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A Word From the Minister of Finance
I am pleased to present to Members of Parliament and to the Canadian public the Department of Finance’s 2006 Report on the Operations Under the Bretton Woods and Related Agreements Act. This report responds to the requirement laid out in Section 13 of the Bretton Woods and Related Agreements Act that the Minister of Finance "shall cause to be laid before Parliament, on or before March 31 next following the end of each calendar year or, if Parliament is not then sitting, on any of the first thirty days next thererafter that either House of Parliament is sitting," a report containing a summary of operations under this act and details of how those operations directly affect Canada.
The format of this report differs significantly from those of past years. My colleagues in Parliament have delivered a strong message that this annual report needs to present a clearer picture of Canada’s priorities and actions. This view was strongly reiterated in my meeting with Canadian civil society in October 2006, following the Annual Meetings of the International Monetary Fund (IMF) and World Bank. Given this feedback, combined with reactions from parliamentarians, the 2006 report has been recast with three goals in mind:
1. To improve the accountability of the Department of Finance in managing Canada’s relationship with the IMF and World Bank.
2. To make Canada’s policy objectives with respect to these institutions clearer, which in turn will make it easier to measure success.
3. To have Canada continue to push the frontiers of disclosure, without violating Canada’s requirement to respect the confidentiality policies of these institutions.
The 2006 report focuses more clearly on Canada’s policy objectives in relations with the Bretton Woods institutions, which can be summarized as:
1. Improving governance and accountability.
2. Reforming the IMF to strengthen the international financial system.
3. Improving aid effectiveness.
4. Promoting sustainable development.
It is my hope that this report will provide parliamentarians and all Canadians with a better understanding of the important role that Canada is playing in making the IMF and World Bank more effective and more accountable institutions.
The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
The Bretton Woods Institutions—Mandates and Operations
The World Bank and the International Monetary Fund (IMF) were founded at the United Nations Monetary and Financial Conference held at Bretton Woods, New Hampshire, in 1944 to promote recovery from the Second World War and to establish the basis for a stable world economic and financial system. Together they are informally known as the Bretton Woods institutions.
International Monetary Fund
The IMF’s mandate is to promote international monetary cooperation, exchange rate stability and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established, this mandate of promoting global economic and financial stability has remained unchanged but its operations—which involve surveillance, financial assistance and technical assistance—have evolved to meet the changing needs of its member countries in a constantly shifting global economy.
Surveillance of national and global economic developments is the IMF’s main tool for assessing risks to global economic and financial stability. The IMF’s main surveillance activities are undertaken on a country-by-country basis, under Article IV of the institution’s Articles of Agreement. Through its Article IV consultations, the IMF seeks to identify policy strengths and weaknesses and to provide advice on appropriate corrective measures, if needed. In its 2006 fiscal year1, the IMF conducted 131 Article IV country consultations. Recognizing the importance of regional linkages, the IMF has been putting more emphasis on regional contexts and possible regional spillovers from national economic policies. In 2006, the IMF undertook policy discussions on four currency unions, including with the Eastern Caribbean Currency Union.
The main instruments of the IMF’s global surveillance are its semi-annual World Economic Outlook and Global Financial Stability Report. In 2006, the focus of the IMF’s global surveillance was on the risks posed by global imbalances, high oil prices, and rising interest rates in developed countries. At the initiative of the Managing Director, the IMF broadened its approach to global surveillance by hosting a special conference for policy makers from systemically important countries and selected academics that discussed strategies to tackle global imbalances.
In March 2006, the IMF Executive Board assessed the IMF’s Independent Evaluation Office (IEO) review of the institution’s multilateral surveillance. While the review was largely positive, the IEO did identify areas for improvement. In particular, the IEO recommended that the surveillance reports should be less descriptive and more analytical.
How the IMF Works
The IMF works like a credit union. Although it has only limited resources of its own, it has access to a large pool of liquid assets, or resources provided by its members, comprising convertible national currencies, special drawing rights (SDRs) and other widely used international currencies, which it makes available to help members finance temporary balance of payments problems. When requested to do so, members provide resources to the IMF in amounts determined by "quotas" reflecting each country’s relative economic weight in the world economy. A country’s quota in turn helps determine the amount of Fund resources that it may use should it experience economic difficulties. At the end of July 2006, the total quota for the Fund’s 184 members stood at SDR 213.5 billion.
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Special Drawing Right (SDR)
The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDRs are allocated to member countries in proportion to their IMF quotas. The SDR also serves as the unit of account at both the IMF and the World Bank. Its value is based on a basket of key international currencies consisting of the euro, Japanese yen, pound sterling and US dollar. Canada has reserves of SDR 533.4 million at the IMF, resulting in a quota of SDR 6,369.2 million. At December 29, 2006, the Canadian dollar exchanged with the SDR at a rate of 1.753080 C$ per SDR. |
A member country will seek an IMF financial program in response to a serious balance of payments or fiscal problem. In these cases, the IMF will provide financing to allow a country to purchase needed imports, repay external borrowing or bolster its foreign exchange reserves. A country obtains access to the general resources of the IMF by purchasing (drawing) other members’ currencies with an equivalent amount of its own currency. It repays the IMF by repurchasing its own currency with other members’ currencies over a specified period of time, with interest. In this way, a member country borrows from other members, with the IMF as an intermediary. A member, such as Canada, that provides the resources lent to the country facing balance of payments difficulties receives a competitive rate of interest on the resources it has provided.
A member requesting financial assistance reaches an agreement with the IMF staff on a set of economic measures and reforms aimed at removing the underlying source of the country’s balance of payments difficulty. The details of this integrated economic program and the amount and duration of financing are then approved by the IMF’s Executive Board, which consists of representatives appointed or elected by the IMF’s member countries. Typically, IMF financial assistance is provided in stages, or "tranches," with the release of each tranche accompanied by verification that the country is continuing to follow the agreed economic program, and is meeting agreed policy conditions.
Depending on the prospective size and duration of the problem, these measures are agreed to as part of a Stand-By Arrangement, which typically lasts one to two years, or an Extended Fund Facility, which generally runs for three years. Short-term financing for balance of payments difficulties related to crises of market confidence is also available through the Supplemental Reserve Facility, created in December 1997. Members affected by a natural disaster or emerging from a conflict can also access Fund facilities on an expedited basis.
Over the past several years, the IMF has developed new instruments to strengthen its support to low-income countries. These include the Policy Support Instrument (PSI), which is a non-lending instrument that is available to members that do not need or want IMF financial assistance, but voluntarily request IMF endorsement and continued assessment of their policies. Canada was a strong advocate of the development of this instrument, which was introduced in late 2005. To date, Nigeria, Uganda and Cape Verde have benefited from the PSI.
As well, below-market-rate (concessional) financing to low-income developing countries under the Poverty Reduction and Growth Facility (PRGF) is made available in the form of low-interest loans with extended repayment periods. A new instrument in the PRGF, the Exogenous Shocks Facility (ESF), provides timely concessional support to low-income countries that are facing a balance of payments problem due to exogenous shocks, such as a spike in energy prices or a significant deterioration in terms of trade.
