Cablegate: Eu Funding Takes Off in Turkey

DE RUEHAK #0728/01 0891230
R 301230Z MAR 07





E.O. 12958: N/A
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

--------------------------------------------- --------
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.


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