies are taking a look. I don’t think that they feel that the time is necessarily ripe right now, but no one wants to miss the opportunity that is there.
And some of that is related, again, to the changes perhaps in the constitution, certainly in the laws that will be expected. But the security situation, I don’t want to minimize that, but again, from what I hear you’re seeing a good bit of development in the north, a growing amount of development, and with it investment, in the south. I think it’s just not yet uniform across the country and that will come over time.
ROBINSON: Yes, sir?
QUESTIONER: Walter Cutler, Meridian International Center. Anybody who goes to the Gulf these days is stuck by how much money there is out there with high price of oil, and you mentioned a greater help from the neighbors. I wonder if you could—and you mentioned everything from loan forgiveness to new loans to grants and so on. I wonder, in looking at those oil rich neighbors, if you could be more specific of what we really hope they might do.
KIMMITT: Well, the Saudi’s made a very generous pledge which was reaffirmed when Secretary Rice met with Foreign Minister Prince Saud in November or December. This was grant aid. There’s been similar grant aid from other of the Gulf Arab states. I think at the end of the day, though, in direct answer to your question, Walt, I’d want to see two things. I think they have to grapple with the issue of debt forgiveness—Saddam-era debt.
And secondly, going back to the question that Linda asked, I think that it would be good if some of the Gulf Arabs could help their brothers in Iraq on some of these very difficult technical assistance points that we were talking about. How do you stand up an oil ministry? What are the considerations they should take into account when they put their petroleum law together?
I think, again—you know the region better than just about anyone in the room—they’re not going to move precipitously; that is, the GCC states, but I would expect them to move with some dispatch after the new government is in place. I think between now and then, and I talked with the Iraqis about this, I think the key thing would be to have a good information exchange between technical experts in Iraq and in the Gulf Arab states. Make sure that all the Gulf Arab states know the details of the standby agreement. Make sure they know the details of the Paris Club negations.
And, Linda, just a slight correction: you actually on each phase of the Paris Club have to go into a new negotiation, so the second phase has kicked in now at the SBA. They have to—that is, the Iraqis actually do a separate negotiation within the club. But they’re also making tremendous progress on their commercial debt after meeting in Singapore last year. I think it’s going to be very important.
My dealings in that part of the world, including when you were out there, is you’ve got to get the factual predicate laid before you can make the political point. I think that I would take January or whatever, February, is going to be required before the government is in place to make sure that the technical experts in the Gulf and the growing technical expertise in Iraq have a good exchange of information about exactly what the situation is inside Iraq today.
QUESTIONER: Thank you. I’m Pat Holt and I used to work for the Senate Foreign Relations Committee. I wonder what is going to be the outcome of the sectarian dissent or sectarian divisions that we see in Iraq, which from its beginning has been sort of a phony country. Anyway, the British drew some lines on a map in 1920. And are they going to be able to handle this or is it going to degenerate into a civil war? And we had experience with a civil war in Vietnam, which didn’t come out very well from our point of view. And would it be better to just go away and let them fight among themselves? In a sense, it was Saddam who kept them from having a civil war.
KIMMITT: Well, Pat, of course let’s remind folks that you were on the Senate Foreign Relations Committee in the ‘60s and I guess you are espousing George Aiken’s view: let’s just declare victory and come home. I think at the—
QUESTIONER: Well, there was something to be said for it. (Laughter.)
KIMMITT: We’ll talk Vietnam at another time. I would say in Iraq right now if we look at the trend line, and for me the most important factor in the recent election was the fact that all communities participated and they participated at numbers of voters at higher percentages than we have here in the United States. The final tally is still being put together. It’s going to take some time; probably by the end of this month we’ll know. But there is going to be in the new parliament representation of all of those communities, and I think that they’re very clear-eyed about the fact that you cannot have a government based on exclusion, that this has to be one that recognizes that there are three very important communities who now through the will of the people will be represented in the parliament.
Once that parliament is set, then they begin the process of doing first the selection effectively of their speaker. They then move into the process to set up the presidential council, the prime minister, the ministries. It’s democracy at work, and thank God it is.
QUESTIONER: I’m suspicious of any place—
ROBINSON: Yes—
QUESTIONER: —that takes so damn long to count the votes. (Laughter.)
ROBINSON: For the—
KIMMITT: I thought Georgie Anne was from the south side of Chicago. (Laughter.) I’m suspicious about places that count them before—(laughter.)
