[Recorded by Electronic Apparatus]
Tuesday, October 24, 1995
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[English]
The Chairman: I call this meeting of the committee to order.
Before I introduce the deputy minister, Ms Beaumier, I believe you have a motion you'd like to move.
Ms Beaumier (Brampton): Yes. I'd like to move that further to the committee's decisions of May 11 and June 13, 1995, the membership of the Subcommittee on Human Rights be amended to read as follows: Colleen Beaumier, John English, Bernard Patry, and Lee Morrison; and that further, in the event of the designation of a member of the Bloc Québécois, the membership be increased to five members to include a member of the Bloc Québécois.
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The Chairman: Could I have a seconder for that motion? Mr. English.
Is there any discussion of the motion?
Motion agreed to
The Chairman: Thank you very much.
You will recall, members of the committee, that following our report, From Bretton Woods to Halifax and Beyond, the government provided a response in the House, as is required. We are today fortunate to have with us the deputy minister, who will be speaking to us about the government's position on the report, and we will have an opportunity to ask him questions.
I would draw to your attention the fact that we have with us two members of the finance committee who are members of their subcommittee on international financial institutions. You will recall that three of our members are now members of our subcommittee, which will follow up on the international financial institutions. Mr. Alcock will be chairing that subcommittee, and we will have an opportunity to work together with the finance committee in respect to the international financial institutions.
[Translation]
Mr. Deputy Minister, you have the floor.
[English]
Mr. Gordon Smith (Deputy Minister, Foreign Affairs): Thank you very much,Mr. Chairman.
Today I am here as more than the deputy minister of Foreign Affairs; I am here as Canada's sherpa, the personal representative of the Prime Minister, because of course we've held the presidency throughout the year and we will run until the end of this year. Indeed, our work is still not entirely completed in the Halifax context in that we are preparing for the summit on nuclear questions that will be held in Moscow next May.
Today I'm here with Tom Bernes, who is now Canada's sous-sherpa for finance, to discuss with you the government's response to your report. We would also like to take this opportunity to update you on the progress of IFI reform following the Halifax summit and to inform you of the outcome of recent World Bank and IMF annual meetings.
First, Mr. Chairman, I would like to commend you and your committee on the report. It was a comprehensive examination of reform issues facing the IFIs into the next century, and it was an important contribution to G-7 discussions leading to Halifax. While the focus of your efforts was the Halifax summit, your contribution will be of long-term value to our ongoing work on IFI reform. I would also add there is no question in my mind that the report is also a very useful contribution to greater public information on this subject.
During the process of the government's response, ministers carefully examined your twenty recommendations, and I think you will find that most of them were reflected in the Halifax communiqué.
Prime Minister Chrétien was quite satisfied with the outcome of Halifax. In his judgment it proved to be a fruitful summit in that it laid down an ambitious program. We have been subsequently following up on the results of Halifax in order to ensure that the decisions that were made are in fact being implemented.
We were guided by a genuine desire to ensure our efforts result in real change in institutions and institutional relationships. As you're all aware, in the past some summits have been criticized for having given communiqués and then not having any follow-up. We wanted to ensure that in 1995 there was follow-up.
The main message from Halifax and IFIs is while they have evolved and adapted to new international realities, improvements are both possible and desirable. What is needed is not a major overhaul of the Bretton Woods system, but a refocusing of a number of activities. It is within this framework that we are now pursuing IFI reform.
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In Halifax, we followed a thematic approach, based on the main challenges the world faces in the next century. These challenges were echoed in your report. In fact, the challenges came from the initial meetings of personal representatives when we looked at what was on the mind of our respective leaders in preparing the work that eventually led to the Halifax summit.
The G-7 countries at Halifax pledged to develop ways to: first, strengthen the global economy; second, promote sustainable development; third, reduce poverty; fourth, safeguard the environment; fifth, prevent and respond to crises; and sixth, reinforce the coherence, effectiveness, and efficiency of our multilateral institutions.
Promoting greater coherence, effectiveness, and efficiency of IFIs was a clear goal of Halifax. The summit proposed that: the World Bank and the regional development banks decentralize their operations wherever possible; the IMF and the World Bank concentrate on their respective core concerns, macro-economic policy for the IMF and structural and sectoral policies for the World Bank; the IMF and World Bank ministerial committees be revised to promote more effective decision-making; the World Bank group integrate more effectively activities of the International Financial Corporation and the Multilateral Investment Guarantee Agency into its country assistance strategies; and finally, the multilateral development banks coordinate their respective country programs more effectively with bilateral and other multilateral donors.
