US embassy cable - 05DUBLIN360

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