Wikileaks: Qatari officials discuss currency, sovereign wealth funds, investment, and Iran with Secretary Paulson



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Reference ID Created Released Classification Origin
08DOHA422 2008-06-04 09:13 2011-08-30 01:44 CONFIDENTIAL Embassy Doha
DE RUEHDO #0422/01 1560913
P 040913Z JUN 08
	C O N F I D E N T I A L SECTION 01 OF 03 DOHA 000422 
E.O. 12958: DECL: 06/03/2018 
Classified By: Charge d'Affaires Michael A. Ratney, 
for reasons 1.4 (b) and (d). 
1. (C) Treasury Secretary Henry Paulson visited Qatar May 31 
) June 1 for meetings with Prime Minister/Foreign Minister 
Sheikh Hamad bin Jassim Al Thani, Finance Minister Yousef 
Hussein Kamal, and Central Bank Governor Sheikh Abdulla bin 
Saud Al Thani.  All three officials told Secretary Paulson 
that Qatar has no plans to abandon the dollar peg or to 
revalue its currency; expressed concern about IMF-developed 
guidelines for Sovereign Wealth Funds; and discussed Qatar's 
primary economic challenge - dealing with an high rate of 
inflation.  Secretary Paulson was joined in the meetings by 
Under Secretary for International Affairs David McCormick, 
Under Secretary for Terrorism and Financial Intelligence 
Stuart Levey, Chief of Staff Jim Wilkinson, and Charge. 
2. (C) On the dollar peg, MinFin Kamal said Qatar is not 
going to change anything ) "not today, not tomorrow, and not 
in the coming years." Kamal noted that Qatar is not going to 
change its mind.  In the past, he added, there had been 
arguments about the desirability of revaluing or abandoning 
the peg.  But Kuwait switched to a basket of currencies while 
Qatar did not, yet there has been no significant difference 
in inflation levels between the two countries. 
3. (C) Kamal remarked that most of the products imported into 
Qatar, even Japanese cars, are priced in dollars, and there 
has been no change in those prices over the past year.  He 
considers the dollar's depreciation a short-term phenomenon. 
Secretary Paulson concurred with Kamal,s view that the peg 
had little impact on inflation. 
4. (C) On inflation, Kamal said it was imported building 
materials, such as aggregate, that was now really driving 
Qatar's inflation, which he put at 13.7 percent.  The 
shortage of jetties at the port was slowing imports and 
driving up prices.  Kamal said the cost of building an LNG 
liquefaction train has tripled in the past four years.  What 
used to cost USD one billion and take 26-28 months now costs 
$3 billion and takes 36 months to build.  For raw materials 
that are produced in Qatar, such as sand, steel, the 
government is planning to fix the producers' margins in order 
to control the prices. 
5. (C) Kamal said food prices remain a serious problem.  GCC 
trade ministers met last week to formulate a strategy to 
stabilize food prices, particularly for staples like wheat 
flour, rice, cooking oil, and baby milk.  Qatar, he said, is 
also considering subsidies for certain commodities; the only 
alternative is to increase salaries, but that puts more cash 
into the banking system and fuels inflation further. 
6. (C) Looking to the longer term, Kamal said he had 
personally been traveling to Vietnam, Cambodia, Yemen, Sudan, 
Tajikistan, and elsewhere to look into investing in 
agricultural production for the Qatari market.  Qatar is also 
looking at establishing a company with Brazil and other 
investors to develop technology to grow vegetables with 
limited soil and water.  The system is expensive, but it 
could be used to supply the hotel and catering market in 
Qatar, which already resells the food at much higher prices, 
and take the pressure off the local market.  Qatar is also 
thinking about fish farming. 
7. (C) On Sovereign Wealth Funds (SWFs), Kamal said he 
believes the IMF-proposed rules are "not for everyone," that 
they don't necessarily benefit either the investors or the 
receivers of the investments.  He singled out transparency 
requirements as a particular concern for the Qatar Investment 
Authority (QIA).  The QIA, he said, cannot disclose its asset 
allocation ) this is against GOQ regulations.  Only five or 
six people in Qatar know this information, he explained, and 
even to the IMF, it is only "whispered." 
8. (C) Paulson responded that the U.S. doesn't see SWF 
investments that come to the United States as a threat, but 
as a vote of confidence.  Ultimately, every enlightened 
country will want investment, but everywhere in the world 
there is irrational protectionism and sometimes a backlash 
directed at SWF investments.  What the IMF has put out are 
guidelines, not rules, and the most important aspect of them 
is governance.  Some funds, such as Norway, have a great deal 
of transparency.  But while there will be countries that do 
not disclose their asset allocation, they can still show how 
they are run. 
DOHA 00000422  002 OF 003 
9. (C) Kamal said some countries don't want SWF investments 
in certain sectors for national security reasons.  If that's 
the case, he said, "just tell me" which sectors or companies 
those are.  U/S McCormick explained that the U.S. worries 
that these sort of restrictions are a way for countries to 
put up barriers for economic reasons, but claim this is for 
national security reasons. 
10. (C) Secretary Paulson said that in the two years since 
the Dubai Ports issue, the number of investments from the 
Gulf in the U.S. has doubled, and the dollar value of these 
investments has quadrupled.  We want to continue to encourage 
investment and hope that OECD countries aren't going to be 
listing a lot of industries as strategic. 
11. (C) Kamal closed by telling Secretary Paulson that Qatar 
was starting a USD 2 billion fund to invest in real estate in 
the U.S., using some of the excess liquidity in Qatar's banks 
) a development Paulson welcomed. 
