EEB A/S SULLIVAN'S VISIT TO IRELAND

UNCLAS DUBLIN 000817 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EFIN EAID ECON EINV EI SUBJECT: EEB A/S SULLIVAN'S VISIT TO IRELAND ¶1. (SBU) Summary: On October 5, Daniel Sullivan, Assistant Secretary for Economic, Energy, and Business Affairs met with SIPDIS Irish government officials, members of the NGO community, and the AmCham to discuss the making of the Celtic Tiger, the economic path forward for Ireland, and assistance issues. Sean Dorgan, head of the Industrial Development Agency (IDA), and David Doyle, Secretary General at the Department of Finance, both explained that it was a unique mix of good policy decisions and a very close relationship between the key players (business, government, and labor) that led to the Irish boom. Joanne Richardson, head of the AmCham, highlighted the significant role that U.S. foreign direct investment (FDI) played in building the economy. Finally, at a roundtable dedicated to assistance issues, the participants explained how Ireland's official assistance agency, Irish Aid, has ramped up its overseas aid -- with a focus on Africa -- and how the NGO community here is contributing to this effort. End Summary. "ORGANIC GROWTH" -------------- ¶2. (U) Dorgan gave a snapshot economic history of Ireland, explaining that the government laid the groundwork for the "economic miracle" as far back as the 1950s with the opening up of the economy. This was followed by a strong focus on education starting in the 1960s when high school was made free and later when university tuition was abolished. As a result of bad policy decisions, during the 1980s Ireland experienced high unemployment, interest rates, and inflation. At that point, Ireland's union, government, and business leadership cut a deal that ensured manageable wage growth, an elimination of industrial action, and a lowering of tax rates. This new-found stability, in turn, attracted FDI, mainly from the U.S., and the economy began to grow. ¶3. (U) When asked whether the Irish model was transportable to other countries, Dorgan highlighted three keys to this growth: an investment in people, low corporate tax rates, and "soft" infrastructure. The latter concept is an ineffable, highly-resistant-to-replication way of doing business in Ireland. Dorgan called it "intuitive marketing" of Ireland, which he described as the unspoken sense among policymakers of the "right" thing to do to move Ireland forward and an ability of these same officials to "pull in the same direction." He said this arose because of the tight-knit policy community here and their many formal and informal contacts and conversations. "AT A TURNING POINT" -------------- ¶4. (SBU) The Finance Department's David Doyle re-iterated many of the themes mentioned by Dorgan, especially the investment in education. When the conversation turned to whether Ireland can sustain the growth it has experienced over the past two decades, Doyle said that the government is committed to "persistently invest" in education and to upgrade the outdated physical infrastructure. While Ireland has caught and, in some cases surpassed, its EU brethren on social and economic indicators, the Republic is still well behind on the quality of, for example, its transportation infrastructure (roads, airports, ports, and rail). Fortunately, Ireland's demographic trends -- it is a very young country -- give it about a decade before it must begin worrying about growing pension obligations. In the meantime, the government is committed to increased public spending on human and physical capital even if the economy (and tax receipts) slows. ¶5. (SBU) Doyle said that the Irish economy is at "a particular turning point" as the Republic's relative competitiveness has slipped. He said that part of the reason is the success of the economy and that the Irish have acquired an "enthusiasm for borrowing." The borrowing and the consequent bump up in consumer spending has been the main driver behind the increase in the cost of living. There is no better evidence of this than in the housing market which is now beginning to cool with "housing prices going into what (we hope) is a moderate decline." Doyle complained that, during the boom years, fiscal policy was expansionary rather than being used as a tool for managing the growth of the economy and now the government will need to get a grip on its spending. Regarding efforts to possibly harmonize tax rates across the EU, Doyle quipped that Ireland supports such efforts as "we would like everybody else to join us" in offering low tax rates. More seriously, he did not believe that harmonization would take place as it runs counter to the principle of each nation's sovereignty on fiscal matters. "TAX AND TALENT" -------------- ¶6. (SBU) As if taking a cue from Doyle's comments, AmCham's Richardson ran through a presentation extolling the benefits and preponderance of U.S. business activity in Ireland (about $83 billion in U.S. FDI stock) but pointed out that recent "divestments" (Amgen, Pfizer, and Motorola) have provided a "reality check" for policymakers here. While all is certainly not doom and gloom, her members keep telling her that the focus should be on "taxes and talent" -- keep the corporate tax low and create an environment that is attractive to top, globally-mobile professionals. Richardson said that to maintain strong economic growth rates the government will need to keep taxes low, effectively manage the flow of regulatory directives from Brussels, and maintain strong intellectual property protection. Both Richardson and Dorgan characterized the latter as one of Ireland's competitive advantages against competitors from Eastern Europe, China, and India. ENGAGING ON DEVELOPMENT -------------- ¶7. (SBU) The Institute of European Affairs (IEA) hosted a roundtable lunch to discuss Ireland's and the U.S.'s assistance efforts. In addition to A/S Sullivan, the guest list for the event included: -- Jill Donaghue, Research Director, IEA -- Ronan Murphy, Director General of Irish Aid, the government of Ireland's assistance agency -- Mike Williams, Head of International Dept., Trocaire (NGO) -- Helen Keogh, Executive Director, World Vision Ireland (NGO) -- Brian Hanratty, CEO, Gorta (NGO) -- Patrick Honohan, Professor at Trinity College Dublin -- Tom Arnold, CEO, Concern (NGO) ¶8. (SBU) A/S Sullivan explained the structure and the role of the Millennium Challenge Corporation (MCC) in the overall U.S. assistance program. Hanratty and Arnold said that the U.S. certainly does not get the credit it deserves outside of development circles for the resources it contributes to help developing countries around the world. Murphy explained that Irish assistance is mainly focused on Africa -- alleviating hunger and dealing with infectious diseases -- and that there is a growing commitment from the government to help beyond Ireland's borders. As testimony to this commitment, he noted that the Irish Aid budget now stands at Euro 813 million, a significant ramp up over the past decade. Murphy also noted that there is a general consensus in Irish assistance circles that the private sector is needed as a partner in addressing some of these problems. Williams said that this was a concept that would have been unthinkable even ten years ago. Murphy also expressed concern about new OFAC regulations that relate to vetting development assistance NGOs. He said that the draft regulations could significantly inhibit effective aid assistance. ¶9. (U) A/S Sullivan cleared on this message. FOLEY