I am pleased to present to Members of Parliament and the Canadian public Canada at the IMF and World Bank 2009: Report on Operations Under the Bretton Woods and Related Agreements Act.
This year’s report summarizes the influential role Canada played at the International Monetary Fund (IMF) and World Bank at a time of unprecedented economic turmoil, as well as the strong support the IMF and World Bank provided to member countries in need. It also highlights Canada’s plan for essential reforms that would make these institutions more legitimate, credible and effective, thereby assisting their members to better deal with the challenges of the evolving global economy.
While the recent financial and economic crisis affected all countries, I believe it will be remembered as an historic turning point for both the IMF and World Bank, two institutions on the front lines of the global response. In 2009, Group of Twenty (G20) countries, including Canada, recognized the need to strengthen both organizations, committing substantial new funding for increased lending capacity and the creation of innovative and targeted crisis response programs. Among other actions, Canada followed up on its G20 commitments by providing a US$10-billion bilateral loan to the IMF, as well as substantial financial contributions to the World Bank Group’s Global Trade Liquidity Program and Vulnerability Financing Facility. World Bank President Robert Zoellick commended Canada’s US$200-million commitment to the Global Trade Liquidity Program—the first by any donor country—as critical to increasing trade in developing countries.
The actions of the IMF and World Bank played an integral part in the global recovery and, while significant challenges remain, ongoing governance and operational improvements leave them better placed to respond to future global turbulence. The report released today details the progress made on Canada’s priorities at the IMF and World Bank—governance and accountability, institutional effectiveness and sustainable poverty reduction and growth. But beyond the specifics found in its pages, the report stands as a testament to the importance of these institutions in supporting international cooperation and Canada’s continuing commitment to them.
The Honourable James M. Flaherty, P.C., M.P.
Minister of Finance
|AfDB||African Development Bank|
|AFRITAC||Africa Regional Technical Assistance Centre|
|AMC||Advance Market Commitment|
|BWIs||Bretton Woods Institutions|
|CAO||Compliance Advisor Ombudsman|
|CCRIF||Caribbean Catastrophe Risk Insurance Facility|
|CIDA||Canadian International Development Agency|
|CIF||Climate Investment Funds|
|COGAM||Committee on Governance and Executive Directors’ Administrative Matters|
|DMF||Debt Management Facility|
|ESAF||Enhanced Structural Adjustment Facility|
|ESF||Exogenous Shocks Facility|
|EWE||Early Warning Exercise|
|FCL||Flexible Credit Line|
|FSAP||Financial Sector Assessment Program|
|FSB||Financial Stability Board|
|G7||Group of Seven|
|G8||Group of Eight|
|G20||Group of Twenty|
|GAFSP||Global Agriculture and Food Security Program|
|GDP||gross domestic product|
|GFSR||Global Financial Stability Report|
|GRA||General Resources Account|
|GTLP||Global Trade Liquidity Program|
|HAPA||high access precautionary arrangement|
|HIPC||heavily indebted poor country|
|IBRD||International Bank for Reconstruction and Development|
|ICSID||International Centre for Settlement of Investment Disputes|
|IDA||International Development Association|
|IDB||Inter-American Development Bank|
|IEG||Independent Evaluation Group|
|IEO||Independent Evaluation Office|
|IFC||International Finance Corporation|
|IFI||international financial institution|
|IMF||International Monetary Fund|
|IMFC||International Monetary and Financial Committee|
|INT||Department of Institutional Integrity|
|MDB||multilateral development bank|
|MDG||Millennium Development Goal|
|MDRI||Multilateral Debt Relief Initiative|
|MDTF||Multi-Donor Trust Fund|
|MIGA||Multilateral Investment Guarantee Agency|
|NAB||New Arrangements to Borrow|
|ODA||Official Development Assistance|
|ODAAA||Official Development Assistance Accountability Act|
|PPCR||Pilot Program for Climate Resilience|
|PRGF||Poverty Reduction and Growth Facility|
|PRGT||Poverty Reduction and Growth Trust|
|PSI||Policy Support Instrument|
|PSIA||Poverty and Social Impact Analysis|
|QAG||Quality Assurance Group|
|RCF||Rapid Credit Facility|
|RTAC||Regional Technical Assistance Centre|
|SAF||Structural Adjustment Facility|
|SCF||Strategic Climate Fund|
|SDR||Special Drawing Right|
|WBG||World Bank Group|
|WEO||World Economic Outlook|
In 2009, the crisis in the financial sector and real economies precipitated exceptional international collaboration, including joint efforts by the G20 and a rigorous crisis response by the Bretton Woods Institutions—the International Monetary Fund (IMF or "the Fund") and the World Bank Group "the Bank").
