OTTAWA - Foreign Affairs is axing a $5-million program that funds Canadian studies abroad even though the department was told two years ago the program generates $70-million a year for the country's economy.

The Foreign Affairs budget cut to Canadian studies programs for foreign scholars is being broadly criticized as a short-sighted exercise in false economy that will damage Canada's international economic and political ambitions.

The "Understanding Canada" initiative, which began in the 1970s, was a $5-million expenditure that gave grants to foreign scholars to teach courses or hold special academic events about Canada in foreign countries.

According to a May 1 posting on the department's website, the program is being phased out because of "the current fiscal context."

The recent federal budget called for $170 million in cuts from Foreign Affairs' already tight $2.6 billion annual budget.

The Canadian Press obtained a 2010 internal report prepared for Foreign Affairs on the program that concluded that the Canadian economy reaped a 14-fold return from its $5-million annual investment.

The program helps pay for foreign scholars to visit Canada to conduct research on the condition they teach university courses on the country for several years after they return home.

Critics say the cuts to Foreign Affairs will diminish Canada's global stature at a time when the government is trying to broaden trade across Asia and Europe. Foreign Affairs plans to close consulates, sell off diplomatic residences, and cut pay and benefits to diplomats.

Former career diplomat John Graham, who headed the department's academic relations division in the 1970s when the program began, said its funding contributes to Canadian studies programs in universities in 39 countries and supports 7,100 foreign scholars. He said the program has more than paid for itself because it has promoted Canadian interests in foreign markets.

"It's just the most appalling false economy to take it away," Graham said in an interview.

"Canadian studies works like a hybrid engine. You put in a little gas and foreign universities and governments keep the battery charged. It is so cost effective that it is a no-brainer -- which must mean that cutting the program would have to be a zero brainer."

The internal report said visiting scholars spend heavily while visiting Canada on everything from additional travel, books, research materials, to their spouses or significant others who accompany them.

"Adding the above provides a total of over $70 million entering the Canadian economy in any given year as a consequence of the Canadian Studies activity undertaken abroad. Simply applying the GST to this amount would make the Understanding Canada: Canadian Studies program essentially self-funding," the report concluded.

"It is doubtful that any other Canadian Government program can make such a claim."

A senior Foreign Affairs official defended the cutting of the program but would not comment on the record.

"A 2010 internal audit found the program to be 'bureaucratic' and 'burdensome' with dubious results. Same audit found limited evidence the program was meeting its objectives or had any verifiable impact," the official said in an email.

"Giving generally small grants to scholars abroad is simply no longer affordable," the official said.

A wide array of academics disagree.

Patrick James, president of the International Council for Canadian Studies, said he has been leveraging small grants -- as little as a few thousand dollars -- to promote major Canada-related events at the University of Southern California where he is the director of the Centre for International Studies.

"I would spin that into a much larger amount of program. I would get matches ... there was a huge multiplier effect. Everyone that was getting these grants was doing the same thing," said James.

The university recently hosted Canadian political scientist and Order of Canada winner Keith Banting, which James said "got a great turnout" and generated a great discussion about Canada.

"I couldn't go far enough in telling how good that was in getting Canada on the map on this campus."

Fen Hampson, head of the Norman Paterson School of International Affairs at Carleton University in Ottawa, said academic diplomacy is an important part of Canada's outreach to the world.

Hampson said Carleton is constantly being approached by foreign governments to establish research programs and institutes to promote their countries.

He pointed to the fact that China last month established a Confucius Institute at Carleton to advance its cultural interests -- its 349th such institute. The government, which is looking to boost trade in Asia, should be taking a lesson from that given its trade ambitions with China.

"Cultural diplomacy is closely linked to the prosperity agenda," said Hampson. "Other countries use it with a vengeance. The Chinese are discovering it with a vengeance ... Everybody is scratching their heads saying if it's important to them what on earth are we doing shooting ourselves in the foot."