Regular Financing Activities
The generally benign global economic and financial environment has led to less demand for borrowing from the IMF in recent years, as fewer countries need its assistance in responding to balance of payments or other economic difficulties. Indeed, many countries that had borrowed during the previous periods of difficulty have been able to repay the IMF ahead of schedule. During fiscal year (FY) 2006, repayments on loans increased sharply to SDR 32.8 billion. Chart 1 illustrates this trend. Many countries repaid all of their General Resource Account obligations to the IMF, SDR 21.9 billion of which was repaid ahead of schedule by Algeria, Argentina, Brazil, Bulgaria and Uruguay. Disbursements during the year were relatively low—totalling SDR 2.2 billion—the bulk of which was disbursed to Turkey under its Stand-By Arrangement. In addition, emergency post-conflict assistance disbursements totalling SDR 17.2 million were made to the Central African Republic and Haiti. Reflecting the high level of net repayments, IMF credit outstanding at the end of FY2006 stood at SDR 19.2 billion, a 25-year low, compared with SDR 49.9 billion a year earlier.
As a result of loan repayments, the IMF’s liquidity rose to a record SDR 120.1 billion at the end of FY2006, as measured by the Fund’s one-year forward commitment capacity.
Concessional Financing
The IMF provides loans with subsidized interest rates to its poorest members through the Poverty Reduction and Growth Facility (PRGF). The Executive Board approved seven new PRGF arrangements during FY2006 totalling SDR 107.9 million. As of the end of FY2006, total loan resources available for PRGF-ESF operations amounted to SDR 15.8 billion, of which SDR 12.9 billion had already been committed to borrowing members. The IMF invests assets supporting the PRGF lending and the Heavily Indebted Poor Countries (HIPC) Initiative in a diversified portfolio of fixed-income securities issued by governments and international financial institutions. As of April 30, the value of these assets declined from SDR 9.6 billion in FY2005 to SDR 7.4 billion in FY2006, primarily owing to the early repayment of PRGF-ESF Trust lenders in connection with the Multilateral Debt Relief Initiative (MDRI). Annual return on the portfolio was 2.8 per cent in FY2006, up from 2.1 per cent in FY2005.
As of the end of FY2006, nine member countries pledged contributions totalling SDR 219 million to the ESF. Total disbursements of HIPC assistance by the IMF amounted to SDR 1.6 billion at the end of FY2006, and the IMF delivered debt relief totalling SDR 2.5 billion to 20 qualifying countries under the MDRI.
As of the end of FY2006, 17 member countries had pledged contributions totalling SDR 40.3 million for the subsidization of emergency assistance. In FY2006, two countries made purchases under emergency post-conflict assistance: Haiti (SDR 10.2 million) and the Central African Republic (SDR 7.0 million).
Technical Assistance
Technical assistance is another important IMF instrument to assist member countries. The IMF offers technical assistance in its core areas of expertise such as macroeconomic policy, tax and revenue administration, public expenditure management, monetary policy, exchange systems, financial sector reform, and statistical capacity building. In 2006, the IMF provided more than 429 person-years[2] of technical assistance, roughly three-quarters of which was directed to low- and lower-middle-income countries. The IMF took a number of steps during the year to improve the management and delivery of its technical assistance to strengthen country ownership and to better align technical assistance priorities with its surveillance function.
Operational highlights and key financial indicators for the IMF are shown in Annex 5.
World Bank Group
The World Bank Group is made up of five complementary but distinct entities: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). Each institution plays a different but reinforcing role in promoting global poverty reduction.
The World Bank’s broad mission is to reduce global poverty. The Bank’s work focuses on achievement of the Millennium Development Goals, which set concrete targets for the elimination of poverty and sustained development. The goals provide the Bank and other donors with common targets and yardsticks for measuring results. The Bank’s mission is to help developing countries and their people reach these goals by working with partners to alleviate poverty. To do that, the Bank concentrates on building the climate for investment, jobs and sustainable growth so that economies will grow, and by investing in poor people and empowering them to participate in development.
Overall, World Bank Group activities have expanded in the last five years. The trend in activities by institution is shown in Chart 2. World Bank Group activities by region are shown in Table 1. IDA lending is focused on low-income countries, while the IBRD, IFC and MIGA focus on middle-income countries and on private sector development. This different focus translates into a greater proportion of activities in Europe and Central Asia and in Latin America and the Caribbean than in Africa or South Asia.
The International Bank for Reconstruction and Development and the International Development Association
The IBRD and IDA (together commonly known as the World Bank) provide funding for investments in education, health, infrastructure, communications and many other areas. The IBRD lends on non-concessional terms to better-off borrowing members, while IDA provides 35- and 40-year interest-free credits and grants to the poorest members. IDA is the largest source of development finance for the world’s poorest countries. The IBRD raises its funds primarily on international markets on the strength of its triple-A credit rating, and lends at an interest rate that is slightly above its borrowing costs. In effect, the IBRD on-lends to borrowing countries at a rate of interest much lower than the rate they could secure on their own borrowings. IDA, on the other hand, is financed through donor contributions, loan repayments and annual allocations from the IBRD and, in FY2006[3], IFC net income.
Combined IBRD-IDA lending increased by 5.7 per cent from US$22.3 billion in FY2005 to US$23.6 billion in FY2006. IDA reached its target of 50 per cent lending in Africa in FY2006, up from 45 per cent in FY2005. Combined IBRD-IDA lending in Europe was stable compared to FY2005 and increased in all regions except for South Asia, where lending in FY2005 was high due to the tsunami on the Indian Ocean. The largest increases in combined IBRD-IDA lending were in Africa, followed by Latin America and the Caribbean.
Combined IBRD-IDA lending by theme and region is summarized in Chart 3. Compared to FY2005, the two largest thematic increases in lending in FY2006 were for financial and private sector development and public sector governance, reflecting an increased focus on fostering a climate for investment. Lending in these areas increased from 29 per cent of total IBRD-IDA lending in FY2005 to 42 per cent in FY2006. By region, their proportion of total lending in FY2006 was 41 per cent for Africa, 32 per cent for East Asia and Pacific, 30 per cent for South Asia, 51 per cent for Europe and Central Asia, 44 per cent for Latin America and the Caribbean, and 67 per cent for the Middle East and North Africa.
Table 1
World Bank Group Lending Activities by Region in FY2006
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| Region | IBRD FY2006 Commitments | IDA FY2006 Commitments | Combined IBRD-IDA | IFC Own Account Commitments as of FY2006 | MIGA Net Exposure1 |
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| (per cent) | |||||
| Sub-Saharan Africa | <1 | 50 | 20 | 9 | 19 |
| East Asia and Pacific | 17 | 11 | 14 | 15 | 162 |
| South Asia | 9 | 27 | 16 | 8 | |
| Europe and Central Asia | 25 | 5 | 17 | 30 | 35 |
| Latin America and the Caribbean | 40 | 3 | 25 | 29 | 22 |
| Middle East and North Africa | 9 | 4 | 7 | 7 | 8 |
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| 1 Net exposure is maximum aggregate liability less reinsurance. 2 Includes South Asia. |
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Operational highlights and key financial indicators for World Bank Group associations are shown in Annex 5.
