House of Commons Issue No. 16 Minutes of Proceedings and Evidence of the Standing Committee on Foreign and International Trade
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House of Commons Issue No. 16

Minutes of Proceedings and Evidence of the Standing Committee on Foreign and International Trade

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[Traduction en français]
The early days of the 1980s, with that crisis and thereafter, generated very strong IMF programs of demand restraint. Many argued at the time that these were going to be permanent changes and longer-term changes and they were going to impact upon investment, which was the only way people could eventually grow out of their problems on the supply side. Three or four years later the IMF and the World Bank recognized this error and changed their ways.

They did the same thing on poverty orientation. In the early days they did not take account of the impact on vulnerable groups and the social impact. With a lag of four or five years they did learn, but they did so with a lag. In the meantime there was a technical argument about what they were actually recommending and what its effect would be. There are arguments now about whether you should liberalize imports fully and whether you should do that before you have the exchange rate right, whether you should do that before exports get going.

Similarly, with the domestic financial markets, should you liberalize entirely? Countries are doing that and interest rates are going up to 60%; that's been the product of liberalizing through Treasury bill auctions in countries where there really isn't anything much. Speculative capital is coming in and there's a technical argument about whether this is good advice.

What I think you really need for that is second opinions and independent analysis. Where you have the IMF and the World Bank producing reports, assessing the success of their own programs, it's hard to tell whether it's propaganda or whether it's research. Many don't trust the published assessments of the World Bank and the IMF precisely because of that problem. They're analysing themselves. There's a plea, from the standpoint of those who are receiving these conditional loans, for independent analysis, for third parties' opinions.

The World Bank at least has an operations evaluation division, which is mandated to independently assess the effects of World Bank loans. They report directly to the board. The IMF has no such body. The assessments of structural adjustment lending done by the OED at the World Bank have been pretty few and far between. There's a plea then for a more independent analysis of what is going on technically.

The other point is political. What is the appropriate balance, as you put it, between the impositions of necessary conditions on the ground of financial necessity and the provision of appropriate advice and political intrusion?

At some point the balance can be overstepped and it probably relates principally to the impact of income distribution, a highly political matter, the impact on the relative strengths of ethnic groups and minority entrepreneurial groups who are perceived in Africa as the likely beneficiaries of liberalization. They then perceive that advice as a highly political intrusion supporting Lebanese and Asian entrepreneurs at the expense of their indigenous ones.

The role of the state is a highly political matter, as we all know. It's not easy to strike that balance, but I think there's certainly a perception that the balance has been widely overstepped, and it is not helpful when there are technical arguments as well that call into question the wisdom of much of the prior advice.

On that, as well, I think third parties' second opinions would be very helpful to everybody, to the fund and the bank, as well as to the borrowing countries.


[English Translation]
M. Bertrand: On oublie souvent de mentionner que la raison pour laquelle de nombreux projets ont échoué a été l'absence de participation de la population locale et l'absence de transparence. À l'avenir, le FMI et la Banque mondiale devraient insister davantage sur la transparence lorsqu'il est question de l'identification des problèmes et de la participation des personnes et des groupes concernés à tout le processus, de A à Z.

Cependant, cela touche aussi le Fonds monétaire international et la Banque mondiale, parce que ce sont deux organisations qui manquent de transparence, qui manquent de représentativité ou d'accountability. La notion de rendre des comptes doit être développée à la Banque mondiale et au Fonds monétaire international, particulièrement dans le cas du FMI. Il y a des efforts qui se font du côté de la Banque mondiale, mais il est souvent difficile de distinguer s'il s'agit de quelque chose visant simplement à impressionner ou à donner l'impression d'un progrès.

Un des guides dont on peut se servir est ce que cela fait aux populations concernées et quelle est leur participation. La notion d'appui au processus de participation et de démocratisation prend là toute son importance.

[Traduction en français]
Mr. Flis: I'd like to follow up with a supplementary to your over-contribution question. It is addressed to Professor Kirton or any of the other panellists. Which would give Canada more credit in the G-7--reducing our contributions to an average contribution as opposed to twice that of the U.K. and other countries, and using that portion to reduce our deficit and public debt, or leaving the overpayment? We have x number of dollars. Either we can contribute with the overpayment or we can go to average contribution and reduce our deficit.

