ITALY,S RESPONSE TO PAKISTAN IDP CRISIS

C O N F I D E N T I A L ROME 000316

SIPDIS

PRM/ ECA: HASTINGS

E.O. 12958: DECL: 03/11/2019
TAGS: EAID PHUM PK PREF
SUBJECT: ITALY,S RESPONSE TO PAKISTAN IDP CRISIS

REF: A. SECSTATE 21407

B. ROME 0041

Classified By: Economic Minister Counselor Tom Delare
for reasons 1.4 (b) and (d).


1. (C) Summary: MFA Counselor Valter Zucconi of the
Directorate for Development Cooperation said the GOI hopes to
approve between 30 and 40 million Euros in soft loans for
Pakistan's provinces bordering Afghanistan by June of 2009.
Italy had already pledged one million Euros to the World Food
Program in December 2008 for the same Pakistani border
provinces. Nevertheless, Zucconi said that Italy's decision
to cut development spending by sixty percent from 2008 to
2009 clashed with its desire to lead on Afghanistan/ Pakistan
border policy as the G8 President. Due to these self-imposed
cuts, it is unlikely that Italy will contribute substantial
amounts of new money in response to the recent UN and ICRC
appeals for internally displaced Pakistanis. End Summary.


2. (C) On 9 March, Econoff delivered demarche inquiring
about Italy's response to Pakistan's Internally Displaced
Persons problem to Valter Zucconi, Development Expert for
Assistance to Pakistan within the Directorate for Development
Cooperation of the Italian MFA. Zucconi did not provide a
specific pledge in response, but noted that the GOI was in
negotiations with the government of Pakistan over a 30 to 40
million Euro package of soft loans. These would be directed
at the Pakistani provinces adjacent to Afghanistan, such as
Baluchistan and the Federally Administered Tribal Areas
(FATA). Zucconi said that because the terms are
exceptionally generous -- an 18 year grace period without
interest or payments, with an additional 19 years to repay
the loan - the net present value of these loans are
equivalent to a grant of eighty percent of the amount
borrowed. The Pakistani government (GOP) has accepted this
soft loan system in principle, but it has not sent an
official request, which the GOI expects to receive within
three weeks. Zucconi believes the GOI Board of Directors
will approve the GOP request in May or June.


3. (C) According to Zucconi, the preferred method for
Italian assistance to Pakistan has evolved over the past few
years, from debt forgiveness to debt restructuring to a new
emphasis on soft loans to farmers and small businessmen. In
2003 Italy cancelled half of the 160 million Euros in
Pakistani debt it was owed. In 2006, Pakistan and Italy
agreed to convert the remaining 80 million Euros of debt into
funds for development, to be repaid from 2007-2011.
Approximately twenty to thirty percent of these funds have
been and will continue to be spent in the Pakistani provinces
bordering Afghanistan, Zucconi said. The GOI expects the
last of the projects funded by this agreement to be complete
by the end of 2013. So far, Pakistan has made good on its
first two tranches of payment, for 2007 and 2008, totaling 32
million Euros.


4. (C) Zucconi said that aid to Pakistan had "not been a
priority until a few months ago. But now with (Italy serving
as President of) the G8, it IS one of Italy's priorities."
Currently Italy lacks a development cooperation office in
Pakistan, but it hopes to add one over the coming year or
two, Zucconi said. As the meeting was drawing to a close,
Zucconi (strictly protect) made a personal aside to highlight
the contradiction between the ambitious role and mantle of
generosity (ref B and septel) that PM Berlusconi has tried to
assume (as G8 President) and the concurrent cuts in
development spending of approximately sixty percent, which
impair the work of the MFA's technical development experts.
He noted that since the details of which programs are to be
cut have not been divulged and because many of Italy's
pledges (such as its $100 million for Gaza) are multiyear in
scope, the inevitable clash between Italy's ambitious pledges
and its limited aid budget has temporarily been postponed.


5. (C) Comment: Perhaps feeling the heat of the G8
limelight, the Berlusconi government seems to be making
pledges that may exceed the government's ability to fulfill.
As always, GOI assistance pledges -- especially for the out
years -- need to be taken with a grain of salt. End Comment.

DIBBLE