IRAQ: ITALY LIKELY TO DISPERSE E30 MILLION OF

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001805

SIPDIS


SECDEF FOR OSD/AJTORRES
JOINT STAFF FOR SYIKE

E.O. 12958: DECL: 05/06/2014
TAGS: EAID IT IZ PGOV PREL IRAQI FREEDOM
SUBJECT: IRAQ: ITALY LIKELY TO DISPERSE E30 MILLION OF
MADRID PLEDGE IN 2004

REF: ROME 355

CLASSIFIED BY: ECONOMIC MINISTER-COUNSELOR SCOTT F. KILNER, FOR REASONS
1.5(B)(D).


1. (C) SUMMARY: GIANNI GHISI, DEPUTY DIRECTOR GENERAL OF
DEVELOPMENT COOPERATION AT THE MFA, TOLD ECONOFFS THAT ITALY
WILL DISBURSE EURO 30 MILLION OF ITS EURO 200 MILLION MADRID
PLEDGE IN 2004. EURO 10 MILLION WILL GO TO THE INTERNATIONAL
RECONSTRUCTION FUND FACILITY, WHILE THE REMAINING 20 MILLION
WILL GO TO IRAQ IN THE FORM OF A BILATERAL SOFT LOAN. ITALY
IS CLEARLY FAVORING SOFT LOANS OVER GRANTS AS THE BULK OF ITS
MADRID CONTRIBUTION, ACCORDING TO GHISI. THE GOI, HE SAID,
MIGHT NOT BE ABLE TO DISTRIBUTE THE ENTIRE AMOUNT WITHIN THE
THREE-YEAR SCHEDULE. END SUMMARY.

EURO 10 MILLION FOR FUND FACILITY
--------------


2. (C) ECONOFFS SPOKE RECENTLY WITH GIANNI GHISI, MFA DEPUTY
DIRECTOR GENERAL OF DEVELOPMENT COOPERATION, ABOUT THE LIKELY
STRUCTURE OF THE 2004 DISTRIBUTION OF ITALY'S EURO 200
MILLION MADRID PLEDGE. GHISI SAID THAT THE GOI HAS DECIDED
TO DISPERSE APPROXIMATELY EURO 30 MILLION OF ITS MADRID
PLEDGE IN 2004. ITALY, HE SAID, WILL GIVE EURO 10 MILLION TO
THE UN/WORLD BANK INTERNATIONAL RECONSTRUCTION FUND FACILITY,
ENOUGH TO GIVE ITALY A SEAT ON THE FACILITY DONOR'S COMMITTEE.


3. (C) THE GOI WILL ASK THAT THE UN PORTION OF ITS DONATION
TO THE FACILITY BE CHANNELED TO THE UNITED NATIONS INDUSTRIAL
DEVELOPMENT ORGANIZATION (UNIDO). IN GENERAL, GHISI SAID,
THE GOI WANTS TO FOCUS ITS IRAQ ASSISTANCE ON INDUSTRIAL
REHABILITATION AND PRIVATE-SECTOR DEVELOPMENT. ITALY, HE
SAID, HAS GOOD EXPERIENCE IN SMALL AND MEDIUM BUSINESS
DEVELOPMENT AND THIS EXPERIENCE WILL BE ONE OF THE THEMES OF
ITALY'S CONTRIBUTION TO IRAQ RECONSTRUCTION.

ANOTHER EURO 20 MILLION AS SOFT LOAN
--------------


4. (C) IN ADDITION TO THE EURO 10 MILLION DONATION TO THE
FACILITY, GHISI ADDED, THE GOI WILL OFFER A EURO 20 MILLION
SOFT LOAN TO IRAQ. THE GOI IS PRESENTLY TRYING TO DETERMINE
WHETHER THE PROVISIONAL IRAQI GOVERNMENT WILL ACCEPT SUCH A
SOFT LOAN. DUE TO RESTRICTIONS IN ITALIAN LAWS, THE MFA MAY
HAVE TO WAIT UNTIL AFTER THE JUNE 30 HANDOVER OF SOVEREIGNTY
BEFORE ISSUING THE LOAN, HE EXPLAINED. GHISI DESCRIBED THE
TERMS OF THE PROPOSED LOAN AS "VERY SOFT" WITH A 20-YEAR
GRACE PERIOD ON REPAYMENTS.