The International Finance Corporation
The IFC supplements the activities of the IBRD and IDA by undertaking investments on commercial terms in productive private sector enterprises in developing countries. The IFC provides services such as direct private sector loans, equity investments, resource mobilization and technical assistance. As of June 30, 2006, the total committed loan and equity portfolio for the IFC’s own account was equivalent to US$21.6 billion.
In FY2006, investment commitments for the IFC’s own account totalled US$6.7 billion for 284 projects in the developing world, compared to US$6.5 billion in FY2005. The IFC is ahead of schedule on its three-year plan launched in FY2005 to triple investment commitments over three years. The IFC’s expansion is consistent with Canadian priorities for the institution, mainly an increased focus on frontier markets and investments in the private sector that facilitate a transition towards autonomy and sustainable economic activity. In FY2006, activities in areas of high developmental impact, such as investment in low-income or high-risk countries and regions, exceeded US$1.5 billion compared to US$1.3 billion for FY2005. Investment commitments in Sub-Saharan Africa increased almost 57 per cent from FY2005 to US$700 million. Commitments in small and medium-sized enterprises tripled over the last three years to reach US$1.6 billion in FY2006. In addition, the IFC increased investments in infrastructure and in private health and education by over 50 per cent in FY2006.
The Multilateral Investment Guarantee Agency
MIGA’s mandate complements that of the IFC: it promotes private foreign direct investment in developing countries, primarily by providing insurance against non-commercial risk, such as the risk of currency inconvertibility during civil conflict. MIGA’s outstanding portfolio as of June 2006 amounted to US$5.4 billion (including reinsurance).
In FY2006, MIGA issued 66 guarantees totalling US$1.32 billion for 41 projects, compared to US$1.2 billion in FY2005 (including reinsurance). These included 23 projects in frontier markets (US$481 million), which represented 37 per cent of MIGA’s portfolio for the year. There were 10 projects in conflict-affected countries (US$165 million), and 14 infrastructure projects ($469 million). By region, 13 projects were in Sub-Saharan Africa, 13 in Latin America and the Caribbean, 6 in Europe and Central Asia, 6 in East Asia and Pacific and 3 in the Middle East and North Africa. The FY2006 increase in frontier markets reflected MIGA’s strategic focus on the sector. MIGA’s portfolio composition changed with continued efforts to increase the involvement of investors from developing countries, a decrease in support for financial sector projects, and slightly increased coverage for projects in oil, mining and gas.
International Centre for Settlement of Investment Disputes
ICSID provides facilities for the conciliation and arbitration of investment disputes between member countries and private investors. Canada is not currently a member of ICSID as it requires both federal and provincial implementing legislation, and to date not all provinces have introduced the appropriate legislation. However, both the federal government and all of the provinces have now indicated a willingness to introduce legislation, and so in 2006 Canada signed its convention with the hopes of ratification in the next year. This will provide Canadian investors with an additional mechanism for the resolution of investment disputes pursued under international arbitration.
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The World Bank Plays an Important Role in Supporting Global Programs
The International Development Association (IDA) is one of the largest sources of assistance for developing countries, providing around US$7 billion–US$9 billion a year in interest-free credits and grants. While IDA’s expertise lies in providing assistance at the country level, there has been a growing movement in the international community to also tackle major development challenges at a global or regional level. To this end, a considerable number of global programs have been established in the last few years, working alongside the World Bank’s country assistance programs. The World Bank plays an important role in supporting these initiatives, acting as a financier, administrator or participant in 125 global programs and 50 regional programs. Together, these programs disbursed US$3 billion in donor funding in 2006. Financier—The World Bank has become by far the largest financial trustee for these programs, managing a stock of funds totalling more than US$6 billion at the end of June 2006. Administrator—Fifty-eight global programs are managed by and housed within the World Bank. Participant—The World Bank’s Development Grant Facility, with an annual budget of US$176 million, provides direct grant support for global programs. Support is also provided through regular country assistance operations and sector-specific work. Global programs operate in a number of sectors, including health and environment and agriculture. Canada has provided considerable support to a number of these programs over the years.
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Canadian Policy Priorities at the Bretton Woods Institutions
The IMF and the World Bank are important partners for advancing Canada’s own foreign and development policy interests and promoting Canadian core values of freedom, democracy and the rule of law. Participation in these important global organizations has several benefits. It extends Canada’s reach and influence throughout the world by providing Canada a strong voice as a member and leading donor in these institutions.
Canadian Policy Priorities
The Government of Canada has four key priorities in its relations with the IMF and World Bank:
1. Improving governance and accountability
Canada has long been an advocate for strengthening governance and accountability at the IMF and World Bank. Both account for their performance to their members through the Boards of Governors, the Executive Boards and various committees of the Boards. They also report on their performance to members and the global public via annual reports. In our dialogue with the Fund and Bank, Canada sends a consistent and clear message to both of these institutions that they must continue to strengthen governance and accountability, both in their internal operations and in member countries.
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The Bretton Woods Institutions Score High Marks for Accountability
The 2006 Global Accountability Index prepared by One World Trust, a non-governmental organization based in the United Kingdom, underscores the progress that the IMF and World Bank have made in enhancing its accountability mechanisms relative to other international organizations in the not-for-profit and private sectors. The index assessed 10 intergovernmental organizations (IGOs), including the IMF and World Bank, 10 international non-governmental organizations (INGOs) and 10 multinational enterprises (MNEs) in 4 accountability assessment categories: transparency, participation, evaluation, and complaint and response. The World Bank emerged as one of only 3 IGOs to score above 50 per cent in 3 out of the 4 accountability assessment categories. In comparison, only 2 out of 10 INGOs and 2 out of 10 MNEs achieved the same result. Consequently, the World Bank placed ahead of Amnesty International, WWF International, Oxfam International and 5 other INGOs with respect to organizational accountability. The World Bank Group’s accountability practices also placed ahead of those of leading MNEs such as Toyota Motor Corporation, Dow Chemical Company and Microsoft Corporation. On average, IGOs fared best in the category of transparency. The IMF and World Bank were identified as 2 of only 9 international organizations that had implemented the index’s benchmark of an organization-wide information disclosure policy (IDP). In contrast, only 2 out of 10 INGOs had implemented an IDP. While the index reported generally poor performance from IGOs, particularly relative to the MNEs in the category of complaint and response, the World Bank Group’s Inspection Panel was singled out as the exception. With the exception of World Vision International, the other 9 INGOs surveyed did not provide any high-level guidance to staff to handle complaints from affected communities. With the exception of shortcomings in incorporating external stakeholders in high-level decision making, the IMF and World Bank were also distinguished from other transnational organizations in the private and not-for-profit sector in evaluation. The World Bank scored higher than all but one INGO and all MNEs, and the IMF scored higher than 7 of 10 INGOs and 9 of 10 MNEs. The Fund and the World Bank scored lowest in participation, largely due to governance structures that give developing members less voting power. In future reports, we will continue to monitor this index as well as other independent evaluations to assess improvements in the accountability of the Bretton Woods institutions. The 2006 Global Accountability Index report is available at www.oneworldtrust.org. |
2. Reforming the IMF to Strengthen the International Financial System
The IMF remains the central institution charged with fostering international financial stability. Its mission—to promote global prosperity and financial stability—remains as valid today as ever and its three broad lines of activity—surveillance, financial assistance and technical assistance—represent the best channels through which it can achieve its objectives.
