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Cablegate: European Union Views On Development Assistance To

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OO RUEHBC RUEHDA RUEHDE RUEHIHL RUEHIK RUEHKUK RUEHKW RUEHPOD RUEHYG
DE RUEHBS #0108/01 0221300
ZNR UUUUU ZZH
O 221300Z JAN 08
FM USEU BRUSSELS
TO RUEHGB/AMEMBASSY BAGHDAD IMMEDIATE
RUEHNP/AMCONSUL NAPLES IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE
INFO RUCNMUC/EU CANDIDATE STATES COLLECTIVE IMMEDIATE
RUCNMEU/EU INTEREST COLLECTIVE IMMEDIATE
RUCNRAQ/IRAQ COLLECTIVE IMMEDIATE
RUEHZG/NATO EU COLLECTIVE IMMEDIATE
RUEHNO/USMISSION USNATO IMMEDIATE

UNCLAS SECTION 01 OF 04 BRUSSELS 000108

SIPDIS

SENSITIVE
SIPDIS

USAID FOR ANE/I STAAL, MEDINA, DAYAL; STATE FOR NEA; NAPLES
FOR USDEL TO IRAQ DONORS MEETING

E.O. 12958: N/A
TAGS: PINR EAID PREL EUN KDEM MARR NATO GR NL TU
SUBJECT: EUROPEAN UNION VIEWS ON DEVELOPMENT ASSISTANCE TO
IRAQ IN 2008 AND BEYOND (C-RE8-00009)

REF: STATE 02310

BRUSSELS 00000108 001.2 OF 004


1.(U) This message responds to reftel request. Given that the
EU has no collective security presence in Iraq, the
discussion focuses exclusively on economic assistance
provided through the European Commission (EC).

2. (U) CURRENT EC DEVELOPMENT ASSISTANCE IN IRAQ: EC support
to Iraq from 2003 through the end of 2007 amounted to 818.4
million euros in grant aid, of which 708.2 million is devoted
to reconstruction. Major areas of focus include education,
democracy and governance and health. Other areas of EC
interest include agriculture, water, infrastructure, capacity
building, civil society and refugees.

3. (U) Most EC funding to date has been channeled through the
International Reconstruction Fund Facility for Iraq (IRFFI),
a multilateral mechanism established in 2004. Also, the EC
has been a major contributor to the United Nations
Development Program Thematic Trust Fund. Excluding the
(117.8 million euros between 2003-2007 in) humanitarian
assistance through the Commission's humanitarian arm ECHO,
nearly 90 percent of all EC funding for Iraq has been
allocated through either IRFFI or the UNDP fund.

4. (U) The fifth IRFFI donor committee meeting was held in
Istanbul in March 2007. A follow-up meeting will be held in
Naples this week. Among other things, the Istanbul meeting
extended the lifetime of IRFFI, which was initially expected
to expire at the end of 2007. According to the agreement,
IRFFI will now continue until all projects are completed and
all funds are disbursed.

5. (U) EC contributions represent nearly 40 percent of all
IRFFI funding. Major bilateral donors to IRFFI include
Japan, the UK, Spain, Canada and Australia. A number of
other countries including Italy, Korea, Sweden, Norway,
Netherlands, Denmark, Germany, India, Kuwait and the US are
also represented.

6. (U) The EC views itself as a significant supporter of the
International Compact with Iraq, launched by the Government
of Iraq in 2006. Endorsed by the international community at
a conference attended by more than 60 countries in
Sharm-el-Sheikh in May 2007, it provides a "national vision
for Iraq aiming at consolidating peace and pursuing
integrated political, economic and social development over
the next five years".

7. (U) While direct EC assistance to Iraq has been much more
modest, a handful of small "bilateral" projects have also
been launched. Such activity includes grants to the
International Organization for Migration (IOM) in 2004 and
again in 2005 to train electoral observers; a 2005 project
aimed at promoting human rights; and a contract with the
International Management Group (IMG) to provide two technical
experts working in Baghdad.

