TAKING STOCK OF EUROPEAN COMMISSION ASSISTANCE IN

C O N F I D E N T I A L SECTION 01 OF 04 BRUSSELS 000560 SIPDIS SIPDIS STATE FOR SCA; ISLAMABAD FOR AARNES; USAID FOR ODP/BMD NNICHOLSON E.O. 12958: DECL: 04/14/2018 TAGS: PREL PGOV EAID EUN PK SUBJECT: TAKING STOCK OF EUROPEAN COMMISSION ASSISTANCE IN PAKISTAN REF: STATE 29860 BRUSSELS 00000560 001.2 OF 004 Classified By: PolMinCouns Larry Wohlers, reasons 1.4 (b) and (d) ¶1. (C) SUMMARY: The dramatic increase in annual European Commission (EC) assistance from EUR 19 million per year (2002-2006) to EUR 50 million (2007-2010) underscores the EC's deepening commitment to development in Pakistan. Programs are implemented through a mix of project and sector support, including direct budget support. Programs focus on two geographic areas (Baluchistan and the Northwest Frontier Province) and two sectors (education and rural development). In the EC's view, recent elections provide a useful opportunity to strengthen ties with a new civilian government and strengthen institutions. EC counterparts also affirm a strong interest in donor coordination, while noting that the European Parliament precludes using development assistance for "counter terrorism purposes." END SUMMARY. EU POLICY REVIEW -------------- ¶2. (U) The emergence of a new set of civilian leaders in Pakistan has sparked debate in the halls of the European institutions and throughout the wider Brussels policy community. One influential think tank recently called on the EU to use the relatively modest ties cultivated when General Musharraf wore a military uniform to its advantage, arguing that this low profile gives the EU more credibility with the new civilian leaders emerging after the recent Pakistan elections. ¶3. (SBU) Current EU policy approaches to Pakistan were established in 2006 and adjusted in 2007. Among other things, the approach includes a structured political dialogue on issues such as terrorism and nuclear proliferation. In addition, a joint commission meets annually to review the EU-Pakistan relationship in a variety of areas, including development cooperation, trade, human rights and democracy and governance. A fifth sub group on science and technology has not yet convened. Trade is emerging as a potentially important item, especially because Pakistan will be left as the only South Asian country without a trade agreement with the EU once the EU-India trade agreement, now being negotiated, is finalized and signed. Accordingly, the EU is looking for ways to expand trade relations with Pakistan, with the next step being to study Pakistan,s regional trade links vis a vis the EU. ¶4. (C) According to Commission contacts, the EU,s working level group on Asia, comprised of representatives from all 27 member states, met April 10 to discuss whether the EU,s policy approaches needed to be updated again in light of the recent elections. The group decided the policy did not need to be updated, but determined that the Council Secretariat and Commission would co-draft a paper with recommendations on how to implement that policy in light of recent changes in government. The April 28 GAERC will approve that paper and issue conclusions based on it. The recomendations call on the EU to continue contacts between the EU and Pakistan; fully exploit the frameworks in place for dialogue and cooperation and explore whether new issues (such as regional issues) could be added to those frameworks for discussion. ¶5. (U) There are several opportunities for the EU to engage with the Pakistan government in the coming months. Most notably, Javier Solana, the High Representative for Common Foreign and Security Policy, is scheduled to visit Pakistan on April 22. In addition, an EU ministerial troika is planned for Islamabad on May 28. The range of potential issues include trade, democracy, and governance, development in border areas, and broader economic development concerns. BRUSSELS 00000560 002.2 OF 004 ¶6. (C) The EU,s Election Observation Mission team, which was headed by MEP Gahler, will issue the week of April 14 its final report on the recent elections in Pakistan. The report will include more than 80 recommendations, which will in turn provide an impetus for the EU to look at how to implement some of those recommendations, according to Commission contacts. Some of the recommendations involve improving institutions(especially regarding the Election Commission) and boosting civil society. To implement them, the European Commission plans to tap into either their existing assistance reserve or into the separate Stability Instrument, which is designed to prevent impending crises. Commission contacts tell us that to justify drawing from the Stability Instrument, the Commission will argue that strengthening democratic institutions in Pakistan is necessary to prevent the country from sliding into crisis. Contacts stressed that all of this will be decided in the coming weeks and will have to be agreed with the Government of Pakistan. EC STRATEGIC IMPERATIVES -------------- ¶7. (U) Pakistan is located in a region of crucial interest to the European Union and its security. Major areas of concern include terrorism, nuclear proliferation and narcotics trafficking. Other foreign policy priorities include supporting reconciliation with India and promoting human rights and democracy. The EC views Pakistan as a potentially important agent for change in the Islamic world as well as a possible bridge between South Asia and the West. As is the case with EU relations with all developing countries, poverty reduction and achievement of the Millennium Development Goals (MDGs) are emphasized within the broader EU development strategy for Pakistan. EC ASSISTANCE PROFILE -------------- ¶8. (U) The EC plans to provide EUR 398 million to Pakistan during 2007-2013. For 2007-2010, funding allocations are set at EUR 200 million, including EUR 20 million that was disbursed in 2007. This reflects an approximate tripling in annual assistance levels over the previous five-year cycle (2002-2006). ¶9. (U) EC assistance supports priorities put forward in the Government of Pakistan's Poverty Reduction Strategy Paper (PRSP). The EC program focuses on two sectors: (1) education