However, over the past decade, it has become increasingly clear that in order to effectively and credibly fulfill its mission, the Fund must adjust to meet the rapidly evolving challenges of the international financial system. The IMF has been criticized for its policy advice, governance structure, economic surveillance and lending activities. Some key emerging market economies are highly under-represented at the institution relative to their global economic weight, while many poorer and smaller members have seen their relative voting power eroded over time.
Canada Is Leading IMF Reform
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3. Improving Aid Effectiveness
Improving the effectiveness of aid delivery and better focusing assistance where it can best contribute to poverty alleviation is key to development progress. Within the World Bank, the goal of improving aid effectiveness has translated into practical aid policies that target financing to those countries that have demonstrated an ability to channel funding effectively to development.
However, mandates of the international organizations often overlap, leading to a duplication of efforts. This is exacerbated by inadequate coordination of effort, high transaction costs for countries and a reduction in the development impact of international organizations. The Paris Declaration on Aid Effectiveness has brought this issue to the top of the development agenda (more information on the Paris Declaration can be found on the Organisation for Economic Co-operation and Development website at www.oecd.org).
For its part, Canada continues to push all of the international organizations to improve their effectiveness through increased selectivity, clear priority setting, planning and managing for results, coordination and harmonization among development partners, responsiveness to client country priorities and efficient service delivery.
4. Promoting Sustainable Development
In 1987, the United Nations World Commission on Environment and Development published Our Common Future, a report that defines sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs." Canada recognizes that only sustainable development can relieve poverty, create equitable standards of living, satisfy the basic needs of all peoples, and produce sustainable economic development in the long run, and that the Bretton Woods institutions have an important role to play in achieving this end.
Canada’s Focus in 2006
1. Improving Governance and Accountability
Strengthening Sanctions for Corrupt Practices
The World Bank is a leader among international institutions in resources committed to fighting fraud and corruption. Since 1996, anti-corruption activities have been integral components of the Bank’s lending and technical assistance operations. Annual anti-corruption action plans have helped to increasingly mainstream anti-corruption in the Bank’s internal procedures, as well as in its country strategies, country dialogue and assistance.
Increasing Accountability Through EvaluationThe Independent Evaluation Group (IEG) The IEG is an independent unit within the World Bank. It reports directly to the Bank’s Executive Board. IEG assesses what works and what does not, how a borrower plans to run and maintain a project, and the lasting contribution of the Bank to a country’s overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank’s work and to provide accountability in the achievement of its objectives. Quality Assurance Group (QAG) QAG is an internal unit reporting to Bank management. QAG’s primary objective is to promote increased accountability by providing staff and managers with feedback on operational performance, identifying systemic issues affecting operational performance and identifying and highlighting skills and resources needed to ensure high-quality work. Department of Institutional Integrity (INT) The INT at the World Bank is mandated by the World Bank Group to investigate allegations of fraud and corruption in Bank Group operations as well as allegations of staff misconduct. The INT reports its findings to senior management, who in turn decide what measures should be taken. In addition, the INT assists in preventative efforts to protect Bank Group funds, and those funds entrusted to it, from misuse and to deter fraud and corruption in its operations. The work of an investigative unit aids the World Bank in ensuring that funds are used for their intended purposes, thereby contributing to the organization's core mission of promoting development and reducing poverty. The Independent Evaluation Office (IEO) The IEO at the IMF provides objective and independent evaluations on issues related to the IMF that are presented to the Executive Board. The IEO operates independently of IMF management and at arm’s length from the IMF’s Executive Board. It periodically assesses different IMF priority areas, for example, how the IMF gives advice on such issues as exchange rate and capital account policies, or more generally, how it structures its lending program conditionality. |
The Bank does not conduct business with individuals and firms involved in corrupt practices. Over the past two fiscal years, 58 firms and 54 individuals have been debarred from receiving Bank contracts because of their involvement in corruption (338 since 1999). At the start of 2007, 144 firms and individuals were ineligible from benefiting from contracts under World Bank-financed projects. In 2006, Canada supported the World Bank’s moves to strengthen its sanctions and voluntary disclosure policies in order to improve transparency at the Bank itself, use sanctions (i.e. debarment) for fraudulent practices, ensure safe channels for whistle-blowers, and provide more objective and transparent methods for assessing and mitigating corruption. Canada will continue to use its voice at the Bank to ensure the transparent and equitable application of these policies and will encourage all multilateral development banks to use common, consistent, and transparent criteria to examine possible misconduct.
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When There Is a Problem The Compliance Advisor Ombudsman (CAO) is an independent office that reports directly to the President of the World Bank Group regarding IFC and MIGA projects. The CAO does not intervene in Executive Board or project processes but has the independence to make recommendations that will be helpful in resolving disputes. The reports and recommendations of the CAO are public. Ultimately, the Office of the President is responsible for implementation of these recommendations. Controversial Canadian projects that have been evaluated by the CAO in 2006 include the Guatemalan Marlin mine owned by Canadian company Glamis Gold and the Dikilushi copper-silver mine in the Democratic Republic of Congo. Full reports on CAO recommendations on these and other cases can be found at www.cao-ombudsman.org. The Inspection Panel was established in 1993 to address the concerns of people who may be affected by Bank projects and to ensure that the Bank adheres to its operational policies and procedures during design, preparation and implementation phases of projects. The Inspection Panel consists of three members who are appointed by the Executive Board for non-renewable periods of five years. Members are selected on the basis of their ability to deal thoroughly and fairly with the requests brought to them, their integrity and independence from Bank management, and their exposure to developmental issues and living conditions in developing countries. More information on the Inspection Panel and specific concerns before it can be found at www.worldbank.org/inspectionpanel. |
Economic Governance
The IMF promotes good economic governance through enhanced surveillance; the promulgation of standards and codes of good practice in the fiscal, monetary and statistical areas; the provision of technical assistance to strengthen institutional capacity; and specific measures to address particular instances of poor governance. As at the World Bank, the IMF stresses the importance of country ownership of policies for improving governance. The IMF requires transparency and accountability in the management of public funds. Where poor governance affects macroeconomic performance, and particularly where it raises questions on whether Fund financing will be used effectively, IMF program conditions require members to improve governance and combat corruption in specific ways. The IMF has also strengthened policies to safeguard the use of IMF resources with regard to misreporting of information to the IMF. These measures have led to inquiries directed at central bank actions in a number of member countries.