This experience underscored the importance of the IMF and World Bank in promoting global cooperation. With each institution advancing critical reforms to strengthen their legitimacy, credibility and effectiveness, we are at an important juncture where they can be shaped and positioned to fulfill their core mandates while adapting to the global challenges of the 21st century.
To this end, Canada has been working to advance the goals set out in the 2008 report under the following three themes:
1) Governance and Accountability—Playing a leadership role in pushing for innovations in the governance and accountability structures of the Bretton Woods Institutions.
2) Institutional Effectiveness—Encouraging both institutions to deliver on their core mandates as effectively as possible.
3) Sustainable Poverty Reduction and Growth—Supporting the IMF and World Bank Group’s efforts to ensure that the growth and stability they help foster today will have a lasting effect over the long term.
This year’s report details the progress achieved in these three areas and sets out the plans and priorities for Canada at the IMF and World Bank for 2010 to 2012. The report is divided into four main parts:
1) Introductions to the IMF and World Bank Group explaining how they operate, what they do, and how Canada participates in their governance (see "An Introduction to the International Monetary Fund" and "An Introduction to the World Bank Group").
2) Key developments at the IMF and World Bank in 2009 and a summary of the institutions’ responses to the financial and economic crisis (see "Canada at the Bretton Woods Institutions: What Happened in 2009 ").
3) Analysis of IMF and World Bank progress against Canada’s short- and medium-term priorities and planned actions identified in the 2008 report. This section also identifies and summarizes Canada’s priorities and planned actions going forward (see "2009 Report on ’s Commitments at the Bretton Woods Institutions").
4) Comprehensive annexes providing background information such as communiqués, public statements and financial data.
In 2009, the Bretton Woods Institutions were on the front lines in responding to the global financial and economic crisis.
The IMF’s response to the crisis was multifaceted. IMF members supported a large general allocation of SDR 160 billion1 to respond to global liquidity concerns, and Canada worked with our partners to ensure that the IMF had these resources to help countries respond to the crisis. At the same time, G20 countries recognized that the crisis necessitated a larger lending capability for the IMF. As a result, they committed over US$250 billion in new bilateral resources to the Fund, including US$10 billion from Canada, and endorsed an expansion of the IMF’s contingency financing source—the New Arrangements to Borrow— by over US$500 billion.
Canadian representatives also constructively engaged in the IMF effort to develop a modern lending toolkit under which member countries can accurately assess their optimal utilization of Fund resources. Canada proposed changes that balanced the need to safeguard IMF resources with the need to provide assistance to members during times of economic turmoil. The Fund responded with changes to its concessional and non-concessional facilities. Finally, in 2009, the Minister of Finance promoted corporate governance changes to increase the legitimacy, credibility and effectiveness of the Fund, and asserted that IMF Governors should be better engaged, that Executive Directors should focus more on strategic issues, and that senior management should operate within a more robust independence-accountability framework.
The Word Bank Group also provided an exceptional response to the crisis. It more than tripled its lending to middle-income countries to reach $100 billion over three years, allocated a record $14 billion to low-income countries, and created a number of innovative crisis response facilities for specialized needs such as trade finance and food security. Canada provided support for these efforts through financial contributions to the World Bank Group’s Global Trade Liquidity Program and Vulnerability Financing Facility. As an important complementary effort, Canada pioneered and funded innovative temporary capital arrangements at the Inter-American Development Bank and African Development Bank. Borrowing demand from members rose due to the global economic crisis, and this put pressure on the lending limits of these institutions. Canada’s response created significant additional lending headroom, allowing these institutions to continue fulfilling their development mandates through the crisis period.