QUESTIONER: Raymond Tanter, Georgetown University. Mister Secretary, I was in Doha, Qatar, last month and I met with some Iraqis who said that the infrastructure of Iraq is somewhat at odds with the incentive structure. For example, if you want to get attention from the U.S. government—money or infrastructure protection—blow up the pipeline in your province and then the money starts flowing in and you get protection. He said, how can you change the incentive structure in such a fashion as to help protect the critical infrastructure? I had no answer for him, Mister Secretary.
KIMMITT: Yeah. Ray, I guess I don’t see it quite that way. I mean, I would really have to leave to General Casey and his people how working with the Iraqi—both ministry of defense, ministry of interior—they allocate their resources for the protection of critical infrastructure. All I know is it is a very high priority and, you know, of course their goal is not to react after something has been blown up, but to keep it from being blown up.
With regard to the incentive, the incentive ultimately is—going back to what the constitution says, this is an asset for all the people. And at the end of the day, I think it’s going to be when the people think that they have an individual very personal stake in the success of a unified multi-cultural multi-secretary in Iraq that we’re going to see support for the insurgency begin to diminish. And I think part of that is a security question, but I think tackling some of these issues that we’ve discussed today in the wake of the formation of the new government, particularly the new petroleum law, the question of the center versus the regions, how that’s going to play, is really going to be quite important, because at the end of the day I don’t think people are going to look too kindly upon insurgents blowing up their assets—the people’s assets.
Right now it might not yet be fully perceived coming from decades of tyranny and a socialist statist style, but I think once they begin to see that these flows flow to their advantage, I think we’re going to see a diminution. But I actually haven’t seen that sort of perverse relationship that was described to you.
QUESTIONER: Bob, Jacques Klein, Princeton University. Now, we know Iraq has the oil resources: 350 billion barrels, several hundred years’ worth. They can pump 3 million barrels a day at a very cheap price. Sulfur content is low. And oil is always going to be called either the devil’s excrement or the people’s patrimony. How does one make it the people’s patrimony? How do you define some kind of national structure which sets 50 percent for reconstruction, 20 percent for the people of Iraq? Because Alaska has done of this and it’s very popular. And then education and then X amount of dollars for provinces, et cetera. There must be—because I think that is the one legacy we could leave in Iraq: that an Iraqi ten years from now says, ultimately the American government helped structure this, so we actually are participating and getting part of our natural patrimony.
KIMMITT: Sure.
QUESTIONER: Is that feasible?
KIMMITT: I certainly hope so. It’s certainly a major part of our effort working with our colleagues, particularly at the Department of Energy. I think that you’re also seeing some direction conversations between U.S. and other countries in the energy sector with the Iraqis about precisely that subject. As I said to Walter Cutler, I’d like to see more of that kind of dialogue with not only the Gulf Arab states but other OPEC countries throughout the world.
I think that the Iraqis need to learn from other people’s experiences, maybe the Norwegians, maybe the Alaskan experience, and really try to come up with something that is right not just in macroeconomic, but, as you said, also in sociopolitical terms. And I think that certainly in the discussions that we’ve had they recognize how important that is. I think there are limits on what could be done during the transitional period. I can’t imagine in the economic side that there’s any more important issue that the new government faces, which is one of the reasons why, again, in the energy, electricity, planning, finance ministries I think it’s going to be very important to get the very best people we can find. That’s not to say we shouldn’t have important people at the foreign ministry and defense ministry, the interior ministry. That ministerial capacity-building I think is very important across the way, but at the end of the day, we’ve just got to make sure that the economic financial component gets a very high priority in terms of personnel.
ROBINSON: Yes?
QUESTIONER: Whitney Debevoise from Arnold and Porter. What can you tell us about the financial system in Iraq, and in particular were the external debts of Rafadon (ph) and Rashid (ph), the state-owned banks, included in the successful London Club exercise in December, and are these institutions seen as bones of contention as the Kurds and the Shi’ites and the Sunnis struggle to reach a political solution?
KIMMITT: Whitney, I think that the financial system—really, setting up a credible and viable payment system, is certainly for the central bank and the finance ministry an exceptionally high priority, and that would include deciding what to do with what is largely a legacy state-owned financial environment. This was something that was very much part of the discussions between the IMF and the government. I talked with the central bank governor just today actually on a range of topics, but this is clearly very much on his mind; and that is, how does he move this system over time to one that is as private as possible, recognizing the important government interests at stake during the transition.