To improve governance and accountability, Canada and other members have advocated the need to introduce a transparent, merit-based process for selecting the heads of multilateral institutions. Canada has worked within the IMF, World Bank, and international groupings such as the G7, G8 and G20 to advance this goal.
Governance and Anti-Corruption Strategy
In response to concerns raised by Canada and other members on the need to raise the profile of governance, including anti-corruption, over the past year, the World Bank has continued to make significant efforts to mainstream this issue into its own development agenda in a coherent, fair and effective manner. Its governance and anti-corruption strategy aims to establish a deeper engagement with partner countries and bilateral donors on governance and anti-corruption issues through a more rigorous treatment of these issues in Country Assistance Strategies. In February 2006, the World Bank and the IMF, together with the regional development banks, renewed their focus on combating corruption and formed a task force to develop the Institutional Framework for Preventing and Combating Fraud and Corruption. This framework was presented at the September 2006 Annual Meetings of the World Bank Group and the IMF.
Under its governance and anti-corruption strategy, the Bank is committed to: (1) intensify its work on capacity building, including public financial management, procurement and civil service reform; (2) ensure that governance concerns are integrated into the preparation of its projects and that, where the risk of corruption is high, its supervision, detection and enforcement are strengthened; (3) strengthen bilateral and multilateral partnerships to promote coordinated donor action; and (4) intensify engagement with the private sector in tackling corruption. The World Bank conducted extensive consultations on this framework in late 2006, including with the Canadian government, parliamentarians and civil society, with the aim of presenting a refined strategy to Governors at the spring meetings in 2007.
Canada recognizes that the World Bank has made good progress in understanding and addressing the challenges that weak governance and corrupt practices pose for the development process. However, Canada continues to press for further improvements in a number of areas:
- Policies governing World Bank involvement in countries where corruption is a problem must be clear, transparent, and consistent across the membership.
- Significant changes in country eligibility for World Bank Group assistance must be subject to Executive Board oversight.
- The Bank needs a clear "results framework," which can provide the basis for an independent evaluation of the effectiveness of its governance strategy over the next few years.
- The international community must be engaged in the fight against corruption. This means that international institutions and shareholder governments must ensure that their own operations also consistently meet high standards of integrity.
- One challenge for the Bank over the next several years will be to develop initiatives that build on the momentum associated with the United Nations Convention against Corruption in order to bridge the gap that currently exists between development and anti-corruption activities.
Budget Reform
Canada has been at the forefront of calling for reform to the World Bank and IMF’s administrative budget and strategy development. The budget process needs to be better informed by a concise articulation of the institutions’ broad strategies and expected key outcomes in the medium to long term. This strategic outlook should be consistent with both institutions’ core competencies and comparative advantages and should take into account client demand and lending trends. We have also called for a clear statement of priorities that includes a discussion of how these priorities will further each of these institutions’ strategies and competencies.
Last year, the Bank began a process to ensure that strategic direction, as established by the Executive Board, is considered as part of the budget cycle. Over the past several years, the IMF has demonstrated its commitment to follow best international practices for internal governance and to ensure the most effective use of resources. In 2006, the Fund developed a new output-based medium-term budgetary framework; reformed its employment, compensation and benefits framework; began to evaluate options for putting the Fund’s income on a sounder financial footing; and set up a task force to review the Fund’s risk management.
Transparency
Canada is among the most active members in urging the institutions to embrace greater transparency and adopt open disclosure policies. Originally institutions that shared few of the details of their deliberations and operations with the public, the Fund and Bank have recently expanded the materials that they disclose, to the point where they are among the most open of international institutions.
At the IMF, the policy for most kinds of documents is one of "presumed publication." In 2006, for example, 85 per cent of IMF Article IV surveillance reports were published (a step which requires the consent of the country concerned), while about 70 per cent of IMF policy documents were published. Publication of a policy paper that has been discussed by the Executive Board is typically accompanied by publication of a summary of Executive Directors’ views during the discussion. The IMF recently published its second annual report on the implementation of its transparency policy, which provides factual information on publication rates by type of document, lags between Executive Board discussion and publication, recourse to deletion and publication behaviour of member countries.
The World Bank has made considerable progress toward greater transparency by increasing the amount of its documentation made available to the public. Like the IMF, the Bank releases minutes of its Executive Board meetings. However, in the interests of promoting candid and effective discussion at the Board, neither institution releases transcripts of the meetings or attributes remarks to individual Executive Directors by name. Canada supports this policy.
2. Reforming the IMF to Strengthen the International Financial System
Over the past year, Canada has taken a leadership role on the important issue of reforming the governance and operations of the IMF. Canada was instrumental in building support among IMF members for a two-stage approach to reform. Canada’s efforts within the IMF, and G7 and G20 groups of Finance Ministers, helped secure agreement among member countries on the first-stage reforms on the eve of the IMF/World Bank Annual Meetings in September 2006. IMF Governors agreed to provide a quota increase for the four most under-represented emerging market countries (China, the Republic of Korea, Mexico and Turkey) as well as additional resources for the two African Executive Directors’ Offices at the IMF. Governors also set the target of achieving agreement on a broader range of second-stage reforms, including the revision of the IMF’s formula for determining member quotas, an increase in the level of basic votes[4] and the possible introduction of a new lending instrument, no later than their Annual Meeting in the fall of 2008.
Quotas determine the amounts that countries can borrow from the Fund in cases of balance of payments or budgetary problems and the resources that countries in good financial health can be asked to provide the Fund to help other members. They are also the major factor determining countries’ voting power at the Fund. Proper alignment of quotas with countries’ economic and financial weight in the global economy is essential to the Fund’s legitimacy as an international institution. Legitimacy, in turn, is key to ensuring that the Fund can serve as an appropriate forum for members and that the Fund’s policy advice is heeded.
Given that there will be winners and losers in any realignment of IMF quotas, and given that quota reform requires ratification by countries representing 85 per cent of the Fund’s voting power, securing agreement on quota reform will prove challenging. Canada is a strong advocate of a formula fit for globalization—a transparent quota formula that more clearly recognizes a country’s degree of global economic integration and global economic weight.
The IMF’s legitimacy and effectiveness also require a stronger voice for low-income countries. Accordingly, Canada supports at least a doubling of basic votes and an amendment to the IMF Articles of Agreement that will introduce a mechanism to safeguard the share of basic votes in total voting power against erosion in the future. Canada is also sensitive to the special challenges facing the offices of the two African Executive Directors at the IMF, who each represent constituencies of more than 20 countries. We strongly supported the first-stage initiative to increase resources for their Offices to improve their ability to represent African countries in the institution, many of which are involved in IMF lending and technical assistance programs.