Progress was also made on World Bank reforms in the areas of decentralization, transparency, human resources, and internal governance improvements to streamline procedures and reduce the administrative burden. Much remains to be done, with important opportunities for advancing the reform agenda coming up in 2010. Most importantly, the World Bank and IMF’s 2010 Spring Meetings will provide an opportunity for members to reach agreements on the World Bank’s post-crisis directions, voice reforms and capital needs. This will also be an important opportunity for Canada and other member countries to advance any institutional reforms we believe are important. The financial replenishment for the World Bank’s International Development Association will also take place in 2010, presenting another opportunity for Canada and other shareholders to improve the Bank’s policies and practices, including in areas such as fragile states and gender, where performance has been mixed.
Full details on Canada’s progress in 2009, along with new actions for 2010–2012, are described in the section "2009 Report on Canada’s Commitments at the Bretton Woods Institutions." Anticipated timelines, ranging from one to three years, are listed for each action, and subsequent reports will continue to assess progress against these priorities.
The IMF and the World Bank were founded at the United Nations Monetary Conference held at Bretton Woods, New Hampshire, in 1944. They were created to promote reconstruction following the devastation of the Second World War and to establish the basis for a stable world monetary system that would sustain growth and prosperity. Together they are informally known as the Bretton Woods Institutions.
Canada is the ninth largest member of the IMF and the seventh largest member of the World Bank, out of a total membership of 186 in both institutions. These strong membership positions give Canada an important voice in the two leading international institutions devoted to promoting international financial stability and poverty reduction. Canada’s status as a member and leading donor also contributes to Canada’s strong position on the international stage.
The IMF and World Bank are governed by their member countries. The management and staff of each institution are accountable to their members through their respective Boards of Governors and Boards of Executive Directors. They also report on their performance to members and the general public through annual reports, policy documents, country reports and analytical studies.
The IMF and the World Bank each have a separate Board of Governors, comprising 186 Governors representing each member country. The Boards are responsible for core institutional decisions and meet once a year at the IMF and World Bank Annual Meetings. Each Board is the highest authority governing these institutions. The Minister of Finance is Canada’s Governor for both the IMF and the Bank.
The Boards of Governors have two sub-committees: the International Monetary and Financial Committee (IMFC),2 which advises on global monetary and financial issues for the IMF, and the Development Committee (DC),3 which advises on critical development issues for both the IMF and World Bank. Twenty-four Governors sit on each committee, which meets twice a year during the IMF and World Bank Spring Meetings and Annual Meetings. When participating in the IMFC and DC, Canada’s Minister of Finance represents a constituency that includes Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana,4 Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines.
|The Government of Canada asserts its views at the institutions through a number of channels:|
|Governor’s statements at the International Monetary and Financial Committee and Development Committee Meetings||See Annexes 2 and 3|
|Policy advice to the Executive Director||Described in this section and "Canada at the Bretton Woods Institutions: What Happened in 2009"|
|Contributions to Multi-Donor Trust Funds||See Annex 11|
The Boards of Governors delegate the day-to-day running of the IMF and World Bank to Executive Boards, each comprising 24 full-time Executive Directors. Each Executive Director represents a constituency corresponding to the IMFC and DC constituencies. The Executive Boards reside in Washington, DC, and meet several times per week.
The Executive Directors that represent Canada are employees of the IMF and World Bank, and are elected (or re-elected) by the Governors of their constituents every two years, traditionally based on a nomination made by the Canadian Governor. The Honourable Thomas Hockin has represented our constituency at the IMF since December 2009 and Mr. Samy Watson has represented our constituency at the World Bank since November 2006. The Government of Canada provides advice to the Executive Directors and their staff, which they draw upon to develop positions for discussion at the Executive Board. Executive Directors also receive advice from other constituency members.
Governors are typically asked to vote on specific resolutions and other matters requiring their approval, either at the Annual Meetings of the Boards of Governors or by mail at other times throughout the year. In contrast, most decisions by the Executive Boards are adopted in a spirit of consensus and formal recorded votes are rare (though, when a vote is taken, the Executive Director casts the vote for the entire constituency).
The voting power of members is primarily a function of their relative economic strength. Members also receive basic votes, which are distributed equally among all members. Canada’s current voting shares at the IMF and World Bank are 2.89 per cent and 2.785 per cent, respectively.
Within the Government of Canada, the Department of Finance coordinates Canada’s policy advice for IMF and World Bank issues, consulting closely with other government departments and agencies, particularly the Bank of Canada, the Canadian International Development Agency (CIDA), and Foreign Affairs and International Trade Canada. The Governor of the Bank of Canada, Mark Carney, is Canada’s Alternate Governor at the IMF, and CIDA President Margaret Biggs is Canada’s Alternate Governor at the World Bank.