8. (U) FUTURE FUNDING LEVELS: EC assistance is typically
programmed on a multi-year basis within the context of a
long-term country development strategy. However, Iraq
remains unusual in that funding and program identification is
undertaken on a year-to-year basis. In the words of one
senior EC interlocutor, "we maintain a long-term political
commitment to Iraq but decisions about the aid program are
made annually." Contact further stated that development of a
strategy paper would require "a government we could work
with."

9. (U) The EC Middle East budget covering Iraq, Iran, Yemen
and the Gulf States for 2008 will be around 90 million euros.
An estimated 15-20 million euros of this amount will be
directed toward Yemen and modest funding will be provided to
Iran, mainly related to civil society and public diplomacy.
Remaining funds will be allocated to Iraq.

10. (U) The EC would like to move to a multi-year strategic
perspective in Iraq. In fact, for two years it worked on
doing exactly that. However, uncertainty combined with
shifting realities on the grounds mean that it is still too
early to adopt a multi-year strategic approach.

BRUSSELS 00000108 002.2 OF 004

11. (U) EC counterparts have indicated a "clear willingness
by the EU to get more engaged with Iraq" and have suggested
that there would be "greater engagement by the member states,
yet this may not bring immediate results". At the same time,
they indicated that "greater involvement" does not
necessarily mean "more funds". In their view, aid
effectiveness is more important than the level of funding.

12. (SBU) CONSTRAINTS TO GREATER INVOLVEMENT: The EC views
limited local capacity as the main constraint to development
in Iraq, not the amount of donor funding. Increasingly, Iraq
should be funding its own development out of its own
resources. Declines in EC funding levels since 2003 are
attributed to the capacity issue, not lack of interest in
assisting Iraq. In the words of one counterpart, "Iraq is a
rich country and has to make better use of its own resources."

13. (U) EC counterparts professed an interest in providing
more direct technical assistance, especially related to
building administrative and management capacity within the
Government of Iraq. Possible areas of involvement include
budget management, energy and support for the council of
representatives. Also, on the humanitarian side, refugees in
Jordan and Syria and internally displaced communities within
Iraq are a major concern.

14. (SBU) Lack of viable on-ground organizations that can
deliver assistance effectively coupled with high security
costs are also cited by the EC as obstacles. While technical
advisors receive a premium for working in Iraq, EC officials
indicated that their salary structures are often not
competitive with those programs funded by other donors,
including the US.

15. (SBU) EC counterparts professed frustration about their
limited experience in providing direct technical assistance
to Iraq. One case cited involved six million euros allocated
for work related to customs. Although the funding was set
aside after extensive consultations, a new Iraqi counterpart
arrived on the scene and decided unilaterally to scrap the
intended focus on capacity building in favor of improving
infrastructure. Nothing happened and the funds are no longer
available.

16. (SBU) A limited EC presence in Iraq also limits
oversight and awareness about the on-ground situation. There
is a limited EC development presence in Baghdad which in turn
is supported by an EC office in Amman. Although the EC is
increasingly providing management authority to its field
missions around the world, the Iraq program continues to be
directly handled from Brussels.

17. (U)From an EC perspective, there are two constrains
that affect virtually every aspect of theirwork in Iraq:
first, security; and, second, instability and uncertainty
within the government of Iraq.

18. (SBU) STRATEGIC ASSESSMENT: EC counterparts describe
Iraq as "extremely important" for Europe. Partly, this has
to do with physical proximity. As counterparts pointed out,
Iraq directly borders a prospective member state, Turkey; "it
is almost in the neighborhood". In addition, Iraq's
significant energy resources are an important concern in a
continent whose economy hinges on energy imports. Over the
long term, the EC would like to see "normal relations develop
with Iraq, like those that we now have with the various Gulf
countries".

19. (SBU) PARLIAMENTARY CONCERNS: The European Parliament is
increasingly asking questions about EC assistance to Iraq.
Although EC development policy places significant emphasis on
trust funds and pooled resources along the lines of IRFFI, EC
officials face increasing skepticism about this approach from
parliamentarians. Partly, this is due to implementation
delays, low expenditure levels and perceptions about limited
impact. In addition, when assistance is funded through trust
fund arrangements, individual donors receive far less
recognition. Finally, with the passage of time,
parliamentarians are becoming increasingly interested in
accountability.

