This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L ROME 001232 
 
SIPDIS 
 
DEPT FOR E, EB/OMA, EUR/ERA; TREASURY FOR OASIA 
 
E.O. 12958: DECL: 03/08/2011 
TAGS: EAID ECON IT IDA EUN
SUBJECT: GOI ON EU/USG IMPASSE ON IDA GRANTS NEAR 
IMPOSSIBLE TO OVERCOME 
 
 
CLASSIFIED BY: ECONOMIC MINISTER COUNSELOR MARGARET DEAN FOR REASONS 1. 
5 (B). 
 
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PAGE 02        ROME  01232  081641Z 
¶1. (C) SUMMARY. THE EU'S POSITION ON AN ENHANCED IDA GRANT 
PROGRAM IS CLEAR: SUCH A PROGRAM MUST BE VERY LIMITED IN 
SCOPE, TARGETED FOR BASIC NEEDS (E.G. HEALTH AND EDUCATION), 
AND TESTED OVER SEVERAL YEARS. LORENZO BINI SMAGHI, DIRECTOR 
GENERAL FOR INTERNATIONAL FINANCIAL RELATIONS AT ITALY'S 
FINANCE MINISTRY, TOLD ECMIN THAT THE DIVERGENT VIEWS BETWEEN 
THE U.S. AND EUROPE MAY NOT BE RECONCILABLE.  FURTHER U.S. 
INSISTENCE MAY PROMPT SOME MEMBER STATES TO RETRACT THEIR 
SUPPORT FOR A BEEFED UP GRANT PROGRAM, AT ANY LEVEL, HE 
WARNED.  END SUMMARY. 
 
¶2.  (C) POST MET WITH BINI SMAGHI, ITALY'S FINANCIAL SHERPA, 
WHO OVERSEES ALL INTERNATIONAL FINANCIAL POLICY, TO DISCUSS 
IDA AND OTHER FINANCIAL ISSUES. TREASURY U/S TAYLOR AND HE 
HAVE BEEN IN FREQUENT CONTACT ON IDA GRANTS AND OTHER ISSUES. 
 BINI SMAGHI SAID THE EU, WHICH CONTRIBUTES NEARLY 50 PERCENT 
TO IDA, HAS MET THE UNITED STATES PART WAY ON THE ISSUE OF 
IDA GRANTS.  THERE IS NO WAY THE U.S.- DESIRED TARGET LEVELS 
FOR IDA GRANTS CAN BE REACHED IN SUCH A SHORT TIME, BINI 
SMAGHI ARGUED.  NO CERTAINTY EXISTS THAT AN ENHANCED PROGRAM, 
AT THE LEVELS IDENTIFIED BY THE USG, WOULD BE EFFECTIVE, 
ESPECIALLY IN THE ABSENCE OF STRONG, WELL-DEFINED AND 
ENFORCED CONDITIONALITY.  PREVIOUS LENDING POLICIES SHOULD 
NOT BE ABANDONED OVERNIGHT, HE CONTENDED. 
 
¶3. (C) THE EU'S POSITION HAS NOT BEEN STATIC. "WE ARE NOW 
WILLING TO CONSIDER FOR CERTAIN GROUPS OF COUNTRIES -- 
PERHAPS FOR THOSE WITH A PER CAPITA OF US ONE DOLLAR A DAY OR 
LESS -- A GRANT PROGRAM OF 50 PERCENT, TARGETED FOR HEALTH 
AND EDUCATION. IN POST-CONFLICT AND NATURAL DISASTER CASES, A 
GRANT PROGRAM OF 100 PERCENT COULD EVEN BE CONSIDERED," 
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PAGE 03        ROME  01232  081641Z 
STATED BINI SMAGHI.  THIS SHOULD BE THE FRAMEWORK FOR AN 
ENHANCED IDA GRANT PROGRAM.  IF THE PROGRAM IS SUCCESSFUL, BY 
MEASURES STILL TO BE DEFINED, THE LEVEL OF GRANTS COULD BE 
INCREASED AT A FUTURE DATE, TO MIRROR THE LEVELS THE USG NOW 
PROPOSES.  BINI SMAGHI BELIEVES A MINIMUM OF THREE YEARS IS 
REQUIRED TO TEST THE EFFECTIVENESS OF A RECONSTITUTED GRANT 
PROGRAM. 
 
