OTTAWA: CANADIAN RESPONSE TO US VIEWS ON DEBT

UNCLAS OTTAWA 000654

SIPDIS

SENSITIVE

STATE FOR EB/IFD AND WHA/CAN

E.O. 12958: N/A
TAGS: ECON EFIN EAID CA CIDA
SUBJECT: OTTAWA: CANADIAN RESPONSE TO US VIEWS ON DEBT
RELIEF FOR POOR COUNTRIES

REF: STATE 31823


1. (SBU) Reftel demarche was welcomed by GOC officials at
Finance, Foreign Affairs and CIDA (the Canadian International
Development Agency). On March 1, our Finance counterpart,
noting that "it's going to be an interesting year" in the
G-7, confirmed that of the five debt relief proposals that
have been put forward, Canada's views seem closest to the
UKs, with the U.S. close in principle but differing on how to
pay. There are extensive areas of agreement. The GOC
considers U.S. views on the International Finance Facility to
be "right on."


2. (SBU) U.S. and Canadian views on IMF gold sales are also
similar. Canada has asked IMF staff to look at the impact of
gold sales, and would consider that option if sales were
possible without harming either the IMF or gold-producing
countries. If gold sales turn out to be impractical (which
Finance thinks is likely),the GOC hopes to persuade others
to help pay off debts to the IMF.

But how to pay?
--------------


3. (SBU) Canada does hold to its preference for 100% relief
from debt servicing (as Finance Minister Goodale proposed at
last month's G-7 meeting in London) rather than the U.S.
proposal in reftel. The GOC, given recent fiscal constraints
on G-8 and other donor countries, does not think that future
large replenishments can be assumed. They stress that both
the UK and Canada plans, like the US', call for continuation
of sound HIPC policy requirements. Canada's proposal does
include some non-HIPC countries (IDA-only countries with a
World Bank Poverty Reduction Support Credit Program),but
they, too, would have to show an ability to make effective
use of development funds.


4. (SBU) Canada believes that while the U.S. plan to reduce
gross flows while maintaining net flows is good in theory, it
would not work in practice. In addition to questions about
future replenishment, they cite concerns about equity towards
non-HIPC low-income countries. They question whether, over
tiem, a smaller amount of IDA will adversely affect non-HIPC
countries as well. The GOC believes that, over 10 years,
their proposal would lead to reduction in both stock and flow
of debt owed by low income countries.

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CELLUCCI