BRUSSELS 00000108 003.2 OF 004

20. (SBU) At a programmatic level, parliamentarians tend to
promote poverty reduction concerns. For this reason,
programs focused on capacity building within Iraqi
governmental institutions receive special scrutiny. For
example, Members of European Parliament (MEPs) questioned
even a modest one million euro energy program because it was
not seen to directly address poverty concerns. As a result
of increased parliamentary scrutiny, development officials
are becoming more "cautious".

21. (U) PUBLIC OPINION: Parliamentary interest in
accountability, impact and other issues is not driven by
European public opinion. Rather, it reflects the interests
of individual MEPs. Public opinion on EC economic assistance
in Iraq does not register in the same way as development
programs related to Africa or disaster relief. Perhaps this
is partly because the EC profile in Iraq is small, given the
reliance on pooled funding through IRFFI. But it also
reflects the fact that European public opinion is much less
seized by issues in Iraq than was the case three or four
years ago.

22: (U) UPCOMING MEETINGS AND EVENTS: The next big event on
the EC donor calendar for Iraq is the upcoming IRFFI meetings
in Naples. As the major source of funding to IRFFI, EC is
vitally interested in its impact and effectiveness. While
separately expressing concern about the effectiveness of some
aspects of pooled funding arrangements related to Iraq, EC
counterparts have indicated that they will continue to press
for broad international involvement in IRFFI, including US
support. Looking further ahead, EC sources indicate that
uncertainty and instability in Iraq make it "extremely
difficult to plan anything, even meetings".

23. (U) More broadly, the EC would like to sign a trade and
cooperation agreement with Iraq, providing a common framework
similar to those often used to help shape EC development
programs in other countries. The next round of discussions
on this subject should take place in Brussels in February.
At some point, there is hope that these discussions can take
place in Baghdad as well.

24. (U) As for upcoming events in Iraq that are a matter of
special interest, these include provincial elections;
legislative elections; and disagreements over the future of
Kirkuk.

25. (SBU) VIEWS ON SECURITY SITUATION: The EC threat
assessment has an "enormous impact" on perceptions about
economic assistance to Iraq. In the EC view, there are
"enormous constraints for working on the ground". Mobility
and access for the small EC presence in Baghdad is limited
and those assigned there work amidst considerable personal
risk. While the EC would like to support programs in
agriculture, health and other areas directly, access makes
direct assistance in these areas problematic right now.

26: (SBU) AREAS FOR IMPROVEMENT: EC counterparts place
significant emphasis on donor coordination. In their view,
too much time is spent responding to questions from multiple
donors as well as multiple institutions within a particular
donor country. At the same time, there is a need for
accurate and up-to-date information. Web-based information
sources are often inaccurate or out of date. All donors need
to present their program information quickly and reliably.

27. (SBU) Better donor coordination will be a major area of
interest during the upcoming IRFFI discussions in Naples.
Without coordination, duplication is inevitable. However,
when these discussions take place, the overwhelming emphasis
should be on improving existing structures, not creating new
ones. Also, EC officials strongly believe that the
International Compact with Iraq launched in 2006 should
remain as the key frame of reference for providing
development assistance to Iraq.

28. (SBU) COMMENT: EC aid to Iraq relates entirely to
economic assistance and does not involve security forces.
There is strong interest in capacity building as well as a
desire to provide direct technical assistance. In reality,

BRUSSELS 00000108 004.2 OF 004


though, programmatic requirements and the situation in Iraq
have led the EC to primarily rely on a trust fund approach,
with EC programs by and large funded through pooled funding
arrangements and primarily managed by other institutions,
most notably the UNDP and World Bank.

29. (SBU) While acknowledging that security improvements are
providing some measure of "guarded hope," EC programming
mechanisms are unlikely to change over at least the short and
even medium term. Most notably, initial attempts to provide
technical assistance directly have proved frustrating, mainly
because of lack of continuity among counterparts and limited
local capacity to effectively manage either international or
local funds. While the EC is committed to providing economic
assistance to Iraq, security concerns combined with weak
counterpart institutions remain as serious stumbling blocks.
They also continue to color EC perceptions about both the
impact and effectiveness of their aid programs in Iraq.

MURRAY

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