--------------------------------------------- --- 
--------------------------------------------- --- 
12. (C) Qatar's Prime Minister/Foreign Minister Sheikh Hamad 
bin Jassim Al Thani (HBJ) told Secretary Paulson that Qatar 
would like to "stay with the dollar."  He said Qatar had 
studied other options, including a transition to a basket of 
currencies, and a freely floating GCC currency, but decided 
in the end to stick with the dollar.  In fact, HBJ said, only 
that day Qatar had decided to reduce by 20 percent Qatar's 
euro currency holdings and shift them to dollars.  He said he 
believes the euro had peaked and hopes the dollar recovers. 
He nevertheless urged the USG to "do something" quickly to 
reverse the dollar's decline. 
13. (C) Secretary Paulson told HBJ that the dollar peg is 
ultimately a sovereign decision.  He agreed Finance Minister 
Kamal's analysis that a change in the dollar peg would have 
little impact on inflation.  Secretary Paulson said that it's 
important to look at how the U.S. economy is doing longer 
term, adding that he wouldn't bet on the economies of Japan 
or the EU to outperform the U.S. economy in the long run and 
said he expects to see stronger U.S. growth by year end.  A 
strong dollar, he added, is in the U.S. interest.  The U.S. 
is currency experiencing difficulties, but we are working 
through them, and that in the longer term the fundamental 
economic strength of the U.S. economy will be reflected in 
the value of the dollar. 
14. (C) Turning to SWFs, Secretary Paulson explained that he 
chairs the CFIUS committee in the U.S. and, since the Dubai 
Ports issue, there have been no problems with foreign 
investments from the Gulf.  In fact, the number of 
investments in the U.S. from the Gulf has doubled, and the 
dollar value of these investments had increased 400 percent. 
In the U.S., we regard SWFs as an attractive pool of capital. 
 While we recognize the temptation of foreign investors to 
say "if you don't want our money, we'll go somewhere else," 
Secretary Paulson said he believes SWF guidelines, as 
developed by the IMF, give us a tool to fight protectionist 
15. (C) HBJ said Qatar wants to use its wealth to build the 
country's future.  Unlike Russia or China, Qatar has no 
political agenda for its SWF, only to make to make money. 
HBJ said it is important to obey all the rules in each 
country, and Qatar has hired lawyers in the U.S. and 
elsewhere to ensure that Qatar's SWF understands all the laws 
and regulations. 
16. (C) Secretary Paulson raised the FATF advisory on Iran, 
noting that after the UN Security Council Resolution, the 
U.S. is very conscious of what Iran is doing to access the 
international financial system.  HBJ said he is sure this is 
less of a problem in Qatar than elsewhere in the GCC, adding 
that Qatari authorities are monitoring transactions and the 
Qatar Central Bank is very tough.  He said he knows the U.S. 
sends Qatar lists of names and the Central Bank to check, but 
they haven't found any suspect accounts yet.  U/S Levey 
encouraged Qatar to keep checking. 
17. (C) Secretary Paulson closed by discussing with HBJ a new 
clean technology fund the U.S. is working on with other 
governments from the OECD and elsewhere aimed at climate 
change and global warming.  He explained that it will be 
housed at the World Bank and will involve both governmental 
donors and the private sector with the objective of 
DOHA 00000422  003 OF 003 
developing cleaner technologies.  HBJ said he would like to 
learn more about the fund; Secretary Paulson offered to 
follow up. 
--------------------------------------------- -- 
--------------------------------------------- -- 
18. (C) Secretary Paulson's meeting with Qatar's Central Bank 
Governor, Sheikh Abdulla bin Saud Al Thani, focused on 
Qatar's struggle with inflation.  Sheikh Abdulla said the 
major problem is prices for agricultural goods and other 
commodities since that hits Qatar's core inflation rate and 
CPI.  Asked if Qatar had plans to subsidize food, Sheikh 
Abdulla said Qatar does control rent prices, but claimed to 
have no insights into the Finance Ministry's plans on fiscal 
policy.  He said the Central Bank is doing its job with 
monetary policy, particularly with respect to open market 
operations to absorb excess liquidity, including issuing CDs 
and increasing reserve requirements. 
19. (C) Asked about the dollar peg, Sheikh Abdulla said "this 
will not change."  Secretary Paulson noted that the Qatari 
Finance Minister had earlier told him that his analysis is 
that inflation is a result of commodity prices, not the 
declining dollar.  Sheikh Abdulla said that rents and 
construction costs are driving inflation, but Qatar has been 
through cycles like this four times before since the 1970s. 
The real concern, he said, is food prices. 
20. (C) Asked how Qatar planned to deal with the recent UN 
Security Council Resolution on Iran, Sheikh Abdulla said the 
QCB has a good system in place to monitor transactions.  The 
QCB is able to trace all activity through the system on a 
daily basis, including transactions with other banks in 
Qatar, and can determine if anything suspicious is happening. 
 Sheikh Abdulla said the Central Bank has good cooperation 
with U.S. authorities, including the U.S. Federal Reserve, on 
money laundering issues. 
21. (C) Sheikh Abdulla asked about Sovereign Wealth Funds, 
commenting that he didn't completely understand the objective 
of the IMF in this regard.  Secretary Paulson said that while 
there are protectionist sentiments everywhere, the U.S. 
welcomes SWF investments.  In addition, there is a new CFIUS 
law in the U.S. that should be easier to administer.  He 
explained as well that the primary concern is governance, and 
that SWF guidelines are about best practices, and in that 
sense Qatar ) which already manages its SWF professionally - 
should welcome them.  These guidelines should help fight off 
protectionism and convince other countries not to create 
obstacles to Qatar's SWF investments. 
22. (U) Secretary Paulson's delegation has cleared this 
Original source: Wikileaks

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