The leaders also encouraged closer cooperation between the WTO and other IFIs and asked the WTO and the UN Conference on Trade and Development, UNCTAD, to eliminate duplication.
The WTO was invited to monitor and review the Uruguay Round's impact on least developed countries.
On debt issues, we welcomed the Paris Club response to improve the treatment of the debt of the poorest countries and urged the full and constructive implementation of the Naples terms.
We encouraged the Bretton Woods institutions to develop a comprehensive approach to multilateral debt problems through the flexible implementation of existing instruments and new mechanisms where necessary.
We agreed that more transparency is needed in IFIs. However, the government believes that existing structures and accountabilities at the IFIs are appropriate.
Canadian governors at the IFIs are elected members of Parliament. The Minister of Foreign Affairs is the Canadian Governor of the regional development banks and, as you know, the Minister of Finance is the Canadian Governor for the IMF, World Bank, and EBRD, the European Bank for Reconstruction and Development.
As I indicated, Prime Minister Chrétien is personally committed to ensuring a successful follow-up to the Halifax summit.
I wrote to the Canadian executive directors at the IFIs in July asking them to take concrete action in implementing the Halifax initiatives. I stressed sustainable development, poverty reduction, and multilateral debt of the poorest countries.
Canadian executive directors have a key role to play in this process. They are maintaining regular consultations with their G-7 colleagues on Halifax follow-up issues.
In terms of process, the IFI reform agenda is being pursued in various multilateral fora, and Tom Bernes will comment on this in a moment.
Because fora for debating IFI reforms already exist, and we wish to avoid duplication as well as alienating non-G-7 countries, we have decided not to pursue the idea of a G-7 task force to monitor an IFI reform agenda.
IMF Managing Director Camdessus and World Bank President Wolfensohn are personally committed to the Halifax agenda. Indeed, IMF Managing Director Camdessus was here a few weeks ago, during the visit of Prime Minister Chernomyrdin, and Tom Bernes and I met with him on that occasion to discuss the process of IMF reform.
World Bank President Wolfensohn is holding regular meetings with G-7 executive directors on the Halifax agenda to evaluate progress. Tom Bernes will bring us fully up to date on their annual meetings in a few moments.
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Clearly, support outside the G-7 is needed. We agree with the committee's view that ``developing countries are increasingly challenging any unilateral positions taken by the G-7 club.'' For IFI reform to succeed, it's crucial to develop wider coalitions with non-G-7 countries.
Following Halifax, we debriefed our partners in the Commonwealth, la Francophonie, ASEAN, OAS, and APEC. Prime Minister Chrétien, as I've said, is strongly committed to this agenda and will take advantage of upcoming summits of the Commonwealth, la Francophonie, and APEC to promote the agenda further.
Since the Halifax meeting ended I have chaired one SHERPA meeting, in September. At that point, after a review of progress, we agreed that IFI reform was on track.
The one area where we felt there was still room for progress, however, was in the Regional Development Banks. In that respect, the vice-president for Multilateral Programs of the Canadian International Development Agency, Nicole Senécal, wrote to the Canadian executive directors of the Regional Development Banks requesting that they increase their efforts in promoting the banks' proposals. I intend to ask my SHERPA colleagues to encourage their executive directors as we have ours.
The next summit will take place in Lyon, France next summer. France, however, assumes the G-7 chair in January. We will take stock of the progress on IFI reform at a SHERPA meeting that I will hold later this year in order to prepare for the follow-up that will clearly take place among leaders at the Lyon summit.
I am confident that with the type of assistance your committee has provided, Mr. Chairman, the legacy of the Halifax agenda on IFI reform will be a constructive and positive one in the best traditions of Canadian foreign policy.
Now, Mr. Chairman, you might ask Tom Bernes to comment in some more detail on some of the points I've made. Thank you.
The Chairman: Mr. Bernes.
Mr. Thomas A. Bernes (G-7 Deputy for Canada and Assistant Deputy Minister, International Trade & Finance Branch, Department of Finance): Thank you very much,Mr. Chairman.
I think Gordon has provided the committee with a very useful overview. For my part I'd like to comment from my perspective as G-7 deputy on some of the more specific matters he referred to, including the outcome of the interim and development committees and the annual meetings of the fund and the bank, which occurred just ten days ago or so in Washington.
In the context of the Bretton Woods institutions, the Halifax reform agenda might be broadly characterized as a series of initiatives in four key areas, all of which were addressed in the committee's May 1995 report.
First, the G-7 sought agreement with the IMF and other shareholder governments to strengthen the fund's surveillance activities and early warning capacity. This, following on the heels of the crisis in Mexico and the collapse of Barings Bank, will allow us to better identify potential crises before they occur and take actions to avoid them.
