ITALY'S DEVELOPMENT ASSISTANCE IN DECLINE

UNCLAS SECTION 01 OF 03 ROME 000583

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/WE, EUR/ERA, EB/IFD/ODF
USEU FOR PATRICIA LERNER
PARIS FOR USOECD

E.O. 12958: N/A
TAGS: EAID ECON EFIN IT IRAQI FREEDOM AFGHANISTAN
SUBJECT: ITALY'S DEVELOPMENT ASSISTANCE IN DECLINE

REF: A. ROME 117

B. ROME 28

C. ROME 27

SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION.


1. (U) SUMMARY: In view of Italy's extraordinary 27.6% cut
in 2006 foreign assistance from 2005 levels, DCM called on
Guiseppe Deodato, Ministry of Foreign Affairs (MFA) Director
General for Development, recently to hear his views and
ensure continued good cooperation on development assistance.


2. (SBU) Deodato said new funding for Iraq reconstruction
would be handled by the MFA's Middle East Office, expressed
dismay over poor coordination between the EU's foreign
assistance programs and its member states' foreign assistance
programs, and identified Italy's priorities for assistance,
including Sudan, Somalia, and North Africa. Despite
declining resources, Italy has so far delivered on Iraq: all
but but five million of its Madrid pledge for Iraq has been
disbursed. On Afghanistan, the GOI plans to fulfill its
Berlin commitments of 145 million euros over three years (ref
C). However Italy's shrinking budget allocation for
development is a worrisome trend that could affect it's
ability to maintain its current role in international
affairs. END SUMMARY.

Background: A Casualty of a Weak Economy
--------------


3. (U) The slashed development budget is part of the
continuing downward spiral of Italy's foreign assistance
budget, which has declined in tandem with the stalled Italian
economy (ref B). The MFA's Development Cooperation Office,
which Deodato heads, has also suffered from a loss of
confidence by the Italian Parliament because of a corruption
scandal in the nineties. Since the MFA established tight
budgetary and accountability controls to counter possible
corruption, the Development Cooperation's disbursements have
drastically slowed. As a result, the Parliament has made
the Protezione Civile, originally an agency established to
handle domestic national disasters and emergencies, the
conduit to disburse funds rapidly for international
disasters.


4. (U) Italy, which once posted a 0.42% of GDP assistance
budget, is in the unenviable position of announcing this year
that the combination of the foreign assistance budget and the
Paris Club debt relief for 2006 totals only 0.12% of Italy's
GDP, one-third of the EU average of 0.36%, or 400 million
euros in 2006 versus 552.6 million in 2005. No decisions
have yet been made on where the cuts will be made. Italy has
promised to honor its commitments in Afghanistan.


5. (U) On Iraq, at a press conference February 3, MFA
spokesman Pasquale Terracciano said Italy's focus in Iraq
during the first semester of 2006 will be to progressively
reduce its military presence and increase economic
reconstruction and democratic institutions assistance. The
Parliament passed a decree February 10, which included
continued support for Iraq through June 30, 2006. Italy's
strategy will be to focus on three areas: Baghdad, Kurdistan,
and Dhi Qar Province; Italy has earmarked half its allotment
for Dhi Qar. Institution-building initiatives will focus on
the health sector and on infrastructure (water and
transportation),and its training and institution-building
projects will focus on federalism, the electoral process, and
combating corruption. In the health sector, the GOI and the
Italian Red Cross have devised a plan to reorganize the
health sector and rehabilitate hospitals and clinics in
Baghdad and Dhi Qar. In addition, under MFA Coordination,
the Italy-based Mediterranean Institute for Hematology will
provide infant cardiology and cardio-surgery units in
Kurdistan.

Iraq Assistance: Whither the PRT?
--------------


6. (SBU) DCM raised the recent decree passed in Parliament to
authorize funding for continued operations in Iraq through
June 2006. Deodato pointed out that MFA Development
Cooperation has no authority over the portion of funds
designated for reconstruction projects. The funds will be
disbursed by the MFA Director General for the Middle East,
Riccardo Sessa, and will be tied to continuing military
assistance.