I don’t have a specific detail on the—I mean, a specific answer on the London Club question that you asked, but I will just tell you the need to move toward a market-based, private sector payments and financial system is I would say in the financial world directly a very high priority for them.
ROBINSON: Yes, the woman in green.
QUESTIONER: (Inaudible), Georgetown University. Bob, could you say a word about the oil at Kirkuk and how you see that issue of who’s going to control it, developing?
KIMMITT: Well, I think there it is less a security issue as it is elsewhere and more a question of transport and how that oil would get out of the country. It is something that again right now I think is under review, but I think there’s a recognition that it’s going to have to be part of the overall structure that is decided with regard to the oil asset.
Again, there are some people who are arguing that there are certain authorities that already exist at the provincial level. Others say, no, that’s been reserved for the central level. I think most people are saying, no, that is a question still to be decided. And I think, again, whether it’s in the north in Kirkuk or in the south, I think any final decisions are going to have to await the new petroleum law. But in the interim, I think even in the north some of the infrastructure upgrades, and particularly the upgrade to transport systems, is work that can be done now.
QUESTIONER: Jim Hoagland, Washington Post. Bob, could you talk about the factors that went into the decision not to seek reconstruction funds for the coming year? And secondly, could you expand a little bit also on your very interesting remarks about what needs to be done to attract foreign investment once the security situation is stabilized? On oil in particular, is it your impression from your discussions with Iraqi officials that there is a willingness on their part to have foreign companies come in with oil investments in a significant way, and what kind of kind of changes to the legal code, the legal status, would that entail?
KIMMITT: I think on the first, Jim, I’ll take a pass because the president will be putting his budget out the first week in February and I think it’d be better that I just not comment at this particular point, but the fact is we’re going to remain engaged in Iraq. We’re looking for new forums of engagement, as we discussed, maybe with more technical assistance. There might be more funds that flow through the Embassy, through traditional AID accounts and so forth, but as to decision-making and results, I think I’ll defer till February on that.
On the second point though, certainly the finance minister and the Central Bank minister, the planning minister, are thinking very hard about the kinds of steps that would be needed to have foreign investors on a broader scale come take a firsthand look at what opportunities might be in Iraq. I think that that is not just in the petroleum sector, although that’s very important because of the compromise that was reached at the time the constitution was put together, the fact that the petroleum law was delayed until the permanent government was in place, but it also does come down to the whole judicial system, dispute resolution, goes to openness and transparency and predictability—the same kinds of things that investors look for anywhere; that is, what is the return on investment, how can I protect that investment, if there’s a dispute what will be my means for redress. I think that whole range of issues is being looked at.
It actually goes back to the very early days, even back during the CPA time, when a lot of advice was coming in about that. And there has been foreign investment coming in but not yet at the levels that they’ll need for that to become the important part of their economy that we would expect to see it in the future.
I also think, as I said, the payments, the finance system, is going to have to be significantly updated and, again, the economy is moving in a direction where that bulk of state-owned banks over time is going to be out of step with where they want to take their economy, so they’re going to have to look at what they’re going to do to privatize those. But also there still is a large inventory of state-owned enterprises themselves that need to go through a transition. Might that create some opportunities for investors? I think a lot of the questions there will be the questions that have been seen in former Eastern Europe when people tried to go in and make investments. Right now, more of the investments that are being seen are greenfield investments on the infrastructure side. As I said, I think the number is four on the cement factory side. Is that correct? And I know that there was just a permit put out for another 22 cement factories; 35 bidders came in. So not surprisingly, it’s starting from the ground level, literally, the infrastructure level up. But right now it’s been more on the Greenfield side.
I think that certainly the government officials we’ve been dealing with are very open to foreign investment, certainly discussing things with foreign investors. They just don’t have that long-term legal authority to be making decisions, particularly the changes and so forth in the law that will be required. We’re learning a lot though from American investors coming back letting us know what they’re suggesting the government would be needed for them to come in. I think that dialogue will not only continue but intensify once we have a government in place.
ROBINSON: I believe I missed a question up here. Sir?
QUESTIONER: I’m Jim Turner from the Department of Energy. I was wondering if you could address what happened with the employment situation—the indigenous employment situation in 2005 and where do you see it going in the next year or two? Because it’s a little difficult to see an idol young man or young woman taking the assets of Iraq or envisioning them as something that they have a stake in.