Second, we sought to ensure that when crises do occur, the IMF has access to adequate financial resources for an effective response.
The Chairman: Mr. Bernes, I'm sorry to interrupt you, but we are having some small technical difficulties with the acoustics and the translation. If you could just be careful enough to speak slowly and directly into your microphone, I think it would help the translation process. Thank you very much. Excuse me for interrupting.
Mr. Bernes: Fine.
Third, consistent with the concerns raised in the committee's report, the G-7 encouraged the World Bank and the other multilateral development banks to direct a greater share of their financial resources to the poorest, most disadvantaged developing countries.
Finally, we sought ways to achieve greater cost efficiency and less waste among the various international institutions. In short, we tried to subject them to the same pressures that are currently being faced by shareholder governments.
Many of the issues raised at Halifax were recently addressed at the annual meetings. For example, at the interim committee meeting, ministers decided and agreed upon measures to strengthen the IMF surveillance through the provision of more comprehensive and timely economic and financial data and the establishment of standards for the publication of this data. It was agreed that the data a country provides to the financial markets should be similar to that provided to the fund.
Secondly, there was agreement on improvements to the current procedures for dealing with emergency financial situations so that faster access to fund resources can be provided with strong conditionality and larger up-front disbursements in crisis situations. To ensure that adequate resources are available to deal with such situations, a doubling of the resources available under the general arrangements to borrow has now been broadly accepted.
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Ministers also approved the fund's decision to expand the scope of the fund's policy on emergency assistance to deal better with the special problems of post-conflict countries.
Fourthly, in discussing the multilateral debt burden of the poorest, most heavily indebted countries, ministers agreed on the importance of ensuring a continuation of concessional lending under the Enhanced Structural Adjustment Facility of the fund. The fund was asked to provide the committee with options for the continued financing of the facility at its next meeting in the spring.
At the development committee, ministers underlined the importance of the World Bank and IMF efforts to provide support for poverty reduction in part through increasing the share of investments in social-sector projects. They also emphasized the importance of a significant replenishment of IDA and the need to ensure that previous commitments to IDA are fully honoured.
Finally, they agreed that while current instruments provided the flexibility to deal with the multilateral debt problems of most countries, a number of countries still face unsustainable debt burdens. It was therefore requested that the bank and the fund continue their work on this issue and report back with concrete proposals at the spring meeting.
Overall, I would characterize these meetings as focused and productive, and I believe they were able to advance the IFI reform agenda articulated at Halifax significantly. The fact that so much has already been achieved in the three and a half months since Halifax I think is particularly noteworthy given the track record of international institutions and their ability to move and respond quickly.
Other work is also under way amongst G-10 ministers and deputies on the scope that may exist for other approaches to work out arrangements in an orderly fashion for financial crises and on means to strengthen financial market regulator cooperation. In the development context, under the auspices of the development committee, there is the multilateral development bank task force, which is addressing many of the themes in your report and which will report early next year to the development committee. The discussion will be focused on those topics once again at the spring meeting.
The Chairman: Thank you very much, Mr. Bernes.
Mr. Mills.
Mr. Mills (Red Deer): The question I'm going to ask you is one I'm getting asked a lot today, and I'm sure many of the other members are. I think it relates to this, but it certainly didn't at the time we were doing the report or when the Halifax conference went on. It's the ability to respond to a financial crisis in a country, if it were to arise: what the IMF response is and how the early warning system cuts in. Obviously the run on the Mexican peso started a crisis, and the question that's being asked by people outside this place, at least, is what happens if that were to happen to a country such as Canada through a crisis. What kind of quick response would there be? Is the IMF able to handle that sort of response and all that involves?
We both know what we're I'm talking about. Without getting into that, let's speculate, if you could.
That's one question I have, which is not an easy one.
Mr. Bernes: Let me answer in terms of how the procedures would apply to any country.
I think in the first instance it was recognized that what one needs for any country is better data, available both to the fund and to the market. Indeed, one of the lessons of Mexico was that some of their numbers, their key financial data, were not made available and there was a significant change in circumstances which markets were not fully aware of. So one of the decisions at the interim committee, as I said, was to ensure that countries meet certain data standards with a two-tier structure, a structure that is more sophisticated in detail for countries that access international capital markets.
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That, in turn, allows both the fund and the private sector to analyze events, and by having that better analysis, and in the context of the fund by having sharper and more critical analysis, one can anticipate, and hopefully avoid, problems.
