IRISH VIEWS ON DEBT RELIEF FOR POOR COUNTRIES

UNCLAS SECTION 01 OF 02 DUBLIN 000360 SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EAID SUBJECT: IRISH VIEWS ON DEBT RELIEF FOR POOR COUNTRIES REF: A. STATE 31823 ¶B. STATE 11141 ¶1. Summary: Irish aid officials support the general principal of debt relief/forgiveness for Heavily Indebted Poor Countries (HIPCs),but question whether resources would be sufficient to implement the U.S. debt relief proposal. Irish officials believe that the most effective approach to development finance would be for donor countries to increase contributions to ODA, in line with Millennium Development Goals. In the coming weeks, the GOI will likely take a public position endorsing the UK proposal for donors to pay developing countries' debt servicing costs. The GOI, however, opposes the UK proposal for an International Finance Facility and has no firm position on other financing mechanisms, such as IMF gold sales. Irish officials expect that the UN Millennium Project Report will drive discussion at the April IFI meetings. End summary. Yes to Debt Relief, but Doubts on U.S. Proposal -------------- -- ¶2. On March 15, Post delivered ref A talking points to Paula Slattery and Brendan O'Clearaigh, Counsellor and First Secretary for Multilateral Affairs, respectively, in SIPDIS Development Corporation Ireland (DCI, the development agency within the Department of Foreign Affairs.) Slattery noted that Ireland supported the general principal of debt relief/forgiveness for Heavily Indebted Poor Countries (HIPCs). She pointed out that Ireland gave all of its official development assistance (ODA) in the form of grants and thus carried no bilateral debt with ODA recipients. She questioned, however, whether resources would be sufficient to implement the U.S. debt relief proposal while sustaining net financial flows to HIPCs. For example, she described as mathematically puzzling ref A talking point that although multilateral development banks' gross funding levels to HIPCs would be lower under the U.S. plan, net assistance to the HIPCs would be maintained. She also said that it was difficult to consider the U.S. proposal without knowing how many countries would qualify for debt relief, or what those qualifications would be. The Best Option: Increased ODA Contributions -------------- ¶3. The most effective approach to development finance would be for donor countries to increase contributions to ODA, in line with Millennium Development Goals, observed Slattery. She remarked that debt relief and other development financing proposals would not work without additional ODA contributions. Ireland's ODA currently stood at 0.4 percent of GNP, and Slattery cited the GOI's goal of reaching 0.7 percent of GNP, in accord with its Millennium commitments. She also pointed out that Ireland's contributions to the IDA-14 and AfDF-10 replenishments represented the largest percentage increases of any donor country. She added that the flip side to Ireland's advocacy for increased ODA contributions was the GOI's focus on strengthening national capacity and governance in recipient countries so as to improve ODA's effectiveness. Irish Support for UK Debt Servicing Plan -------------- ¶4. By the April IFI meetings, Ireland will likely take a public position endorsing the UK proposal for donors to pay developing countries' debt servicing costs to IFIs for ten years, said O'Clearaigh. He noted that Minister of State for Overseas Development, Conor Lenihan, had already signaled Ireland's likely support to UK development officials. O'Clearaigh disagreed with ref A talking point that funding under the UK proposal would be based on debt servicing requirements, rather than on countries' demonstrated policy performance. He remarked that the UK debt servicing plan would take account of the same policy performance standards used currently for the World Bank's Poverty Reduction Support Credit (PRSC) program. Slattery added that the GOI, though supportive of the UK plan, believed that full debt servicing by donor countries would still leave developing countries with insufficient funds to address needs in health, education, and infrastructure. Irish Reluctance on IMF Gold Sales and Other Schemes -------------- -------------- ¶5. The GOI had already informed the British Government that Ireland would not support proposals for an International Finance Facility (IFF),said O'Clearaigh. He described the IFF concept as tantamount to loans that might "mortgage the future" of developing countries. The suggested 5 percent coupon on IFF bonds, moreover, was not the best rate that could be obtained in international financial markets. Slattery remarked that whereas an IFF would increase and front-load ODA, the proposal ran the risk of creating donor fatigue by the time that governments would be obliged to pay off the bonds in 2015. She added that a decline in donor assistance after 2015 would clash with likely expectations among developing countries for continued levels of ODA. ¶6. Regarding other development financing proposals, Slattery said that Ireland "saw some sense" in the UK proposal for IMF gold sales, particularly as an interim measure. The GOI was still exploring the concept with the British Government, however, and had not yet developed a definite position. Development Corporation Ireland also had not formulated a policy line on proposals to fund development through international taxation schemes, such as taxes on aviation fuel and financial transactions. Slattery pointed out that Ireland's Department of Finance, in contrast, had strongly opposed such schemes in GOI interagency discussions. Echoing her points on debt servicing, Slattery added that even if such taxes were to come on line, revenues would be insufficient to help poor countries meet development challenges. The UN Millennium Project Report: Driving the Agenda -------------- -------------- ¶7. Slattery related her impression that the UN Millennium Project Report had captured the international development debate, and she expected that the Report would drive discussions at the April IFI meetings. She said that Ireland gave credence to the Report's suggestion that a number of developing countries, particularly in Africa, faced the danger of being "permanently left behind." Emboffs reiterated ref B talking points that the Report had given undue focus to ODA as a driver of development, with institutional and policy reform as a secondary concern. Slattery replied that governance issues were a continuing concern to donors, and she cited the GOI's view that development failures were usually attributable to lack of national capacity in ODA-recipient countries. BENTON