US embassy cable - 04ROME4796

C O N F I D E N T I A L  ROME 004796 
 
SIPDIS 
 
 
STATE EB/IFD/ODF FOR DEMARCELLUS 
 
E.O. 12958: DECL: 12/18/2014 
TAGS: EAID, ECON, EFIN, IT, IZ, IRAQI FREEDOM 
SUBJECT: FOLLOW-UP WITH ITALY AFTER MEETING OF IRAQI DONORS 
IN TOKYO 
 
REF: A. SECSTATE 250700 
     B. ROME 1092 
 
Classified By: Economic Minister Counselor Scott Kilner for reasons 1.4 
 (b)(d). 
 
1. (SBU) Summary: The GOI has disbursed approximately Euro 65 
million ($86.3 million) in humanitarian and reconstruction 
assistance to Iraq for 2003-2004, according to Ministry of 
Foreign Affairs officials responsible for Iraq reconstruction 
aid.  This total includes Italy's long-delayed 2004 payment 
of Euro 10 million to the International Reconstruction Fund 
Facility for Iraq (IRFFI).  In addition, Italy has made an 
extra donation of Euro two million to the IRFFI's special 
election assistance account.  The GOI is counting all 
projects presented at the Tokyo Donor's Conference, including 
donations of humanitarian assistance, as falling under 
Italy's Euro 200 million Madrid pledge. Italy is likely to 
disburse around Euro 30 million in grants for Iraq 
reconstruction in 2005, though Post's interlocutors expressed 
concern that Italy's foreign aid budget might face additional 
cuts next year. End summary. 
 
Total 2003-04 Disbursement About Euro 65 Million 
--------------------------------------------- --- 
 
2. (SBU) Per ref A, Ecmin and Econoff met December 16 with 
Gianni Ghisi, Deputy Director General of Development 
Cooperation at the Ministry of Foreign Affairs, and Luigi 
Maccotta, Deputy Director of the MFA's Iraq Task Force, to 
seek clarification of the GOI's Iraq assistance 
disbursements.  At the Tokyo Donors Conference, Ghisi and 
Maccotta presented a detailed list of GOI-funded assistance 
programs totaling Euro 99,765,000 ($132 million).  Ghisi and 
Maccotta explained that approximately Euro 62 million (62 
percent) of these funds have been disbursed since the start 
of the Iraq conflict.  (Note: For a copy of this list, please 
email Gregory May at MayGC@state.gov.  Maccotta also supplied 
Econoff with an updated summary of all Italy-funded 
reconstruction projects.  Post will send this summary septel. 
End note.) 
 
3. (SBU) Maccotta and Ghisi explained that two items on the 
list remain undisbursed: the Euro 32,410,000 listed as 
"unallocated" and the Euro 4,785,000 pledge to the World 
Meteorological Organization (WMO).  The Euro 32 million, 
Maccotta explained, represents the GOI's planned Iraq aid 
disbursements for 2005 while, Ghisi added, the WMO's project 
to rehabilitate Iraqi meteorological infrastructure has 
encountered bureaucratic delays within the Iraqi Interim 
Government. 
 
4. (U) Maccotta noted that, in response to calls made at the 
Tokyo meeting, the GOI has disbursed an additional Euro two 
million to the special "cluster 11" election assistance 
account within the International Reconstruction Fund Facility 
for Iraq (IRFFI).  (Note: This donation is in addition to the 
Euro 400,000 Italy has already allocated for training 
election workers. End note.)  This would bring total Italian 
aid disbursements to date to approximately Euro 65 million. 
 
All Italy-Funded Projects Fall Under Madrid Pledge 
--------------------------------------------- ----- 
 
5. (SBU) Maccotta and Ghisi said that the GOI considers all 
projects listed, including those involving emergency 
humanitarian assistance, as counting towards Italy's Euro 200 
million Madrid pledge.  They argued that this was appropriate 
because humanitarian assistance creates the necessary 
conditions for long-term reconstruction to proceed -- the two 
are inextricably linked. 
 