One of the difficulties we found in the fund is that they often used what we call boiler-plate language, that it was cast in very general terms and sometimes key messages were not as clear as they should have been. So in those situations there has been an effort to ensure that language in IMF reports is now much more specific.
That is the preventive side.
Then there is the question of how to respond to a crisis if one arises. At the recently concluded meetings a decision was made on what's known as the emergency financing mechanism, which is a procedural device that allows the fund to respond very quickly to an emerging financial situation, such as we had with Mexico, and which allows the fund to put aside its usual time requirements for consideration of new fund programs.
For example, there is a normal time delay of six weeks in which board documentation must be available before the board can consider a situation. This new procedure would allow those rules to be set aside in an appropriate circumstance, and also allow for funds to be disbursed, with large disbursements up front but with conditionality when a sufficient program has been negotiated between the country and the fund.
In terms of resources available to the fund, which is the third part of this, there are of course the normal funds, which the IMF has available to it. I think Michel Camdessus said at the time of Mexico that the fund could have dealt with two and a half Mexicos; i.e., their liquidity position was sufficiently strong that there was not a shortage of resources.
What was decided upon was to proceed with a review of the quotas of the fund to see whether there is a need to augment them. At the same time there was agreement that the proposition advanced in Halifax, that the resources of the general arrangement to borrow, which is a backstop to the IMF whereby the G-10 countries in certain circumstances are prepared to advance funds to the IMF when it faces a liquidity shortage, should be doubled. Consultations are now occurring with potential new participants, as well as the current members of the G-10, on how that might be organized. Once again, it's hoped that a specific decision on that will be made in April.
Mr. Mills: [Technical Difficulty - Editor]...in the case of a country like Canada?
Mr. Bernes: The general arrangement to borrow, which does have a provision for participants - and Canada is one of the 11 countries participating in this - does allow for resources to be advanced to the fund to meet requirements of any one of those countries.
Mr. Mills: Is it reasonable to compare the Mexican crisis to a potential financial crisis if a 60% yes vote were to occur?
Mr. Bernes: I don't think I'd want to speculate specifically on that. Clearly there is nervousness in financial markets, as we have seen reflected in the last few days, and this is a matter we're following closely.
Mr. Mills: Are all the data available to the IMF, which it was not in the case of Mexico?
Mr. Bernes: That's right. It's widely recognized that, through Statistics Canada and through the other financial reporting mechanisms we have, Canada has one of the most sophisticated reporting systems in the world. So the fund is clearly, with respect to Canada, as for the other industrialized countries, much more aware of developments and much more able to follow them closely. It's important to distinguish between the major industrialized countries, which in fact do have much data available, and countries such as Mexico, which have not put out as much data in the past and which markets have not followed quite as closely.
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Mr. Mills: What has been done to curtail speculation? We heard in the spring that speculation in currency was a major problem. Has anything been done? Can anything be done?
Mr. Bernes: I think the analysis that came out of Halifax is that one must focus on the causes of fluctuations rather than on the symptoms of fluctuation. Indeed, some fluctuations are appropriate, but it's the excessive volatility that can create problems. There is no simple mechanism. There were a number of mechanisms advanced, which have been examined. I think in every case these were found to have significant shortcomings. Even if they were successful, as I said, they only address the symptoms.
More focus has therefore been on dealing with the root causes, and that's getting the economic fundamentals right.
Mr. Lastewka (St. Catharines): My question basically is along two lines. First, when our committee visited and had many discussions in Washington and back in Canada, we talked about the duplication between the IMF and the World Bank and how both organizations had grown over time.
I realize in Mr. Smith's report you talked about the goals set by the IFIs for effectiveness and efficiency. I'm just concerned that not enough was said about the avoiding of duplication and the setting of goals so that they aren't overlapping. Overlap was what we saw and had expressed to us while we were in Washington.
I'd like to have you comment on our third recommendation. I think it is shown in your report that they're going to do something about it, but I'm not comfortable that it will be looked at.
Mr. Smith: Mr. Chairman, Tom Bernes might want to add to what I want to say. As a result of the Halifax meeting, there have been several meetings, including meetings at the highest level among the heads of the IMF, the World Bank, the WTO, and in some cases the UN. There has been at least one that I know of in Geneva. I don't know the history well enough to be able to say to you that this is unprecedented, but at least it's very unusual.
There is a commitment on the part of the leaders, particularly of the IMF, the World Bank, and the WTO, all of whom I've spoken to personally about this, to do something about overlap and duplication. They want to ensure that analytical capabilities are not being duplicated in one organization or another; they also want to ensure that there is a greater degree of sharing.