Canada recognizes that while there are a number of avenues to influence IMF and World Bank policies, we are one of 186 members. Canada is also part of a constituency and, as a result, while we can advise our Executive Director, he or she will also take into account the views of other members of our constituency.
The IMF works to safeguard the stability of the international monetary system while promoting sustainable economic growth and raising global living standards.
The primary responsibilities of the IMF are to:
The balance of payments is a summary of the economic transactions—including transactions in goods, services, income, transfers and financial assets and liabilities—between the residents of a country and non-residents over a specific period of time, usually a year.
Headquartered in Washington, DC, the IMF is governed by and accountable to the governments of its 186 member countries. Each of the 186 member countries appoints one Governor and one Alternate Governor, usually the Minister of Finance and/or the Governor of the central bank, to the Board of Governors.
The relationship between the IMF Board of Governors, the International Monetary and Financial Committee, the joint IMF-World Bank Development Committee and the IMF Executive Board is described in the section "Canada and the Bretton Woods Institutions: Mandates and Operations" and is illustrated in Figure 1.
The Managing Director is nominated and appointed by the Executive Board. The Managing Director serves as chair of the Executive Board and chief of the operating staff of the IMF. The present Managing Director, Mr. Dominique Strauss-Kahn, took office on November 1, 2007.
IMF staff members are appointed by the Managing Director and are solely responsible to the IMF. As of April 30, 2009, the IMF employed 2,478 staff (from 143 member countries). Efforts are made to hire qualified nationals from the largest possible number of members. 2009 saw large changes in the total staffing levels of the IMF. As a result of a 2008 decision to restructure the organization, 490 staff voluntarily separated from the IMF in FY2009. With the onset of the global financial crisis, however, demand for IMF human resources quickly increased, and the organization hired over 100 new economists by the end of the fiscal year. The IMF is confident that it has an appropriate framework for staffing should the financial crisis become protracted.
The Independent Evaluation Office (IEO) conducts independent evaluations of IMF policies and activities. The IEO is fully independent of IMF management and operates at arm’s length from the Executive Board. The Director of the IEO is selected by the Executive Board for a renewable four-year term, and IEO staff is recruited from both inside and outside the IMF.
IMF activities focus on three primary areas, all aimed at promoting a prosperous global economy by contributing to international monetary stability:
1945—Canada and 28 other governments
sign the IMF Articles of Agreement.
1947—The IMF begins operations; first loan drawn by France.
1971—The United States informs the IMF that it will no longer freely buy and sell gold to settle international transactions; the established US dollar-gold fixed exchange rate system (Bretton Woods System) collapses.
1974—The IMF adopts "Guidelines for the Management of Floating Exchange Rates."
1976—The IMF establishes the Trust Fund to provide balance of payments assistance to developing country members with profits from the sale of gold.
1977—To adapt to the new world of largely floating exchange rates, the IMF Executive Board adopts the "1977 Decision" to guide IMF surveillance of member economies and exchange rate policies.
1986—The IMF establishes the Structural Adjustment Facility, later replaced by the Enhanced Structural Adjustment Facility (1987) and the Poverty Reduction and Growth Facility (1999), to provide balance of payments assistance on concessional terms to low-income developing countries.
1993—The Systematic Transformation Facility is established to assist countries of the former U.S.S.R. that face balance of payments difficulties arising from the transformation from a planned to a market economy.
1996—The IMF endorses a joint debt relief initiative for heavily indebted poor countries (HIPCs)—the HIPC Initiative.
2005—The IMF begins to implement the Multilateral Debt Relief Initiative (MDRI) to relieve debt owed to the IMF by countries with per capita income below $380 a year, along with other HIPCs.
2008–2009—In response to the global financial crisis, the IMF mobilizes new resources from its members and revamps its lending facilities, creating the Flexible Credit Line and a new set of lending facilities for low-income countries.