Euro 10 Million IRFFI Donation Delivered 
---------------------------------------- 
 
6. (U) The disbursement grand total includes Italy's Euro 10 
million 2004 payment to the International Reconstruction Fund 
Facility for Iraq (IRFFI), which, Ghisi said, has already 
been received by the UNDP.  Italy, Ghisi explained, has 
earmarked its 2004 IRFFI donation for three UNDP projects 
targeting development of cottage industry, rehabilitation of 
Iraq's dairy industry, and promotion of entrepreneurship 
 
Budget Problems Will Limit 2005 Disbursement 
-------------------------------------------- 
 
 
7. (SBU) Ghisi commented that Italy's foreign aid budget is 
under severe strain.  The MFA's Directorate of Development 
Cooperation (Italy's equivalent of USAID) experienced an 
unexpected budget cut of Euro 100 million in 2004.  The MFA, 
he said, predicts that Italy's ODA spending will be cut in 
2005 from the current 0.17 percent of GDP, to 0.14 or 0.135 
percent, meaning the GOI will have approximately Euro 700 
million available to cover all 2005 bilateral and 
multilateral aid commitments.  Ghisi stated that, as a result 
of this year's budget crunch and the need to prioritize Iraq 
contributions, Italy has delayed some projects in other 
countries, including a Euro 10 million commitment to Somalia, 
that will need to be made up in the coming year. 
 
8. (SBU) For Iraq, Maccotta predicted, Italy would likely 
disburse an additional Euro 30 million in reconstruction 
grants in 2005.  In addition to these grants, the GOI hoped 
to negotiate a Euro 25 million bilateral soft loan with Iraqi 
authorities next year.  If approved, the soft loan would 
likely fund development of small- and medium-sized 
enterprises, according to Ghisi.  (Note: Ghisi has said in 
previous meetings that such a loan would also count towards 
Italy's Madrid pledge. The GOI had hoped to make such a loan 
in 2004, but has yet to stat negotiations with Iraqi 
officials.  End note.) 
 
Future Focus on Agro Business, Environment 
------------------------------------------ 
 
9. (C) In terms of future Iraq projects, Ghisi said, Italy, 
in cooperation with UNIDO, may fund a survey of Iraq's agro 
industry.  In addition, Maccotta and Ghisi predicted future 
Italy-funded projects in Iraq will focus more closely on the 
environment.  (Note: The GOI plans to continue funding its 
"New Eden" marshland recovery project (ref B) in 2005. End 
note.) Ghisi remarked that the MFA plans to increase the 
environmental component of its Iraq aid partly for  public 
relations reasons.   The Italian public tends to look 
favorably on environmental projects, he observed, and the MFA 
hopes greater public support will help insulate Italy's aid 
budget from further cuts.  To this end, Ghisi said, 
Development Cooperation officials have also stepped up their 
outreach efforts to promote Italy's foreign aid "successes" 
and the need to maintain current aid levels. 
 
Renewed Private-Sector Interest 
------------------------------- 
 
10. (SBU) At the end of the discussion, we asked Maccotta for 
his assessment of current Italian private-sector attitudes 
toward doing business in Iraq.  Maccotta said he has observed 
some renewed interest, which had been dampened considerably 
by mounting security concerns.  He said 42-50 Italian 
companies are presently working with Iraqi ministries, 
primarily on projects related to electricity, oil, and water. 
 Most of these contracts, Maccotta remarked, involve the 
supply of Italian-made equipment, rather than on-the-ground 
services.  Italian companies are still very reluctant to put 
their own personnel in Iraq.  Maccotta added, however, that 
there is lingering disappointment, both among Italian 
companies and government officials, that Italian firms have 
not been more successful at winning subcontracting work 
funded through the USG supplemental appropriation for Iraq. 
 
Comment 
------- 
 
11. (C) Politically, the GOI remains firmly committed to the 
reconstruction of Iraq and to fulfilling its Euro 200 million 
Madrid pledge.  A number of Italian projects appear, from our 
vantage point, to be truly well thought-out and responsive to 
Iraq's needs.  However, harsh budget realities (which are 
likely to get worse given the Berlusconi government's 2005 
tax cuts) mean Italian disbursements will likely continue to 
lag behind other donors.  The GOI also appears to be 
broadening the number of past and current projects that fall 
under the Madrid pledge umbrella as a way of lessening its 
future obligations.  This is the first time the MFA has 
explicitly told Post that essentially all Italian-funded aid 
projects in Iraq, including emergency humanitarian relief 
conducted in 2003-2004, should be counted towards Italy's 
Madrid commitment.  End comment. 
 
 
SEMBLER 
 
 
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	2004ROME04796 - Classification: CONFIDENTIAL