I don't want to suggest for a moment that I think the problem is resolved, but I think the problem is now being addressed amongst the heads of the agencies. It's also being addressed by the executive directors of the G-7, who were all sensitive to this issue. I think there is real progress being made.
I don't know, Tom, if you want to add anything to that.
Mr. Bernes: No, but I would just add a couple of comments perhaps. I think, as Gordon has said, for the first time there are now regular meetings. Indeed, Boutros Boutros-Ghali of the UN, Jim Wolfensohn, of the World Bank and Michel Camdessus of the IMF have agreed that they will meet quarterly and, indeed, at their next meeting and from then on they will be joined by Ruggiero, the head of the WTO. So this does bring the heads of those institutions together.
Similarly, Jim Wolfensohn has initiated a series of regular meetings with the heads of the regional development banks. They have in mind the messages that came from Halifax, which are being reiterated through the G-7 process and other processes on the need to improve coordination.
I think the fast agreement among the UN, the IMF, and the World Bank on improved procedures to coordinate responses to post-conflict situations is a good example of that. They have put procedures in place to allow for a clearer and quicker designation of the lead agency and to mobilize plans.
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I might also just mention that the multilateral development bank task force is examining these issues. As a member of that task force, I know the task force has met now with the heads of most of the regional development banks. This has been a consistent theme of our discussions with them, and will be, I believe, a major focus of our final report: the need to prevent or minimize duplication and to ensure a much better coordination and effective use of resources.
Mr. Lastewka: What is the timeframe for doing what people agreed to do at the Halifax summit? Are there various key points over the next number of years to say this is now how we want to operate better and more effectively?
Mr. Smith: The leaders will have to decide that when they meet in Lyons. President Chirac made clear that he wanted to come back to the issue of the functioning of the international monetary system in particular, so I'm sure that will happen under the French presidency. He indicated that publicly.
The French have also indicated they wish the Lyon summit to be focused on development assistance to the poorest of the poor. Why hasn't it worked better? What lessons can we learn from reviewing that experience? The preparatory work on that subject has already begun. Obviously that takes you into the territory of the performance of the World Bank, but also of the UNDP, the regional development banks, and bilateral development assistance programs, for that matter.
So I think the leaders in Lyon will decide what the next step is.
I would just add, though, because the example just occurred to me, about the very current issue of reconstruction in Bosnia. There too these institutions, early on, including here the EBRD, are working together on a coordinated approach to make sure there isn't overlap and duplication. I just would add that as an example to point out that there really is a follow-up.
As to where we go in the longer term, I think we will have to wait to see what the leaders decide in Lyons.
Mr. Lastewka: I live close to our neighbours to the south. We're always exchanging visits with the various Congress representatives. Their discussion concerning the UN in the last year probably has changed a little, but I'm not quite sure where they stand. When we were in Washington we weren't quite sure what they were really saying and not saying about support for the various banks and the UN and so on. Where do you think we stand now with the U.S. in support for the IFIs?
Mr. Smith: This is a subject of really quite deep concern to us. The Prime Minister in his statement in New York on the fiftieth anniversary of the United Nations made clear, first of all, our support for the United Nations, secondly the need for the United Nations to renew itself, and thirdly the need to confront the UN's financial crisis. The UN's financial crisis certainly won't be dealt with just by dealing with administrative inefficiencies and overlap and duplication. The problem the UN is facing is severe arrearages, above all by the United States of America.
Obviously we discuss this subject with our American friends on a regular basis. Indeed, it was discussed when the Minister of Foreign Affairs, Mr. Ouellet, was in Washington last week and met with Secretary of State Christopher.
The problem in the United States, as you will know, is...in fact public support for the UN is still fairly good. The administration supports the UN. They say so, and I believe they are sincere in what they say.
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The problem is - and it's a huge problem - in the Congress. It's the Congress that is refusing payment on arrears and is unilaterally establishing goals - for example, a maximum of a 25% contribution to peacekeeping operations. So a major effort is required to convince Congress not that the UN is perfect, but of the value of the UN.
If I may, Mr. Chairman - I hope this isn't out of order - my own view is very much that there is a significant role that members of Parliament can play in this regard in talking to members of the Congress, and senators as well, because the problem is both in the House and the Senate.
However, we have raised these issues. Indeed, Mr. Ouellet raised them also with some members of Congress when he was in Washington last Wednesday. But it really is very important that we try to persuade the Americans, not just that it's in our interest and the world's interest that the UN be renewed and be a vital body, but that it's in the United States' interest as well. That seems to be somewhat missing in the perspective of a number of congressmen.
Mr. Lastewka: I think you're absolutely right on the last comment. In my dealings with some of our counterparts in the U.S. since our visit in Washington, I noticed that their outlook has changed quite considerably. It was a good exchange, and maybe we should be encouraging more.
