ITALY OPTIMISTIC ON MEETING AFPAK AID TARGETS

C O N F I D E N T I A L SECTION 01 OF 03 ROME 001190

SIPDIS

E.O. 12958: DECL: 10/29/2019
TAGS: EAID PREL PINS IT AF PK
SUBJECT: ITALY OPTIMISTIC ON MEETING AFPAK AID TARGETS

REF: A. STATE 108183

B. ROME 1177

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Classified By: Acting Political Minister-Counselor J. Liam Wasley for R
easons 1.4 (B) and (D)


1. (SBU) Summary: By the end of 2009, Italy plans to disburse
Euro 62 million in development assistance to Pakistan and
Euro 45-50 million in assistance to Afghanistan, in line with
its Tokyo and Paris pledges. In Pakistan, Italian assistance
will be focused on rural development, community empowerment
and vocational training in the regions bordering Afghanistan.
In Afghanistan, Italian aid is being allocated towards
construction of the Kabul-Bamyan Road, support for Italian
PRT projects in Herat and elsewhere in RC-West, and projects
in the health, refugee and local governance sectors. Though
modest compared to the pledges of other major donors, these
packages have been protected from the sharp cuts in
development assistance enacted by the Berlusconi government
starting in 2008 (2009 alone saw a 60 per cent cut),and
demonstrate that Afghanistan and Pakistan remain a priority
commitment for the GOI. Further cuts are anticipated in the
years to come, however, putting at risk the sustainability of
Italian commitment to the region. End Summary.

Pakistan: A Modest Package, But Italy Will Meet Tokyo
Commitment
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2. (SBU) Poloff and Econoff delivered Ref A points to Walter
Zucconi, Desk Officer for Central Asia at the MFA Directorate
General for Development Cooperation (DGCS -- Italy's lead aid
agency) on October 23. Zucconi confirmed that Italy
considers its Tokyo pledge for Pakistan to be Euro 62
million, as opposed to the Euro 42 million reported in Ref A.
The amount was raised after the Tokyo conference when Italy
decided to add Euro 20 million in soft loans for vocational
training. The pledge is divided into three parts, none of
which has been disbursed:

-- Euro 2 million in grants in support of olive oil
cultivation, processing and marketing in the NWFP, to be
administered by the Florence-based Istituto Agronomico per
l'Oltremare (IAO),a dependency of the MFA. Status: Approved
by the DGCS governing board; disbursement expected by the end
of November 2009.

-- Euro 40 million in soft loans (with 80 per cent grant
element) for rural development, community empowerment and
microfinance in NWFP, FATA and Baluchistan. Status: Approved
by DGCS board, but disbursement held up over the lack of an
MOU between Italy and Pakistan governing the administration
of the loan. Zucconi said that the Pakistani government has
been slow to cooperate on the drafting of the MOU with the
Italian Embassy in Islamabad, which is in turn hampered by
its small staff (consisting of two diplomats, including the
Ambassador) and lack of a permanent DGCS official there.
DGCS hopes to obtain funding in the near future for a
full-time slot at the Embassy.

-- Euro 20 million in soft loans (with 80 per cent grant
element) for vocational training in NWFP. Status: approval
expected at the November 20 DGCS board meeting, but, as in
the case of the previous soft loan, disbursement will hinge
upon the successful conclusion of an MOU with the Pakistani
government.


3. (SBU) In addition, Italy has a number of pre-Tokyo
projects in the pipeline, including:

-- Euro 1.3 million in grants for the development of
management capacity in the Karakoram National Park
(administered by IUCN -- International Union for the
Conservation of Nature) and for school construction and
rehabilitation of the historic center in Shigar village
(Baltistan, Northern Pakistan).