The IMF identifies risks to global economic and financial stability through the surveillance of national, regional and global economic developments. Article IV of the IMF Articles of Agreement requires the Fund to undertake regular consultations with each member country on economic conditions and policies. The Article commits each member country to pursue policies conducive to the stability of the international monetary system, and global growth and prosperity. Through its consultations, the IMF identifies policy strengths and weaknesses and provides advice to members on any necessary corrective measures. Consultations consist of regular (usually annual) staff visits with government and central bank officials, and IMF staff generally meet with legislators and representatives from the financial sector, industry, trade unions and academia to broaden its exposure to ongoing policy debates and promote better understanding of IMF views with stakeholders. Following these consultations, staff prepare a report for consideration by the IMF’s Executive Board. In the large majority of cases, the staff report is published, along with a summary of Executive Directors’ views as expressed during the Board’s discussion.
Article IV of the IMF Articles of Agreement sets the "rules of the game" to which each member country has voluntarily committed. Each member country is obligated to:
In return, the IMF is bound to adopt specific principles for the guidance of all members with respect to exchange rate policies consistent with the above, but that respect the domestic social and political policies and circumstances of members.
In addition to its bilateral consultations with members under Article IV, the IMF conducts important regional and multilateral surveillance of the overall global economy and financial and monetary systems, producing the semi-annual World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR). A few times a year, the IMF also publishes Regional Economic Outlook reports, which discuss recent economic developments and prospects for various regions. These reports foster discussion at the Executive Board and within member governments.6 The Executive Board also holds regular informal discussions on world economic and financial market developments.
Following the global financial crisis, the IMF increased its surveillance activities and focused on four surveillance priorities for the coming years: risk assessment, macrofinancial linkages, multilateral perspective, and external stability and exchange rate assessments. The IMF also participates in new data transparency initiatives, including the Principal Global Indicators website, which provides access to key data on G20 economies.
Technical assistance is another core function of the IMF. The IMF offers technical assistance in its 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. Improving the technical capacity of member countries is fundamental to promoting sound monetary and macroeconomic policies and enabling effective IMF surveillance.
|Centre Name (Location) Year Opened||Beneficiary Countries and Territories|
|Pacific RTAC (Suva, Fiji) 1993||Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.|
|Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, Cayman Islands, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos, and the Virgin Islands.|
|East AFRITAC—Africa Regional Technical Assistance Centre (Dar es Salaam) 2002||Eritrea, Ethiopia, Kenya, Malawi, Rwanda, Tanzania, and Uganda.|
|West AFRITAC (Bamako, Mali) 2003||Benin, Burkina Faso, Côte d’Ivoire, Guinea, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, and Togo.|
|Middle East RTAC (Beirut, Lebanon) 2004||Afghanistan, Egypt, Iraq, Jordan, Lebanon, Libya, Sudan, Syria, West Bank and Gaza, and Yemen.|
|Central AFRITAC (Libreville, Gabon) 2007||Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of the Congo, Republic of the Congo, Equatorial Guinea, and Gabon.|
|Central America, Panama, Dominican Republic TAC (Guatemala City, Guatemala) 2009||Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.|
In collaboration with member countries, the IMF delivers technical assistance through missions from headquarters, short-term expert assignments, long-term resident advisors or regional centres. In addition to the IMF Institute, based in Washington DC, seven regional training institutes for country officials and seven RTACs deliver more accessible and regionally tailored programming to member countries across the globe. The Fund is also planning to open three new centres: two in Africa and one in Central Asia.
Canada is a major contributor to the IMF training programs, including the provision of support for the Africa Regional Technical Assistance Centres, the Caribbean Regional Technical Assistance Centre, the Financial Sector Reform and Strengthening Initiative and the Iraq Technical Assistance Program. In addition, Canada provided support and funding for the establishment of a new technical assistance centre: the Central America, Panama, Dominican Republic Technical Assistance Centre.
The IMF provides program support to its members through a variety of financial and policy instruments to help countries with balance of payments problems. Each mechanism is tailored to a member country’s particular circumstances.
The IMF works much like a credit union. Although the IMF has only limited resources of its own, it has access to a large pool of liquid resources provided by its members, comprising convertible national currencies, Special Drawing Rights (SDRs), and other widely used international currencies. It makes these resources 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 global economy. A country’s quota in turn helps determine the amount of IMF resources that it may access should it experience economic difficulties. As of January 15, 2010, the total quota for the Fund’s 186 members stood at SDR 217.4 billion (about US$341 billion).7 Canada’s contribution to this total is presently SDR 6.37 billion (about US$10.3 billion). Canada’s quota represents 2.93 per cent of total quota assigned and, aside from special loan arrangements sometimes in force, corresponds to the maximum amount that it would be asked to lend from its international reserves to the IMF to assist other members experiencing financial difficulties.