Thank you, Mr. Chairman.
Mr. English (Kitchener): On behalf of the committee, I'd like to say I appreciate the response to our document. I think the response is quite helpful.
I have one specific question, and then perhaps following along Mr. Lastewka's lines, a broader question.
In terms of the IDA lending fund and the replenishment, I think you talked about that,Mr. Bernes. In speaking about it, you indicated there was some concern. With the U.S. Congress clearly having great doubts about replenishment, what is the attitude of other countries such as Canada? Are we going to take up any of the slack, or is there any discussion among the other countries as to what is likely to occur if the United States Congress does not take part in IDA replenishment?
Mr. Bernes: There are two issues here. One is that IDA is replenished every three years. There is a negotiation, and the replenishments are negotiated on the basis of fair burden-sharing between the major donor countries.
The current IDA operations is IDA 10, and we've run into a problem with the United States, at least in the current budget bill before the U.S. Congress, which will not meet its obligations to IDA for the next fiscal year. These are commitments that the previous administration had entered into during the replenishment for IDA 10.
I might say, that of course is not the position of the administration. In his budget request, President Clinton requested full funding for IDA, as he did for the UN system, and the administration has been very active in trying to advance the cause of IDA on the Hill. This was a matter of concern and discussion at the development committee in Washington 10 days ago for two reasons.
Clearly, if the United States does not meet its obligations under the provisions of IDA, there is the potential for other donors to pro rata their contributions. Therefore, there is a question: should other donors pull back because the United States is pulling back, until such time, a year or two down the road...if they meet their full obligations? The message was stressed that this clearly could cause a major funding problem for IDA.
The second issue is the ability of the international system to operate if countries are not prepared to live up to obligations they have undertaken, financial or otherwise. Clearly, that does potentially cause serious concerns, and these have been flagged pointedly to the appropriate United States authorities.
There are negotiations currently under way with respect to the replenishment for IDA 11, but until the situation of IDA 10 is resolved with respect to the funding, the U.S. administration is not in a position clearly to commit itself to IDA 11, nor, frankly, are the rest of us in a position to read what the ability of the administration would be to deliver in Congress on a commitment with respect to IDA 11. So this is a matter of concern. It is under active discussions and negotiations.
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The aim of the IDA management, of World Bank management, had been to conclude those negotiations before the end of this year. Frankly, I'm not sure that's going to prove to be doable because of the U.S. pledging process and the timing on that.
Mr. English: In terms of the World Bank, and indeed in terms of the fund too, the historic relationship of the United States with the institutions was that it dominated from the very beginning. The president has been American generally.
Wolfensohn is Asian by birth, and recently, when touring China, he said he saw the future and it was working. He pointed out that ten years from now, Asia, presumably, if one can extrapolate from the rates of growth we see at the present time, will have a very dominant role in the world economy.
When you see his own institution - and I was in Washington two weeks ago at the World Bank - it has very much an American flavour. Even if the people are not Americans, they all tend to have degrees from American universities and speak the language.
The Chairman: Unlike anyone in this country.
Mr. English: Yes. I have nothing against that, mind you.
Might not the transition in the longer run to a different kind of institution, where the Americans don't play such a large role, be helped by this kind of controversy that's going on?
I don't mean to cite this as an authority beyond question, but The Globe and Mail editorial today criticizes President Clinton for his speech to the UN on the grounds that he said Americans should stand up for the UN because of what it could do for crime. It was almost exactly the same speech he gave in San Francisco.
If you look at the public opinion poll, which has often cited that the Americans support the UN, when they're asked the specific question, ``Why do you support it?'', crime is number one, not international peace and security and those types of things.
I'm wondering whether these types of controversies that are going on in the United States might not actually be helpful in the longer run in forcing the institution to draw away from its historic reliance, if you like, or overemphasis, on the United States, which of course has played a role much greater in recent times than it has in the world economy.
Mr. Bernes: That certainly is a factor. The United States currently contributes about 22% of the total IDA replenishment. Those countries that have rich reserves and perhaps are prepared to pay the price have suggested that if the United States is not able to sustain its contributions, it should move aside and allow others to take up a greater share of the capital in return for larger contributions to IDA, which would obviously enhance their influence within the World Bank and would diminish the United States'. That clearly is a message that a number of countries have delivered.
On your more general point, one of the interesting things to watch will be what the new president does. Clearly he intends to try to decentralize their operations. I think he realizes there is too much focused in Washington and that does perhaps put a particular flavour on things. He is very keen to get interchange programs going with the private sectors in a number of countries, bringing in people with expertise in various areas, and getting World Bank people out on interchange with various private sectors as well as governmental groups.