5. (C) GHISI SAID THE SALARIES AND OTHER COSTS ASSOCIATED
WITH THE ITALIAN CIVILIAN EXPERTS WORKING IN THE CPA
(CURRENTLY NUMBERING AROUND 40) WOULD NOT/NOT BE COUNTED AS
PART OF THE MADRID DONATION.

MADRID PLEDGE MAY STRETCH TO FOUR YEARS
--------------


6. (C) ITALY, GHISI REMARKED, MUST GIVE THE BULK OF THIS
YEAR'S TRANCHE IN THE FORM OF A SOFT LOAN BECAUSE OF BUDGET
CONSTRAINTS AND PRE-EXISTING AID COMMITMENTS. HE SAID NO
DECISION HAS BEEN MADE ON THE SIZE OF THE 2005 TRANCHE, BUT
INDICATED THAT SOFT LOANS WILL REMAIN THE PREFERRED VEHICLE
FOR FULFILLING ITALY'S MADRID PLEDGE. GHISI EXPRESSED A HOPE
THAT THE GOI WILL PASS A SPECIAL BUDGET FOR IRAQ AID, SIMILAR
TO A SPECIAL BUDGET CREATED PREVIOUSLY FOR THE BALKANS, TO
RELIEVE THE STRAIN ON MFA RESOURCES. GHISI ADDED THAT WHILE
THE GOI REMAINS OFFICIALLY COMMITTED TO DISPERSING THE ENTIRE
EURO 200 MILLION WITHIN THREE YEARS, THIS TIME FRAME IS
PROBABLY UNREALISTIC AND THE DISPERSAL WILL LIKELY TAKE FOUR
YEARS.


7. (C) AMONG THE VARIOUS PROJECTS ITALY HAS PROPOSED FOR IRAQ
(REFTEL),THE BUKHME DAM PROJECT WAS THE MOST LIKELY TO GO
FORWARD, GHISI SAID. GHISI EXPLAINED THAT PART OF ITALY'S
MADRID PLEDGE WILL GO TO FUNDING A FEASIBILITY STUDY FOR THE
BUKHME DAM PROJECT. (NOTE: TELECOM ITALIA'S MED/NAUTILUS
PROJECT TO LINK IRAQ TO ITS INTERNATIONAL FIBER OPTIC
BACKBONE APPEARS UNLIKE TO WIN APPROVAL FROM IRAQI
AUTHORITIES BECAUSE IT WOULD MAKE THE CONNECTION VIA ISRAEL.

ROME 00001805 002 OF 002

L-FOR-FOOD PROGRAM USING SMART
CARD TECHNOLOGY ALSO SEEMS UNLIKELY TO BE IMPLEMENTED. END
NOTE.)

COMMENT
--------------


8. (C) WHILE GHISI APPEARED CONFIDENT THAT ITALY WILL
DISPERSE ITS ENTIRE MADRID PLEDGE, THERE IS STILL
CONSIDERABLE UNCERTAINTY ABOUT THE TIME FRAME AND THE RATIO
OF LOANS TO GRANTS (WITH LOANS THE CLEAR FAVORITE). SO LONG
AS ITALY LACKS A SPECIAL BUDGET FOR IRAQ ASSISTANCE, AND THE
MFA AND OTHER AGENCIES ARE FORCED TO SCRAPE MONEY TOGETHER IN
AN AD-HOC FASHION, ITALY MAY BE VERY SLOW IN DISTRIBUTING THE
ENTIRE EURO 200 MILLION. END COMMENT.

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2004ROME01805 - Classification: CONFIDENTIAL