Strengthening Surveillance
Canada supports a strong and effective surveillance function at the IMF as the key element of its mandate to foster global financial stability. The IMF’s surveillance function is established in Article IV of its Articles of Agreement, which charge the institution with promoting the stability of the international system. The aim of IMF surveillance is to maintain a constructive dialogue with members aimed at helping them identify and pursue policies that support their economic growth and prosperity, and in particular avoid macroeconomic or exchange rate policies that have negative spillover effects on the global economy. Canada experienced the benefit of IMF expertise first-hand in the early 1990s, with their candid assessment of our economic challenges. We believe that other countries can also benefit from such an approach.
Given the emerging market crises of the 1990s and the current scale of global imbalances (current account disparities, savings and investment mismatches and concerns that foreign reserve accumulation by some emerging markets has been excessive), in recent years the IMF has strived to strengthen and revitalize its surveillance. Indeed, a key element of the IMF’s Medium-Term Strategy is to improve the Fund’s analytic understanding of economic developments in individual member and the global economy, the candour of its assessments of its members’ policies, and the persuasiveness of Fund policy advice.
In 2006, the IMF introduced special multilateral consultations on global imbalances with key participants in the global economy, while the Executive Board is considering ways of increasing the objectivity and effectiveness of bilateral Article IV surveillance. Some important progress has been made, reflecting a consensus among the membership on the importance of the IMF’s surveillance function. However, some differences of opinion remain among members over whether the IMF can be more effective through an approach that emphasizes compliance by all countries with the existing international consensus on sound policies, or through an approach whereby the IMF quietly encourages members to pursue better policies through dialogue and by adopting a role of "trusted advisor." Canada will continue to push for stronger surveillance of monetary, fiscal, financial sector and exchange rate policies, with greater attention to the spillover effects of these policies on the global economy. In our view, this should be reflected in a revised framework governing the implementation of surveillance.
Strengthening IMF Finances
Canada believes that a strong IMF is critical to ensure long-term global financial stability. Financial conditions in emerging markets have improved considerably over the last five years, and affordable access to international capital has reduced many emerging market countries’ reliance on Fund resources. Since the IMF finances its administrative expenditures through a margin between the interest rate at which it borrows and the interest rate at which it lends, the recent decline of lending combined with the early debt repayment by major borrowers has reduced Fund income to historically low levels. The IMF is facing an income shortfall and will run a budget deficit for FY2007 of about SDR 69 million, with increasing deficits expected in the following three years (up to about SDR 245 million in FY2010).
The Fund’s low credit environment is expected to persist over the medium term. In response, the Managing Director formed an independent Committee of Eminent Persons to study the Fund’s financing model and provide recommendations for mitigating the expected shortfalls in annual income. The committee’s report, which was released on January 31, 2007, identified several options to strengthen income, including a more aggressive investment strategy and the sale of a portion of the IMF’s holdings of gold. These options will be studied by Fund staff and debated at the Executive Board throughout the coming year.
3. Improving Aid Effectiveness
Improving IMF/World Bank Collaboration
Canada continues to promote increased collaboration between the World Bank and IMF in several key areas.
- Increased collaboration in situations where one institution has an active program while the other does not, but could still provide valuable policy advice. In particular, we urge the Bank to ensure that the Fund be engaged when country dialogue focuses on macroeconomic issues, including in countries in which the IMF does not have an active program. In cases such as these, we are less concerned with overlaps in Bank and Fund programs as with the risk of significant gaps where neither institution is effective.
- The Bank’s comparative advantage on poverty reduction issues has led to the inclusion of its Poverty and Social Impact Analyses (PSIAs) in IMF-supported programs in low-income countries under the Poverty Reduction and Growth Facility (PRGF). The effectiveness of PRGF arrangements has been significantly improved by the incorporation of information from the PSIAs. We would like to see this practice extended to other areas of IMF work, such as Article IV surveillance exercises. In this area, poor governance clearly undermines many developing countries’ macroeconomic outlook. We would therefore support increased consideration of governance issues as part of the policy discussions of Article IV documents. As well, with the increased focus on financial sector reform in Fund surveillance exercises, it will be critical to incorporate the Bank’s considerable expertise in this area to ensure effective surveillance.
- Both institutions need to ensure that administrative burdens "on the ground" are minimized. They should also be sensitive to social and political developments and support the use of joint missions and a division of labour that minimizes the unnecessary duplication of work and the time spent negotiating Bank and Fund programs.
- Both the Bank and Fund need to closely collaborate to enhance their commitment to promoting global implementation of international standards to combat money laundering and terrorist financing.
In March 2006, the Managing Director of the IMF and the President of the World Bank commissioned a six-member External Review Committee to examine areas of World Bank/Fund collaboration and propose improvements. The committee is scheduled to complete its report in early 2007.
More Focused Conditionality
Canada supports more focused conditionality at both institutions. The IMF and World Bank have both conducted conditionality reviews in the recent past. These reviews were initiated in response to concerns that the scope and complexity of conditionality were undermining country ownership of their programs and weakening the effectiveness of reform efforts. While these reviews have led to improvements in the design of loan conditionality, particularly with respect to supporting national policy priorities elaborated in Poverty Reduction Strategy Papers (PRSPs), more can be done to ensure conditionality reinforces PRSP objectives.
Canada supports the IMF’s efforts to strengthen the effectiveness of its lending programs by streamlining and better focusing conditionality to foster stronger country ownership. In recent programs, the Fund has focused its conditionality on tax policy, public expenditure management and financial sector strengthening, and has reduced the number of conditions related to social sectors, public enterprise reform and the business environment, given that these areas are beyond the Fund’s mandate and expertise.
Canada supports the shift at the Bank from ex ante conditionality that links the drawdown of funds to future performance to an ex post approach linking drawdowns to past performance. This is consistent with the stress that Canada places on the need for greater accountability and a stronger results focus. Similar to the IMF, the Bank is increasing the focus of its conditionality in its areas of expertise—public expenditure management, governance, regulatory framework strengthening and the legal sector.
The type of lending also has an impact on conditionality—investment loans have few policy conditions while development policy loans, by their nature, tend to have more. In November 2006, the World Bank presented a progress report on the implementation of good practice principles for the application of conditionality, which reinforce the importance of country ownership, harmonization, customization, criticality, transparency and predictability. The review concluded that there has been some progress in ensuring that the Bank’s conditionality policies adhere to these good practice principles though it recognized that greater progress is possible.
At both institutions, there has also been a significant decline in specific conditionality related to the privatization of state enterprises over the last decade, in favour of conditionality focused on improving regulatory environments.
Overall, these efforts have been constructive. However, it is important to recognize that these institutions cannot dispense with conditionality entirely. At the IMF, conditionality is still needed to address the underlying causes of economic crises. And at the Bank, strong financial controls are clearly needed to minimize the risk of funds being misappropriated due to weak governance. However, even where conditions are necessary, country ownership and commitment are critical. Indeed, our long-term goal is to build capacity in these countries and strengthen their internal systems. This is the best way to ensure that conditionality is kept at a minimum.
