Canada says auto aid writedowns will boost deficit

(Figures in U.S. dollars)

OTTAWA May 27 (Reuters) - The Canadian government's budgetary provisions for financial assistance to struggling North American automakers will help account for an increased federal deficit, officials said on Wednesday.

Industry Minister Tony Clement told reporters that the practice is that a fraction of loans are written down, resulting in an expense that would add to a deficit. The entire value of any equity stake that is taken is also written down.

"You write down a certain percentage amount of the loan, so there is a fiscal amount. To the amount that we purchase shares, there's a 100 percent impact," Clement said.

The Canadian and Ontario governments agreed on April 30 to provide Chrysler LLC [CBS.UL] with $2.42 billion in short-term and medium-term capital and debtor-in-possession financing. As part of the deal, Ottawa and the province are to take 2 percent equity stake in the company.

The federal share of Canada's contribution is two-thirds, and the Ontario's share is one-third.

Clement did not clarify how much of a writedown would be required in the case of Chrysler.

He also would not confirm media reports that the governments might lend General Motors Corp (GM.N) $9 billion and take an equity stake.

Finance Minister Jim Flaherty sharply increased his budgetary forecast on Tuesday, estimating that it would now exceed C$50 billion ($45 billion).

A spokesman said a good chunk of the bigger shortfall would be due to auto assistance, but he was not more precise.

Ottawa's announcement it would run a record budget deficit this year angered opposition parties, who said the Conservative government is mismanaging the country's finances.

($1=$1.12 Canadian) (Reporting by Randall Palmer; editing by Rob Wilson)