I have a series of questions. I will put them all and then wait for a reply. I'm asking this question because 30 minutes from now we have a delegation from the Czech Republic. Professor Kirton, you mentioned that we should no longer maybe be giving loans out of the east European restructuring and developing bank, that the Czech Republic, Russia and Poland can perhaps get their funds elsewhere. Please enlarge on the word elsewhere. Where could these countries get their funding?

Professor Helleiner, it wasn't the G-7 that rescued the Mexican peso; it was the U.S. That crisis of the Mexican peso had an impact on our dollar and, after talking to the diplomats from the other Latin American countries, it had an impact on most of those countries. Should another such financial crisis come up, how many times can the U.S. and/or G-7 provide a bailout? We're talking about expectations from the Halifax summit. We should have something a little more concrete. How are we going to handle another peso crisis?

Mr. Boehm, what impact do G-7 deliberations and decisions have on international credit raters like Moody's? Could they have prevented that announcement?

Prof. Kirton: On the question of over-contribution, I would distinguish between the short, medium and long term.


On the long-term question, I think I and many Canadians were quite pleased when a number of years ago the Canadian government started to highlight the fact that in making its annual assessments to the United Nations, we were one of the handful of countries in the world that paid in full, on time, as soon as we could every year. I think that was not only an act of moral faith but also of geopolitical leadership.

After several years it is possible to ask that if the purpose was pour inspirer les autres, who else has been inspired and whether or not that particular strategy is working. Over the longer term I think those questions should be raised vis-à-vis our participation in the multilateral development banks in IFI.

In the short term, though, I think we should raise the issue with our G-7 colleagues and make it clear that we are providing this pattern of commitment not because of an historic, inherited faith in multilateralism or in international institutions, especially those headquartered elsewhere and dominated by the nationals of other countries, but because we are a fully engaged global player in the G-7 club to which all should contribute in a proportionate amount. If that does lead to a discussion amongst the seven of what the priorities really should be, I think that will be very healthy.

I think the G-7 is probably the right institution, looking back at the history of how the EBRD was created, to raise the question, perhaps not at Halifax but perhaps in France the next year or in the United States the year after, of whether or not at some point our contributions to the ERBD as an institution have come to an end. Here I'm referring not simply to the fairly expensive infrastructure of that institution, compounded by its location in London I might point out, but to the broader political purposes for doing it.

When the EBRD was negotiated, there was a strong emphasis, and I think a proper one, by members of the club that it not become an institution that focuses virtually all its resources on the Soviet Union and Russia, because those needs were so vast they would swamp the others and because the larger questions, the financial and economic problems of the Soviet Union and Russia, could not be handled by even a modernly designed institution of intergovernmentally assured lending.

If we look at the EBRD today, I think in many countries we can declare it a success. In that context, as in many of the other processes, I think the Czech Republic is in the vanguard.

I think in the short and medium term real needs remain.

I think the needs in Ukraine are quite substantial, in terms not only of nuclear reactor safety and mobilizing funds for the nuclear safety program of which Peter Boehm spoke, but also more broadly for the core purposes of financial and economic stabilization. I would add there's a need for particular and targeted investments to build sustainable development so that at the initial design of that economy in society they can begin with a more sustainable economic development path.

As for Russia itself, in the spring of 1993, in an example of the G-7 ad hocery of which Gerry Helleiner spoke, led by the United States, the G-7 quickly assembled $43 billion to assist the Russian process of democratization and marketization through stabilization. Canada's contribution to that package, in a year in which we were quite concerned about fiscal consolidation, was $1 billion. Not all of it was in new money or was a direct call on the fiscal deficit, but nonetheless $1 billion of commitments was relatively large for the season itself.

The subsequent year figures on flight capital from Russia--outside by Russians--are somewhat difficult to keep track of but are in the same order of magnitude.

Therefore, the first line of defence I suppose for financial stabilization in Russia is to encourage them, through technical assistance and moral suasion, to get their domestic laws and their economic fundamentals right so that the flight capital will return.

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