Building Statistical Capacity
Recognizing that strong statistical systems are essential for accountability, evidence-based policy development and the assessment of aid effectiveness, Canada has consistently advocated that the Bretton Woods institutions focus more on building statistical capacity in developing and emerging market countries. Statistics are needed to form policy and measure results; to conduct research and shed empirical light on evolving issues; to aid in public understanding and decision making; and to foster informed debate on events shaping and touching everyone. For developed countries, good statistics are also important to assess the need for development assistance and the measurement of achievements resulting from such assistance, including the achievement of the Millennium Development Goals (MDGs).
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IDA’s Results framework To ensure that IDA resources are used effectively, the fourteenth replenishment of IDA (IDA14) introduced a two-tiered results measurement system (RMS) to track progress in "big picture" outcomes at the country level and to monitor IDA’s efforts to produce better results. The IDA14 RMS interactive website reports on the RMS indicators, provides access to country and regional data and supports quick charting and mapping tools. www.worldbank.org/data. While many IDA countries are making progress in development, most are not likely to meet some MDGs, particularly those relating to human development. More systematic monitoring of IDA countries’ progress has brought two problems to the fore: data gaps in critical areas such as infrastructure, and the enormous effort, resources and cultural change that are required to build country capacity to collect reliable statistics on a regular basis. Statistical capacity is an area of recognized Canadian expertise and excellence. High-quality national statistics are an important public good for national governments and donor agencies because they support better evidence-based decision making and strengthen the PRSP process and the results agenda. |
The World Bank’s Country Statistical Information Database confirms that the statistical capacity of many low-income countries requires significant strengthening. The World Bank has developed a number of instruments to help address this shortcoming. The Trust Fund for Statistical Capacity Building supports the implementation of national strategies for the development of statistics. Early in 2007, the Canadian International Development Agency approved a contribution of $6 million to support the Bank’s work in this area.
4. Promoting Sustainable Development
Debt
Canada is strongly committed to reducing the debt burdens of the most heavily indebted poor countries to sustainable levels. Our participation in both bilateral and multilateral debt relief initiatives has helped recipient countries redirect freed-up resources to poverty reduction initiatives to improve the lives of their citizens and reach their long-term development goals.
To reduce the external debt burdens of the world’s poorest countries, Canada delivers debt relief through three initiatives:
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The G7, IMF and World Bank have all provided significant debt relief. Canada has been at the forefront by cancelling over $1 billion in bilateral debt of HIPCs since 2000 (see Table 2).
Table 2
Total Canadian Debt Relief to HIPCs Through the CDI,
Paris Club and HIPC Initiative
January 1, 2000 to December 31, 2005
(C$ millions)
Completion Point Countries
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| Country | Total Debt Relief to Date4 | Outstanding Debt to Canada |
|---|---|---|
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| Benin | 0.4 | 0 |
| Bolivia | 11.1 | 0 |
| Cameroon1 | 454.3 | 0 |
| Ethiopia | 0.4 | 0 |
| Ghana | 19.1 | 0 |
| Guyana | 3.1 | 0 |
| Honduras | 26.2 | 0 |
| Madagascar | 35.7 | 0 |
| Rwanda | 4.6 | 0 |
| Senegal | 5.4 | 0 |
| Tanzania | 80.1 | 0 |
| Zambia | 94.3 | 0 |
| Subtotal | 734.7 | 0 |
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| Reforming Countries in the Interim Period | ||
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| Country | Total Debt Relief to Date | Outstanding Debt to Canada |
|
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| Congo, Dem. Rep. of | 78.0 | 46.8 |
| Congo, Republic of2 | 25.1 | 43.1 |
| Haiti | 0.0 | 2.3 |
| Subtotal | 103.2 | 92.2 |
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| Pre-Decision Point Countries Excluded From the CDI | ||
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| Country | Total Debt Relief to Date | Outstanding Debt to Canada |
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| Côte d'Ivoire3 | 128.5 | 145.5 |
| Sudan | 0.0 | 10.8 |
| Subtotal | 128.5 | 156.3 |
| Total | 966.4 | 248.5 |
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| 1 Debt relief for Cameroon includes relief granted in 2006. 2 Debt relief for the Republic of Congo is from a Paris Club "Naples treatment." It is not receiving CDI debt relief due to poor public financial management. 3 Debt relief for the Côte d’Ivoire is composed of Paris Club relief under the original HIPC framework as well as previous and subsequent Paris Club debt treatments. It does not include relief under the enhanced HIPC framework or the CDI. 4 Debt relief figures include amounts due in 2000 that were not written off until after the end of 2000. |
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In April 2006, Cameroon graduated from the HIPC process, at which time Canada forgave all of its remaining debt ($221 million). In total, Canada has forgiven $454 million of debt owed by Cameroon since 2000. Haiti’s recent progress in economic and political stability facilitated its entrance into the HIPC process in November 2006, and it will receive 100 per cent debt cancellation from Canada once the process is completed. Finally, in December 2006, Sierra Leone graduated from the HIPC process.
Côte d’Ivoire, the Republic of Congo and Sudan still have debts with Canada. Once these countries show a committment to good governance and once Côte d’Ivoire and Sudan have entered the HIPC process, Canada will cancel their debt-service payments and, ultimately, all debts owed to Canada.
To reduce debt levels to a sustainable level, the HIPC Initiative requires bilateral creditors to forgive up to 90 per cent of the eligible bilateral debts owed by HIPCs. The World Bank and IMF also deliver debt relief through the HIPC process, and donor countries provide resources to these institutions to help them do so. To date, Canada has provided $281.4 million to the HIPC Trust Fund, which is managed by the World Bank, and $65 million to the IMF for HIPC debt relief.
MDRI Implementation
The Multilateral Debt Relief Initiative (MDRI) provides even deeper debt relief to HIPC graduates, cancelling debts owed to IDA, the IMF and the African Development Fund. This debt relief helps the world’s poorest countries reach the United Nations Millennium Development Goals, as the freed-up resources previously used to service large debts can be redirected to investments that contribute to poverty reduction.
In 2006, Canada paid $16.6 million to the IMF in fulfillment of our obligations under the MDRI. In January 2007, Canada made its first payments of $10.4 million to the African Development Bank and $35.3 million to IDA.
Environment
Sustainable development cannot be achieved without making great progress in ensuring sustainable environments. Canada’s support for sustainable environment initiatives at the Bretton Woods institutions has been reinforced by our participation in the G8 process. At the 2005 Gleneagles Summit, Canada, along with the other G8 leaders, called on the World Bank and regional development banks to develop an investment framework for clean energy and sustainable development in developing and emerging markets. The framework is intended to be a vehicle to accelerate investment to meet energy demands associated with growth and poverty alleviation in an environmentally sustainable way. The World Bank released a progress report on this framework, which outlines the key elements of a strategic work program at the 2006 Annual Meetings.