and human resource development, which has been allocated EUR 64 million and includes significant budget support; and (2) rural development including natural resource management, which has been allocated EUR 108 million, much of which will be disbursed through more traditional project mechanisms. At a geographic level, the EC program focuses almost entirely on the two provinces bordering Afghanistan, Baluchistan and the Northwest Frontier Province (NWFP). ¶10. (U) Several other sectors are slated to received modest additional funding, including trade (EUR 13 million); (2) democratization and human rights (EUR 13 million); and (3) anti-money laundering (EUR 2 million). The EC does not fund any security assistance programs in Pakistan. It describes its development assistance as "untied." It is not involved in energy, health or food, though some small projects in these areas might occasionally be funded within the broader EC portfolio focusing on rural development. FOCAL SECTORS AND REGIONS -------------- ¶11. (U) The EC focuses on the NWFP and Baluchistan primarily because these are Pakistan's two poorest provinces, not because they border on Afghanistan. The focus on these two provinces will become even more pronounced when an earlier BRUSSELS 00000560 003.2 OF 004 education sector program involving the southern Sind province draws to a close. Assistance efforts in both NWFP and Baluchistan aim at addressing poverty issues and drawing these areas into the development mainstream. EC programming at this point does not extend to the Federally Administered Tribal Areas (FATA) strategically located between Afghanistan and the "settled" districts of the NWFP. The primary reason for this involves the difficulty in guaranteeing accountability of funding in those areas. Commission contacts tell us they would welcome any ideas we have on how to address that concern. Meanwhile, vocational training for the NWFP is being seriously considered. One EC counterpart noted that such programs would likely be helpful in the context of the Reconstruction Opportunity Zone (ROZ) concept that the USG supports for both FATA and Afghanistan. ¶12. (U) The EC aims to correct the historical weakness in natural resource management in Pakistan's border areas, which has been strained by the impact of long-standing regional conflict and the influx of refugees from Afghanistan. Another aim is to address water constraints and reduce drug trafficking. From an EC perspective, a rural development focus also makes sense because of the very high levels of poverty in rural NWFP and Baluchistan. ¶13. (U) The EC draws a direct connection between Pakistan's abysmal education indicators and the need to strengthen this sector to promote a more moderate, stable Pakistan. Donor support in education is also viewed as a way to help realign government spending priorities, not only in education but in other social sectors as well. The EC is engaged in dialogue at the federal and provincial levels to mobilize political support in favor of allocating additional resources to human development and improved sector planning. Areas of specific interest include promoting the Millennium Development Goals (MDGs); strengthening public education; and persuading the government to move forward with meaningful madrassa reform. EVOLUTION OF EC ASSISTANCE TO PAKISTAN -------------- ¶14. (U) Since the start of its cooperation with Pakistan in 1976, the EC has committed more than EUR 500 million to projects and programs. Assistance from 2002-2006 (EUR 75 million) focused on human development and economic cooperation, in particular basic education at the provincial level and a trade-related technical assistance program. Following the October 2005 earthquake the EC allocated an additional EUR 98 million for relief and reconstruction. Substantial assistance was also provided under other thematic budget line items, including for Afghan refugees in Pakistan. EC COORDINATION WITH OTHER DONORS -------------- ¶15. (SBU) EC counterparts emphasize their strong interest in donor coordination, including with the USG, in a range of areas, including on institutional reforms related to the recommendations of the EU,s election observation mission report due to be released the week of April 14. Donor partners have in the past included the World Bank and United Nations. While supporting pooled funding in principal, the European Parliament has raised questions about these arrangements, partly because such approaches tend to lower the EU's profile as a source of donor funding. Parliament concerns have also been raised about anti-money laundering programs, possibly resulting in a re-programming of these funds to other areas. ¶16. (SBU) The EC is skeptical about GOP-led coordination efforts thus far. It has called for increased coherence and regularity among donors in the policy dialogue with the government as well as better coordination among both bilateral donors and the major international financial BRUSSELS 00000560 004.2 OF 004 institutions. It supports greater coherence among the major European bilateral donors working in Pakistan, including the UK and Germany. It participates in in-country donor fora and is most active in sector donor groups on the environment and forestry, the Interagency Gender and Development Group (INGAD),and groups on human rights, trade policy, micro-finance and financial services and governance. ¶17. (C) COMMENT: The EU will be a receptive partner in terms of discussing both donor coordination and economic assistance programs in Pakistan. Even before the recent Pakistan elections, EU aid to Pakistan was slated to increase to well beyond its 2002-2006 levels. The fact that EU development programs focus on Baluchistan and the NWFP is also noteworthy, given the proximity of these areas to Afghanistan. While the final report from the EU election observer team will undoubtedly include both pointed criticisms as well as a long list of recommendations for improvement, there is also a sense that the election was a watershed event that will offer new opportunities. During the coming months, EU officials will want to build on these opportunities to further strengthen their relationships with Pakistan. MURRAY