That has the potential to decentralize their operations more into the field, which in turn will also enhance coordination with the regional banks. As well, bringing in many more people in the interchange has the potential to help influence that. The two, in tandem, can have an influence.
[Translation]
The Chair: I have a question which ties in with some of the others we have heard.
Last week, I was in Cartagena for the meeting of non-aligned countries. Virtually all of these countries - there are 13 of them as you know - are firmly opposed to the policy pursued by international financial institutions.
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In their opinion, this policy borders on colonialism. The non-aligned countries want to be more involved. They want resources to be allocated to reduce the debt load of have-not countries and they absolutely want to have more of a say in these institutions' decisions.
In light of the comments of Messrs. Lastewka and English regarding the U.S. Congress and the position of our G-7 partners, what are the prospects for greater participation on the part of non-aligned countries or countries of the South or North in these institutions and what are the prospects for reducing the debt load of less developed countries? That's what these countries need, given that we have rejected Great Britain's proposal that we work out some kind of arrangement or reduce these debts.
[English]
Mr. Bernes: I'm going to deal first with the question of debt.
We have a number of instruments through the Paris Club, through the Naples terms, whereby the problems of official bilateral debt can be dealt with. The problem that continues to persist today is a problem in some 19 or 20 countries that have official debts to the multilateral institutions that have not been resolved, and in some cases probably cannot be resolved, by the countries concerned. Together with the U.K., Canada has argued strongly for the need for an extra strategy for these countries, which are committed to a reform process, which shows that they can be sustained.
There are two dimensions to it. There is money potentially owing to the IMF and the question of the extended structural-adjustment facility, how to ensure that this will continue beyond its current expiry and will have the necessary financing. That is where the U.K. proposal came into play, which Canada supported, as did the managing director, whereby a small portion of the gold reserves of the IMF would be sold, the proceeds of those invested, and the return from that investment used to help fund ESAF.
A number of developed countries do not believe that this is an appropriate use of the gold reserves. Hence, the specific proposal advanced by the U.K. has not been accepted. But there was agreement that some use of gold, perhaps in a different fashion, could be pursued, and that is being examined and discussed at the IMF board right now.
Similarly, debt is owed to the World Bank, through the debt facility in IDA, through what's called the fifth-dimension facility. Through some other mechanisms there are means to help. The question has been whether there is a need for anything else.
Halifax called for the heads of the IMF and the World Bank to work together, together with the regional development banks, to develop proposals.
You might have seen reference to a leaked World Bank study a few weeks ago, which proposed an $11-billion debt facility to address some of these problems. That was a leaked document prepared at at junior staff level that had not yet been reviewed by senior management.
Both Michel Camdessus and Jim Wolfensohn spoke to that at the interim and development committees and indicated that it was still premature. There were a lot of questions about that proposal, questions that Canada and other countries have had, but that is undergoing review.
Ministers specifically said that they wanted the fund and the bank to come forward with proposals, not just further analysis, at the spring meeting, and we are hopeful that there will be some response to that.
The really critical issue is the resource one, the additionality question. Resources are limited and ODA budgets in many countries are staying at the same level, or indeed shrinking.
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Therefore, there is a real question, which the institutions, the NGOs, and governments have to address, in terms of what is the best use of scarce developmental resources. Is it in a developmental project in a country performing well or is it in a debt-relief context? If you have a limited pot and you have to allocate it, it really does mean making priorities.
Of course, the attraction of the use of the IMF gold is that it will provide additional resources that would not otherwise be made available. One of the difficulties with the debt-relief facility that was set out in this leaked World Bank document is that it counted very heavily on bilateral contributions. The ability and the willingness of the international community to actually put up additional resources to meet that really becomes the critical issue.
The Chairman: The second half of my question is about including the countries of the south, to use an unfortunately broad phrase, in the process of the institutions in a way in which they feel they have a meaningful role to play in them. Is there a real perspective of that or, in your view and in the Canadian government's view, are these institutions necessarily governed largely by those who put the money in and who will obviously wish to retain the greater part of control over how they will be managed?
Mr. Bernes: Well, at the end of the day, these institutions are banks and they are loaning out the money. Those who are putting up the money are going to expect to have a say, and a fairly predominant say. I think what's important to note is that indeed it is some of the emerging economies that are saying they now have the capacity, they now play the economic role, and they expect a larger role.