¶4. (C) RATHER THAN INSISTING ON GREATER MOVEMENT BY EUROPEAN 
GOVERNMENTS, THE USG SHOULD RECOGNIZE AND ACCEPT THE PROGRESS 
MADE WITH EU MEMBER STATES.  THE USG SHOULD NOT IGNORE THE 
CONTENTIOUSNESS OF THIS ISSUE, AND THE SERIOUS OPPOSITION 
FROM SEVERAL COUNTRIES, ESPECIALLY IN SCANDINAVIA, TO ANY 
INCREASE IN GRANTS, BINI SMAGHI COMMENTED.  THE USG'S 
RELENTLESS PRESSURE ALMOST CAUSED NORWAY, SWEDEN AND A FEW 
OTHERS TO RETRACT THEIR SUPPORT FOR EVEN A LIMITED, TARGETED 
50 PERCENT GRANT PROGRAM. BINI SMAGHI ASSERTED THAT IT WAS 
ONLY BECAUSE ITALY, AS A G7 MEMBER, EXERTED PRESSURE ON 
SEVERAL GOVERNMENTS THAT EU CONSENSUS KEPT FROM BREAKING 
DOWN. 
 
¶5. (C) THERE'S A PERCEPTION AMONG EU MEMBERS THAT THE USG 
DOES NOT UNDERSTAND THEIR ASSISTANCE PROGRAMS, BINI SMAGHI 
REMARKED.  GRANTS ARE THE PREFERRED MECHANISM FOR BILATERAL 
ASSISTANCE PROGRAMS, AND EU GOVERNMENT CONTRIBUTIONS TO THE 
UNDP.  "SO, CLEARLY, WE ARE NOT OPPOSED TO GRANTS IN 
PRINCIPLE," HE ARGUED.  FOR EU GOVERNMENTS, HOWEVER, IT IS 
IMPORTANT TO MAINTAIN THE APPROPRIATE DIVISION OF LABOR 
BETWEEN THE WORLD BANK AND THE UNITED NATIONS, BETWEEN THE 
INTERNATIONAL FINANCIAL INSTITUTIONS AND BILATERAL ASSISTANCE 
PROGRAMS. MOREOVER, THE WORLD BANK DOES NOT HAVE THE 
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NECESSARY EXPERTISE TO ESTABLISH AND MONITOR THE IMPOSITION 
OF EFFECTIVE CONDITIONALITY. (NOTE: MOST OF ITALY'S BILATERAL 
ASSISTANCE ALSO IS IN GRANT FORM.  ITALY HAS, HOWEVER, A LOW 
LEVEL OF OFFICIAL DEVELOPMENT ASSISTANCE, JUST .14 PERCENT OF 
GDP IN 2001.  THE GOI HAS MADE SOME NOISE ABOUT UPPING THIS 
TO .7 PERCENT OF GDP BY 2006, BUT NO ROAD MAP TO THAT TARGET 
YET EXISTS.  END NOTE.) 
 
¶6.  (C) COMMENT: BINI SMAGHI IS CLEARLY PESSIMISTIC THAT THE 
IMPASSE BETWEEN THE USG AND THE EU WILL BE BROKEN IF WE 
CONTINUE HARD OVER ON OUR WAY. HE WAS WILLING TO HEAR OUR 
ARGUMENTS, BUT DID NOT DEVIATE FROM THE EU COMMON POSITION. 
ITALY WHOLEHEARTEDLY SHARES THE EU CONSENSUS AND A PHASED 
APPROACH TO INCREASING THE PROPORTION OF GRANTS.  THEY WILL 
USE THEIR INFLUENCE, AS THEY HAVE ALREADY DEMONSTRATED, TO 
KEEP THE EU CONSENSUS AT 50 PERCENT, WITH CONDITIONS FOR 
CERTAIN COUNTRIES.  THEY HAVE NO INTEREST IN BROKERING 
ANYTHING BEYOND THIS. END COMMENT. 
 
POPE 
 
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 2002ROME01232 - Classification: CONFIDENTIAL