The "Group of Seven" (G-7) major industrialized democracies meeting in Naples in July 1994 posed for themselves, and as a challenge for consideration by the next Summit in Halifax, several very far-reaching questions:
How can we assure that the global economy of the 21st century will provide sustainable development with good jobs, economic growth, and expanded trade to enhance the prosperity and well-being of the peoples of our nations and the world?
What institutional changes may be needed to meet these challenges and to ensure the future prosperity and security of our people? 1
G-7 leaders, gathered 50 years after the historic July 1944 Bretton Woods Conference which set the framework for the principal post-war multilateral economic institutions, had in mind as a critical element in this inquiry, the overhaul of an increasingly challenged, and still incomplete, Bretton Woods system.2 There are many who believe that the core international financial institutions (IFIs) within this system - principally the International Monetary Fund (IMF) and the World Bank - are no longer able to meet the tests of global stability and sustainable development, and are ill-prepared to manage the future governance challenges of a world economy undergoing rapid transformation. In addition, events since Naples, notably the crisis flowing from the Mexican peso collapse and the recent sharp plunge of the U.S. dollar against the Japanese and German currencies, have reinforced concerns about the operations of the international financial system and the inadequacy of efforts by governments and multilateral institutions to respond to "shocks" which exacerbate exchange-rate volatility. Furthermore, it is clear that global prosperity, and with it the prospects for security in a world of global economic interdependence and increasing populations in the developing countries, depend upon a freer trading environment which is backed up by an international financial system capable of handling the capital and transaction flows necessary to finance the new international economic order. In short, global integration has made the international financial system more closely reflect the requirements of domestic systems with their need for efficient distributions of savings and investment.
Concrete actions forthcoming from this year's Halifax Summit are required if confidence in promises of institutional reform and renewal are to be kept. The Committee believes that the G-7 meetings in Canada this June must begin to make at least a "downpayment" towards fulfilling expectations for significant reforms. To that end, building upon the results of the 1994 foreign policy review in which our members participated actively, the Committee decided to undertake a concentrated and strategic look at the Summit agenda in time to produce a report supporting the development of forward-looking Canadian positions as part of the preparatory process for Halifax. Summit agendas have come to encompass an increasingly wide range of global issues, perhaps more than can be pursued effectively. Recognizing that, we explicitly focussed our deliberations to reinforce the priority for this Summit of reforming the Bretton Woods institutions for 21st century challenges - among those, rising demands globally for human security and for sustainable economies that support aspirations for social equity, democracy and human rights.
From mid-February to early April, the Committee organized a series of panels to hear from expert and non-governmental witnesses on issues relating to Bretton Woods reform. We also benefitted from the testimony of the Minister of Foreign Affairs and the Minister of Finance, as well as senior officials in their departments, including Gordon Smith, the Prime Minister's Deputy for the Summit, and Louise Fréchette, the Finance "Sous-Sherpa". In mid-March, the Committee held extensive meetings in Washington DC with leading policy analysts and, among others, senior staff of the IMF, World Bank and Inter-American Development Bank, members of the U.S. Congress and representatives of the U.S. administration. In our Ottawa meetings, we were also able to benefit from the testimony of a distinguished panel of developing-country experts who were accompanied by the president of Canada's International Development Research Centre (IDRC).
The ideas in this report derive largely from our reflections based on these meetings. Our aim is to present some proposals as selectively and succinctly as possible in terms that are geared to pragmatic political consideration by leaders at the Halifax Summit. The exercise in which we are engaged is primarily one of generating the necessary political will for real changes that will benefit our citizens and future generations. While solid technical analysis is important to back up the choice of particular reforms and their implementation, it is not our intention in this short report to review in detail the operations of the IFIs and the international monetary system, nor to attempt to duplicate the work of major recent commissions, conferences and academic studies or other ongoing review exercises. 3 The Committee has been able to draw inspiration from these various efforts, including the comprehensively ambitious agenda put forward by the Commission on Global Governance. 4 But we have necessarily had to choose to highlight certain aspects of this enormously complex subject.
In doing so, moreover, the Committee hopes to develop further several of the ideas arising from previous parliamentary attention given to these issues. In particular, we note the worthwhile recommendations touching on IFI reform which have emerged from an earlier examination of developing-country debt by this Committee (June 1990), from an in-depth June 1993 study of the IFIs by the House of Commons finance committee, and from the November 1994 report of the Special Joint Committee Reviewing Canadian Foreign Policy. Several of the government's commitments in its response to that report and in the foreign policy statement of February 1995, Canada in the World, also provide some initial points of departure for the strong measures that need to be taken up by the G-7 leadership in Halifax. Furthermore, the Committee intends to continue to monitor progress on the themes identified in this report beyond the Summit process itself. We welcome, in this regard, the prospect for future engagement and cooperation with the House of Commons Standing Committee on Finance in that work.
Moving directly to the task at hand, the Committee sees four principal areas within which to set key objectives for Halifax:
We are encouraged by the responses of witnesses, and by the comments of the Canadian sherpas, Gordon Smith and Louise Fréchette, that these areas are on target in identifying some key concerns and objectives for the Summit. Madame Fréchette indicated in her testimony [16:54] that the G-7 finance ministers' meeting in Toronto in February had accepted Canada's proposal to focus on four principal items between now and June: "the ability of the international financial system to manage shock" (Is IMF surveillance and support adequate?); "the use of resources" by the IFIs (Are they spending in the right places for good reasons?); "the future policy directions of these institutions" (Are they "attaching sufficient priority to . . . poverty reduction, environmental protection, private sector development, multilateral debt?"); the management and governance of the IFIs (What is the scope for sharpening their distinctive mandates, reducing duplication, and making their operations leaner?). Well and good. Nonetheless, we remain concerned that the result be more than just a polite discussion at the Summit with an agreement to meet again next year. There must be sustained political energy by Canada, both to ensure that specific proposals can be put before heads of government, and that these have a serious chance of being carried forward to conclusions that will actually change institutions and practices.
The Committee notes that the Prime Minister has indicated a clear commitment to these goals. By this report, we wish to give strong parliamentary encouragement to the government continuing this initiative for reforming the international financial institutions. To that end, the recommendations the Committee will be outlining aim to bolster the content of the Canadian proposals. While international cooperation will be required for these proposals to succeed, what we wish to underline at the outset is that a certain forthrightness and boldness on Canada's part is called for to obtain political momentum for reform.
Accordingly, in order to maximize the chances for significant progress in Halifax, the Committee recommends that the Government seek action by Summit leaders on a set of minimum working positions incorporating: the terms of reference for an initiative to redefine comprehensively the roles and structures of the international financial institutions for the 21st century; a programme of action for the best use of these institutions to reduce global poverty and support sustainable human development; the basic principles of an accord to improve international macro-economic cooperation and to assure the benefits from open capital markets and an increasingly integrated global trading environment encompassing both goods and services; and a clear commitment that these actions, in setting firm targets and timeframes for results, be pursued in ways which support the broader reform and review processes that need to be seen through to the implementation of concrete changes before the end of the century.
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