VZCZCXRO0070
RR RUEHDA
DE RUEHAK #0728/01 0891230
ZNR UUUUU ZZH
R 301230Z MAR 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 1520
INFO RUEHIT/AMCONSUL ISTANBUL 2430
RUEHDA/AMCONSUL ADANA 1807
RUEATRS/DEPT OF TREASURY WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 ANKARA 000728 
 
SIPDIS 
 
TREASURY FOR JONATHAN ROSE 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN EU PGOV TU
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 
population. 
 
--------------------------------------------- -------- 
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. 
 
WILSON#