Canada endorses framework as a potential approach to addressing the interconnected areas of energy access, mitigation and adaptation. In line with our strong ties to the Caribbean through our constituencies at the Bretton Woods institutions, Canada strongly supports the Bank’s plan to expand analytical work to develop screening tools to assess the nature of climate risks to development projects, build the capacity of institutions and communities to better cope with the risk of natural disasters, and support the development of new and more innovative risk management tools.
Global Environment Facility
Negotiations for the fourth replenishment of the Global Environment Facility (GEF) concluded at the end of August 2006, with donors agreeing to a US$3.1-billion replenishment, the largest replenishment in GEF history. Canada maintained its 4.3-per-cent share of donor contributions to the GEF replenishment, agreeing to provide the equivalent of C$158.9 million over four years.
The World Bank is an implementing agency of the GEF, which supports the implementation of the United Nations conventions on biodiversity, climate change, persistent organic pollutants, land degradation and ozone depletion in developing countries, in addition to addressing international waters issues. Since its creation, the GEF has become the single largest source of funding for global environmental issues. In 2005, results of an external evaluation of the GEF concluded that the facility has achieved significant positive environmental benefits in the areas of biodiversity, climate change, international waters and ozone depletion. Canada’s contribution to the GEF accounts for about 25 per cent of the Canadian International Development Agency’s total spending on the environment.
Natural Disaster Risk Reduction and Post-Disaster Recovery
The World Bank finances reconstruction following natural disasters in middle-income and poor countries. In 2006, the Bank's Independent Evaluation Group (IEG) assessed the Bank’s post-disaster assistance portfolio. The IEG recommended that the Bank help countries better prepare for and mitigate future disasters that can negatively affect long-term development by supporting disaster risk reduction (the spectrum of activities from preparedness to reconstruction that limit the impact of disasters on human populations). In response, the Bank set up the Global Facility for Disaster Reduction and Recovery, a new partnership with the United Nations to support the integration of disaster risk reduction into the development plans of highly vulnerable disaster-prone countries. The facility aims to "disaster proof" the Millennium Development Goals (MDGs). Canada commends the Bank for evaluating its disaster assistance portfolio and supporting countries in proactively protecting their long-term development projects by mainstreaming disaster risk reduction into their planning.
In 2006, the World Bank established a pilot Caribbean Catastrophe Risk Insurance Facility to provide risk insurance against natural disasters for the small Caribbean countries, including countries in Canada’s IMF-World Bank constituency. Canada will be the largest donor to this facility, which should be up and running for the 2007 hurricane season.
Private Sector Development
Canada has been a long-standing advocate of the need for the Bretton Woods institutions to support private sector development, including by strengthening legal, regulatory and trade policies to improve investment climates and by engaging with private sector partners. The International Finance Corporation (IFC), the private sector arm of the World Bank Group, is a key institution in this regard. Its role is to promote economic development by encouraging private investment, both foreign and domestic, in developing member countries. It is widely acknowledged that strong private sector involvement in development efforts is necessary in order to mobilize sufficient financing to meet the Millennium Development Goals (MDGs). The IFC is well placed to play an important role in facilitating private sector investment in MDG-related sectors throughout the developing world.
The IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. The IFC finances and provides advice for private sector ventures and projects in developing countries in partnership with private investors and, through its advisory work, helps governments create conditions that stimulate the flow of both domestic and foreign private savings and investment. It focuses on promoting economic development by encouraging the growth of productive enterprise and efficient capital markets in its member countries.
Canada has consistently stressed the need for the IFC to focus its activities on the World Bank Group’s core mandate of poverty reduction and to expand its operations in poor countries. In 2006, the IFC substantially increased its efforts in tracking the development results of its projects. A new system launched in FY2006 enables the IFC to systematically monitor results throughout the project cycle and to better assess overall development impact. Development outcome is rated on a six-point scale and is based on four underlying performance indicators: financial, economic, environmental and social, and private sector development impact. Preliminary results show that financially well-performing projects have the highest development impact either through their environmental and social benefits or as a result of private sector development.
The IFC has increased its focus in frontier countries, many of which are among the poorest in the world. However, it could do a much better job in expanding its operations and strengthening the development impact of its operations in these countries. Going forward, it plans to increase its technical assistance and advisory services in order to improve the development outcome of its projects.
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International Finance Corporation Adoption of New Performance Standards
To ensure that its environmental and social standards remain relevant to a rapidly evolving marketplace, the IFC undertook an integrated review process to update its Safeguard Policies, Policy on Disclosure of Information, and Environmental Health and Safety Guidelines. The review involved a broad consultation process with stakeholders around the world, including governments, clients and partners, and representatives of civil society. The outcome, approved by the Executive Board in February 2006, is a new policy framework for managing environmental and social risks as well as a new Disclosure Policy. New Sustainability Policy and Performance Standards outline the IFC’s roles and responsibilities in ensuring project performance in partnership with its clients. Canada was an active participant in the consultation process undertaken in the run-up to the adoption of these new policies and standards. Canada supports the direction that the IFC has taken in implementing project safeguards. However, there remain areas that could be strengthened and where Canada will continue to closely monitor the implementation of this policy.
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Gender Equality as Smart Economics
Gender equality is an important crosscutting theme throughout Canada’s development programming. Since gender issues remain an area where more work is needed, Canada is encouraged by the World Bank’s renewed attention and efforts to advance women’s economic empowerment to achieve growth, poverty reduction and meet the MDGs. We believe that the Bank has the potential to play a leading role in support of gender equality in the economic sectors. Canada has worked with the World Bank in recent years to plan for gender quality results and monitor their achievement across Bank programming.
At the 2006 Annual Meetings in Singapore, the World Bank Group President announced the four-year, US$24.5-million Gender Equality as Smart Economics—A World Bank Gender Action Plan to enhance women’s economic power in key economic sectors in the developing world as a way to promote shared growth and accelerate progress towards gender equality and women’s empowerment. To reinforce the importance Canada attaches to this work, the Canadian International Development Agency recently announced a C$1-million contribution to this action plan.
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Canadian Constituency Voting Record at the IMF and World Bank
Since most decisions at the Fund and Bank are taken on a consensus basis, formal votes by Governors and the Executive Board are rare. Canada attempts to influence the development of policy proposals before they are brought to the Board (through informal discussion with staff and management) or to influence other members of the Executive Board before or during the course of Board deliberations. In 2006, the Executive Director representing the constituency that includes Canada, Ireland and the Caribbean did not support the recommendations put forward by management on every issue put before the Board.
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Notes:
1. The IMF’s fiscal year runs from May 1 to April 30. [Return]
2. One person-year equals 260 working days. [Return]
3. The World Bank’s fiscal year runs from July 1 to June 30. [Return]
4. When the Bretton Woods institutions were founded in 1945, members recognized the need for economic weight to be the predominant determinant of voting power. However, 11 per cent of voting power was distributed equally among all members (these shares are referred to as "basic votes") to recognize the principal of equality of states. Over time the share of basic votes has fallen from 11 per cent at both institutions to 2.1 per cent at the IMF and 2.8 per cent at the World Bank. [Return]
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