US embassy cable - 05OTTAWA654

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. 
 
Visit Canada's Classified Web Site at 
http://www.state.sgov.gov/p/wha/ottawa 
 
CELLUCCI