There are two manifestations of this right now. One is the one that emerged from Halifax, where the G-7 said - and Canada argued very strongly in favour - that the GAB, the General Agreement to Borrow, must be expanded not only in terms of its size, by virtue of doubling, but also by bringing in new members. The purpose of bringing in new members was not simply to find additional money but to reflect the changing nature of the world economy; there are newer players emerging and they must have a seat at the table.
I myself have been chairing a group within the G-10, which has been discussing how to approach this. I've been asked on behalf of the G-10 to now approach a number of potential participants in a new arrangement. The concern is how to bring these new members in, on terms and conditions that are satisfactory both to them and to others.
The other dimension in which this is being addressed is the question of the eleventh quota review of the IMF, to which I referred earlier. Of course, your quota also represents your voting strength within the fund. There's a very complex formula for determining what the quota increase should be and there's always a question regarding to what extent the increase should be equi-proportional and to what extent the increase should reflect changes in economic circumstances. That is a very active debate and it's just getting under way.
Clearly, countries are pushing for some greater recognition in the quota increases of relative changes in economic strength. In general, that's something we have supported as well.
The Chairman: I have a totally different question relating to the African Development Bank. During the course of our hearings, we heard evidence that the African Development Bank has considerable problems and that in fact the equity the Canadian government chose in the African Development Bank may not be worth what is on our books.
Have you any comments on the viability of the African Development Bank, its future prospects, and what, if any, consequences that has for the accounts of Canada?
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Mr. Bernes: Certainly it's a situation we have followed very closely. We don't think there is any imminent risk of a call on our callable capital.
Certainly the bank has gone through some difficult times. A new president has recently been appointed to the African Development Bank. He is looking at changes in the senior management team. Negotiations are about to begin on a replenishment of the African Development Fund concessional window. I think all these changes suggest that improvements are coming. Therefore, we wouldn't anticipate that would have any impact on the books of the Government of Canada.
The Chairman: I have just one follow-up question on the IMF, again arising out of my experience with the non-aligned movement. Considerable resentment was expressed amongst many speakers there that the surveillance and other fiscal disciplines requested of them were in no way followed, or even thought of, by the G-7 members themselves. Obviously one applies different rules to debtors than to creditors. There's no question that's a normal banking procedure. But there was some suggestion there that perhaps there were rules for some and different rules for others. I wonder about the extent to which you, or our government, see the IMF in its surveillance role developing a stronger rule that would be applicable to all countries.
Mr. Bernes: Certainly the Canadian position has been that the fund should be equally strict in its advice and its analyses with all countries. That indeed was quite clearly registered during the Halifax process and recognized, I believe, in the background document. We can't expect other countries to be subject to stricter surveillance than the G-7 is prepared to subject itself to.
You put your finger on the critical point, though, which is that those countries looking to borrow from the fund obviously are in a different position from that of the G-7 countries, none of which has borrowed from the fund since the 1970s.
However, the large industrial countries are also subject to capital markets and to review by those institutions, which in many cases can be equally rigorous. So they are subject to some different tests they have to meet.
However, I think your fundamental point is that the same quality and rigor of advice should be provided to all countries; and we've strongly supported that.
The Chairman: I see no further questions, so on behalf of the members of the committee I'd like to thank you both very much for taking time to come and be with us today.
I would just like to say our experience in preparing our report was an extremely valuable one. We believe now these institutions have an impact on the daily lives of Canadians. Through talking to our colleagues in the United States and in other countries we have learned that in fact all parliamentarians now recognize there is a role for Parliament as well, beyond that which used to be the finance committee's or finance department's preserve with these financial institutions. I think meetings like this will contribute to our understanding. They will also ultimately contribute to the credibility of those important institutions, by making sure we understand how they work and we have our input into our government's policies in respect of them.
We intend to follow up on this issue. As you know, we have a committee of the finance committee and our committee, which will be following up on the international financial institutions. I think that will beneficial, not only for members of Parliament but for all Canadians, in bringing us closer to these important institutions.
Thank you very much.
The next meeting, I would remind the members of the committee, is on Thursday, October 26. I think it was originally shown as being at 10 a.m., but with your permission I'm going to move it to11 a.m., because there are other conflicts members have expressed to me.
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Mr. Alcock (Winnipeg South): There's been a meeting called for 3:30 p.m. on Thursday. What's that about?
The Chairman: It's 3:15 p.m. on Thursday.
Mr. Alcock: What's it for?
The Chairman: It's for a very short review with Mr. Coutts on the future business of the small and medium-sized enterprises report, so we can be sure we get that in proper shape.
Mr. Alcock: Oh, we are going to have Coutts. Okay.
The Chairman: Thank you very much. We're adjourned until 11 a.m. on Thursday.