EU Funding takes off in Turkey

UNCLAS SECTION 01 OF 02 ANKARA 000728 SIPDIS TREASURY FOR JONATHAN ROSE SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN EU PGOV TU SUBJECT: EU Funding takes off in Turkey 1.(SBU) Summary: Having allocated about 1 billion euros ($1.3 billion) in grant assistance since 2004 to prepare Turkey for EU membership, EU funding to Turkey is gradually increasing. This amount will reach 654 million euros per year in 2010, and Turkey will start receiving Investment Program Assistance (IPA) of 1 billion euros per year for infrastructure development. Reduction of Turkey's acute regional disparities will continue to be a key goal of EU funding. End Summary. -------------- EU money flowing into Turkey -------------- ¶2. (SBU) In 2007, annual accession-related grants directed to Turkey reached 500 million euro and EIB (European Investment Bank) loans exceeded 2 billion euro. The EU Commission's Dr. Holger Schroeder said at a recent EU conference that assistance to Turkey rose considerably in recent years, growing from 250 million in 2004 to 500 million in 2006, and will increase to 654 million euros by 2010. The main goal of the projects funded by the EU is to prepare Turkey for EU membership. Of the total, 412 million euro was devoted to "administrative capacity building", 395 million euro to social and economic adjustment, 339 million euro to social policy, 291 million euro to infrastructure, energy, telecommunications, transportation and environment, 208 million euro to domestic market, customs union and agriculture, 128 million euro to justice, freedom and security projects. Funded projects are jointly chosen by the EU and the Turkish government. All EU assistance -- except EIB loans -- is in the form of grants. ¶3. (SBU) Since accession is a medium term goal, assistance operates in a medium-term rather than a long-term framework, unlike traditional development assistance. One of the EU's key "instruments" for the pre-accession program is PHARE (Pre-accession reform assistance). Turkey was a beneficiary of PHARE until year end 2006. Beginning in 2007, a new instrument for pre-accession, IPA, came into effect, as part of the EU's 2007-2013 External Aid framework. According to Memduh Akcay, Director of Foreign Economic Relations at Turkish Treasury, Turkey will start receiving 1 billion euro per year as of 2007 under IPA, to be used for infrastructure projects including energy, railway, roads, communication, water, solid waste and environment. Akcay said that this amount of grant assistance is expected to decrease spreads on Government borrowing by 20-30 basis points. -------------- IPA takes off, but Turkey Needs to Chip in -------------- ¶4. (SBU) Turkey will also use IPA funds for transition assistance and institution building, regional and cross-border cooperation, regional development, human resources development and rural development. IPA funds will support policy development as well as preparation for the implementation and management of the Community's cohesion policy. With the introduction of IPA, the emphasis is set to change, with the bulk of funds under regional development being spent on investment projects (with 25% co-funding from national sources),much of this will be on high-cost investments to improve infrastructure in line with priorities identified under the regional development programs. There will also be three so-called "operational programs" for Turkey focusing on transport, the environment and supporting SMEs. The IPA budget for Turkey will not be sufficient to have a major impact across all the areas that need to be addressed. Funds will therefore be concentrated along sector and geographical lines in order to maximize their impact. Under structural funds and under IPA itself, the burden of maintaining the regional balance will fall largely on national authorities given that the EU funds are so limited in relation to Turkey's GDP and population. -------------- -------------- EU Targets Politically-sensitive Regional Disparities -------------- -------------- ¶5. (SBU) Teresa Reeves, sector manager for the Regional Policy Unit of the EU mission in Ankara told us that diminishing inter-regional disparities is a key EU focus. Because of the Kurdish population in South East Turkey and the PKK issue, regional issues are very sensitive in Turkey. Between 2000 and 2006, one third of the EU assistance budget, was spent on regional policies, targeting the regions most in need of assistance. This solidarity drive to help the least favored regions is implemented via "Structural Funds" and the "Cohesion Fund." 6.(SBU) According to Reeves, the enlargement of the EU to 27 member States, has dramatically increased disparity levels across the EU and when Turkey becomes a member, there will be even greater ANKARA 00000728 002 OF 002 disparities. This makes social and economic cohesion projects even more important to prepare for accession. ¶7. (SBU) Turkey has more pronounced regional disparities than any EU member state. According to the EU, per capita GDP in the five poorest regions is between one third and a half of the national average and another seven regions fall below 75% of the national average. In contrast, income in the five richest regions is between 127% and 190% of national average. When other socioeconomic indicators are taken into account, disparities are equally striking in terms of life expectancy, literacy rates, employment rates, access to health services, endowment in infrastructure including sanitation services etc. EU officers also noted that Turkey has taken several important steps to counter regional disparities in recent years. -------------- -------------- Regional Development Agencies for Structural Funds -------------- -------------- ¶8. (SBU) Driven by the accession process, in 2002 Turkey grouped its 81 provinces into 26 territorial units for statistical purposes to align itself with EU norms. This was an important move because it is at this regional level, known as "NUTS II" in EU parlance that structural fund programs are implemented. Turkey prepared a National Development Plan indicating how EU funds would be allocated in the 2004-6 period, outlining the main development priorities and priority regions. These first steps also paved the way for the creation of new governance structures at the regional level, with the longer term view of setting up regional development agencies (DA) in each of the NUTS II regions. A law establishing DAs was adopted in 2006 and the first two agencies were set up in two test areas; Izmir and Adana. In the future, these agencies are expected to play an important role in regional planning and as drivers of the regional economy. ¶11. (SBU) The GAP (South East Anatolia) regional development program had a budget of 47 million euro with no Turkish co-financing. This was the first EU funded action with a specific regional focus, covering the 9 provinces of the GAP region in Turkey's South East, an area that has also been the focus of the Turkey's ambitious dam building program. The EU funded project, however, is essentially a poverty alleviation initiative rather than an integrated regional development program. It had 3 components: Rural Development Grant Scheme (20 million euro); cultural Heritage Grant scheme (12 million euro); and SME grant scheme (2 million euro). The project is due to finish in 2008. The rural development grant schemes aim to assist farmers to improve their skills and farming methods through training, capacity building and investment and to diversify their sources of income generation. Under the cultural heritage component, many building of historical interest in the region have been restored and, most frequently are being used to generate income and employment in the region. Under the SME component, funding has been provided to local GIDEMs (Entrepreneurship Support Centers). ¶12. (SBU) Comment: EU funding is taking off but Turkey has still has a lot to do to be able to receive it. State Planning Agency Deputy U/S and head of the National Development Plan team Lutfu Elvan shared GOT's disappointment with us on the December decision of the EU Council to freeze eight chapters over the Cyprus/Additional Protocol issue. Nevertheless, not only in closing regional disparities, but also on other issues, Turkey is moving forward and the EU has increased its "investment" in Turkey as an accession country. End Comment. WILSON#