7. (SBU) Deodato expressed concern over the continuing
military influence over Iraqi reconstruction priorities. He
said that the application of the Provincial Reconstruction
Team model has had some difficulties in the past, and
recommended a more flexible approach for the use of funds for
the PRT reconstruction projects. He believes a top priority
should be rapid, "grass-roots" assistance to meet Iraqi
needs. Deodato hopes to provide credit to Iraq; but after
the 2005 Paris Club debt cancellation, funds available for
loans have been reduced because the rotating loan fund at the
Ministry of Finance has not been replenished.

Focus on Horn of Africa, Mediterranean Countries
-------------- ---


8. (SBU) Deodato said other Development Cooperation
priorities include Somalia and the Ethiopia-Eritrea Conflict.
He noted that four years ago, Eritrea expelled the Italian
Ambassador at the time. He compared Eritrea's President
Afewerki to Libya's Muammar Al-Qaddafi and characterized
relationships between Italy and Eritrea as strained. Despite
this, Eritrea had requested a 30 million euro assistance
package from Italy; however, Italy will require the return of
property in Eritrea belonging to Italian citizens as a
condition for the assistance to be disbursed. In addition,
Deodato said a new law in Eritrea enacted last month, which
restricts Non-Governmental Organization (NGO) activities, had
essentially cut off the operations of seven Italian NGOs
operating in Eritrea.


9. (SBU) On Somalia, Deodato speculated that Belgium
designated an Ambassador, based in Nairobi, to the
Transitional Federal Government of Somalia (TFG) due to the
strong interest on the part of Louis Michel, former Belgian
Deputy Prime Minister and current European Union Development
and Humanitarian Aid Commissioner. Italy followed suit on
January 5 by designating Ambassador Lanata as Italian
Ambassador to the TFG (ref A). Somalia has asked Italy for
assistance in restructuring its central bank.


10. (SBU) Deodato said Italy had a strong role in the
political negotiations in Sudan, because of Barbara Contini,
Italy's representative in Darfur. Contini stayed in the
region for over a year, and implemented thirty successful
projects. Deodato was particularly critical of the World
Food Program (WFP) feeding program, which feeds over 150,000
Sudanese. He said these people were not war refugees, but
rather were drawn by the WFP free food. He said the
situation in Sudan was "enormously complex" and remained a
top priority for his office.

European Union Development Cooperation and Italy
-------------- ---


11. (SBU) Deodato expressed dismay over coordination
difficulties between the EU and Italy. He said the EU's
development assistance relative to Italy's is "enormous,"
with the EU budgeting some seven billion euros. He also said
that UK development contractors and grantees are able to take
better advantage of EU tenders for foreign assistance
projects, compared to Italian contractors/grantees, given UK
speed and bureaucratic agility.

Comment: Open Door, but Don't Forget Systemic Limitations
-------------- --------------


12. (SBU) Up until now, the Embassy has met either a closed
door or long delay in getting information from the Office of
Development Cooperation. This has meant a lagged response to
Washington requests for information regarding Italy's plans
on foreign assistance to a particular client state. We
believed these delays were due not only to Italy's infernal
red tape, but also to Italy's embarrassment at what was a
shrinking pool of assistance funding, and the consequent
difficulty in establishing Italy's priorities for the many
requests for foreign assistance funding.

13. (SBU) Deodato did confirm that he must triage many
requests from us and others, but he also said Iraq and
Afghanistan were priorities for Italy. Beyond Italy's
programs in both these countries, we believe he and others in
the GOI will continue to steward their limited 2006 funding
carefully and allocate it to foreign assistance projects in
Italy's direct national interest and not necessarily as a
result of request from others, (i.e., the United States) for
support to a developing country in need. END COMMENT
SPOGLI