-- Euro 7.75 million in soft loans for SMEs and
Italo-Pakistani joint ventures (not yet implemented)

-- Euro 1.4 million in grants in support of Pakistani
entrepreneurs, implemented by UNIDO per a 2006 bilateral
agreement between Italy and Pakistan

-- Euro 80 million debt-for-development swap agreement, under

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which Italy has canceled 50 per cent of Pakistan's
outstanding bilateral debt and Pakistan has agreed to pay the
remainder into a fund for development projects by 2011. Thus
far 11 projects valued at Euro 16 million have been approved
by the joint Italy-Pakistan Committee charged with
administering the agreement. More projects are awaiting
approval by the end of 2009, including a number targeting the
Malakand district.

-- Euro 5 million in emergency funds for UN operations in
NWFP.

Afghanistan: Italy Will Meet Paris Goal (Barely)
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4. (SBU) Turning to Afghanistan, Zucconi said that Italy
hopes to meet the 2009 portion of its Paris Donor Conference
Commitment (Euro 45-50 million per year over the 2009-2011
triennium) by the end of the 2009 fiscal year (note: Italy
uses the calendar year as its fiscal year). Italy has
disbursed about Euro 35 million in aid so far in 2009,
including:

-- Euro 20 million in grant aid for Afghan National
Development Strategy (ANDS) programs through the National
Solidarity Program (NSP),in support of Community Development
Councils, women's empowerment, health and rural development
in RC-West;

-- Euro 6 million in emergency humanitarian aid administered
by various UN agencies;

-- Euro 5 million in support of the two Afghan nationwide
elections (via UNDP);

-- Euro 3.1 million to the UNHCR program for Afghan refugees
returning from Iran (to which it directed Euro 3 million last
year);

-- Euro 800,000 to the Law and Order Trust Fund (LOFTA).


5. (SBU) Still yet to be disbursed are a number of projects,
including the first Euro 20 million tranche dedicated to
Phase 2 of the Kabul-Bamiyan road project (83 km in three
tranches of 20 million spread over three years),which has
been bedeviled by costly delays and security problems since
its inception. The funds have already been approved and the
bulk of the contracts should be awarded in November or
December 2009. Other projects to be disbursed before the end
of the year include a Euro 6.4 million microcredit loan for
families and small enterprises in Herat, Baghdis and Farah
Provinces (all in Regional Command-West),to be administered
by MISFA (Microfinance Support Facility for Afghanistan),an
independent Afghan agency. (Note: the GOI and GoIRA signed
the agreement for this loan on October 27).


6. (SBU) Zucconi said that Italy, by its own count, has
allocated Euro 465 million and disbursed Euro 390 million to
Afghanistan since 2001: 28m in the last months of 2001, 39m
in 2002, 44m in 2003, 36m in 2004, 29m in 2005, 30m in 2006,
55m in 2007, 71m in 2008. (Note: At the Berlin Conference in
2004, Italy pledged 145 million Euros for the period
2004-2006, but was unable to complete disbursement of the
pledge until 2007 because of insufficient absorption capacity
on the part of Afghan institutions. No pledges were made at
the London Conference; instead, Italy affirmed its intent to
continue disbursements of about Euro 45-50 million per year,
a commitment that was reaffirmed at the 2008 Paris Conference
for the 2009-2011 period. The pace of disbursements has gone
up in recent years as Afghan institutions develop capacity.
End note).

Comment
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7. (C) Although Italy's aid contributions in Pakistan and
Afghanistan pale in comparison to those of first-tier donors
like the U.S., Japan, UK, France and Germany, they have
remained stable relative to other sectors of Italian aid,
which have dropped sharply as a result of Berlusconi
government budget cuts. Zucconi said that the overall
Italian development budget was slashed by as much as 60 per
cent in 2009, and that bigger cuts are expected to come next
year. The Berlusconi government, never a fan of development
aid, kept aid for Afghanistan and Pakistan at these
relatively high levels in large part to keep a seat at the

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table in AfPak forums and to bolster its claim to leadership
on the issue within the G8. Now that Italy's Trieste
Conference on Afghanistan and Pakistan has come and gone,
there are even fewer incentives for Italy to sustain this
level of commitment. The GOI will require frequent prodding
from the U.S. and other stakeholders to remain a significant
contributor to donor efforts in the region.

THORNE