KIMMITT: That’s true in any sort of post-totalitarian economy. All these economies that we saw during the Cold War period that were full employment economies were really bogus employment economies in many respects. And I think that the statistics that I have seen suggested that unemployment even in Saddam’s time was up around 60 percent. Of course, he kept it from being a problem using ruthless, non-democratic means. I think the employment right now is much lower than it should be. Unemployment is much too high. Again, it is uneven. You’re going to see better figures in the north than in the south, better in the south than in the central part of the country. But I think Ambassador Khalilzad in a piece that he did today had it right; and that is, the measure of success shouldn’t be how much aid goes in but how many productive enterprises can be established that create jobs over time for particularly these young people.
And again, young people without jobs have been prime targets for terrorists and extremists the world over for quite some time. I think that the new, or certainly the current Iraqi government, the new Iraqi government, certainly we and others, recognize how important it is to get people of the street and into productive employment. So it’s a problem, but over time I think they’re going to have to make some of those difficult decisions that I talked about earlier. They’re going to have to be cutting some of the fuel and other subsidies to be able to get money back into the economy that they can put into more productive investment purposes, both for the government and for the people more broadly. I think they recognize that, and we’ll be working alongside them to try to get it done.
ROBINSON: Yes, in back here.
QUESTIONER: (Inaudible)—the role of the U.S. military—Peter McPherson, running a large public university association. The role of the military and lessons we have learned in Iraq and Afghanistan where they’re—they’ve really been involved in what historically we might have called economic assistance—emergency care. The currency conversion couldn’t have occurred without them not just providing security, but really doing a bunch of it, but yet there seems to be real sometime—not just more of the confusion, disputes, in places like Afghanistan between the military and the AID/State role, what lessons—DOD seems like they’re interested in kind of permanently playing a more—a role in nation-building. What lessons have we learned about how to sort that out?
KIMMITT: Well, I think the lesson—the most important lesson is that you need effective interagency groups both around the table and the situation room at the White House and around an ambassadors’ table, whether it be in Baghdad, Kabul, or elsewhere. What I see, Peter—again, I’ve been there just a short while—is a very, very strong working relationship between our ambassadors and country teams both—and—excuse me—in Kabul and in Baghdad with the military commanders on the ground. And when we have meetings in the situation room and have video conference capability with the people in the field, almost invariably we’ve got the ambassador and the senior commander sort of shoulder to shoulder talking about issues in their own areas of responsibilities. But as you said, there’s quite a bit of overlap. I see much more of that than I did the last time I was in government over ten years ago where it happened at the most senior levels, but I don’t think really worked its way down to the command and ambassadorial or country-team/embassy level. Again, I don’t think we’re the only agency that has people out in the commands, CENTCOM and elsewhere, and certainly our people in Baghdad work exceptionally—our people, Treasury people, work exceptionally closely with the military in all three of those functions that I mentioned to you.
So I think it really comes with a recognition that it has to work at the top at the policy level, but it has to permeate down both through the command and embassy level, at least in those two circumstances that you mentioned; that is, Afghanistan and Iraq. I think it’s working well now. But I know, too, that the secretary of State has been given some new responsibilities about sort of the post-conflict reconstruction and helping these countries stand up in a democratic free-market way.
I don’t sense in the wake of that any lessening of participation on the part of the military in that effort. To the contrary, I think both in the embassies and the commands there’s a recognition that it’s either going to work on an interagency basis or it’s not going to work at all. And I would just say historically in the military in the ‘80s—mid-‘80s we went through the Goldwater-Nichols process that produced jointness. That was very important. You can’t get promoted to general or flag officer rank now without having a joint command. And that is so accepted, so ingrained in the military—I think for military and diplomatic officers of the future the real test of whether they should move to the top of their profession is not just are they good in what they do, are they good in a joint—that is, inside the department—environment, but how well do they operate in the interagency and in the international capacity? We’re just starting to develop a new generation of people who are really good at that, but it’s going to take years until it becomes as ingrained as jointness is in the Pentagon.
ROBINSON: Well, with that I’d like to thank you. And I think he’s done a marvelous job, Bob, for addressing issues when we don’t yet have a government in place and there is a huge job of transforming a statist economy, so thanks for coming and sharing your thoughts.
KIMMITT: Thank you.
ROBINSON: Thank you.
(Applause.)
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