An SDR is the international reserve asset created by the IMF to supplement the existing official reserves of member countries. The SDR serves as the unit of account of the IMF and its value is based on a basket of key international currencies.
A special allocation of SDRs was implemented in September 2009, increasing the fairness of the SDR system. The one-time measure increased members’ cumulative SDR allocations by SDR 21.5 billion and provided allocations to those countries that had never received one (those members that joined the Fund after 1981).8
A member country may seek an IMF financial program in response to a serious balance of payments or fiscal problem. In these cases, the IMF provides financing to allow the country to purchase needed imports or bolster its foreign exchange reserves. The member country obtains access to the general resources of the IMF by purchasing (drawing) other members’ currencies with an equivalent amount of its own currency. A member 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.
Members providing the resources lent to a country facing balance of payments difficulties receive a competitive rate of interest on the resources they have provided. The interest rate approximates the return members would have received on alternative safe and liquid investments. As members receive interest, and do not provide grants to finance the Fund’s general operations, membership in the IMF does not entail a direct budgetary cost.
For the majority of IMF programs, members requesting financial assistance reach 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 (often referred to as conditionality) and the amount and duration of financing are then approved by the Executive Board. 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. Finally, following the financial crisis, the IMF created a new facility, the Flexible Credit Line, which provides countries that have strong economic fundamentals and policies with a credit line they can use for crisis prevention purposes.
Additional instruments are available for low-income member countries. The financial crisis prompted the IMF to overhaul these facilities, and a new set of below market rate (concessional) lending facilities are now available under a new brand, the Poverty Reduction and Growth Trust (PRGT). The access limits under the PRGT are now higher, and the total amount the PRGT may lend has doubled, making the Fund’s concessional lending capacity now up to $17 billion. PRGT resources are also more attractive, since the Fund cut the interest rate low-income countries (LICs) pay on their loans by half to an historic low of 0.25 per cent. Furthermore, as part of the response to the global financial crisis, the IMF is providing temporary interest relief with zero payments on concessional lending arrangements through to the end of 2011 to help LICs cope with the crisis.
Three lending facilities exist under the new PRGT framework:
Finally, a Policy Support Instrument (PSI) is available to any member that does not need or want IMF financial assistance but voluntarily requests IMF endorsement and continued monitoring of their policies. PSIs signal IMF support for a member country’s policies, informing private and public creditors, official donors and the general public. Canada was a strong advocate of this instrument, which was introduced in late 2005. As of April 2009, Cape Verde, Mozambique, Nigeria, Senegal, Uganda and Tanzania have benefited from PSI arrangements.
|Credit tranches and Extended Fund Facility|
|Stand-By Arrangements (1952)||Medium-term assistance for countries with balance of payments difficulties of a short-term character.||Adopt policies that provide confidence that the members’ balance of payments difficulties will be resolved within a reasonable period.|
|Flexible Credit Line (2009)||Provides large-scale, targeted and cautionary assistance to member countries with access to international capital markets.||Very strong ex ante macroeconomic fundamentals, economic policy framework, and policy track record.|
|Extended Fund Facility (1974)||Longer-term assistance to support members’ structural reforms to address balance of payments difficulties of a long-term character.||Adopt a 3-year program with a structural agenda and an annual detailed statement of policies for the next 12 months.|
|Facilities for low-income members|
|Extended Credit Facility (2009)||Provide flexible medium-term support to low-income members with protracted balance of payments problems.||Adopt policies adequate to correct external imbalances and make progress toward a stable and sustainable macroeconomic position. May extend over the medium or longer term.|
|Stand-By Credit Facility (2009)||Address short-term balance of payments needs.||Adopt policies adequate to correct external imbalances and restore a stable and sustainable macroeconomic position. Aim to resolve balance of payments needs in the short term.|
|Rapid Credit Facility (2009)||Provide rapid low access with limited conditionality for urgent balance of payments needs.||Assistance is provided as an outright disbursement. The RCF does not have program reviews or ex-post conditionality, except in the case of repeated use, whereby a track record of performance would be required in advance of the disbursement unless the financing need is primarily caused by an exogenous shock.|
|Facilities ended during 2009|
|Supplemental Reserve Facility (1997)||Short-term assistance for balance of payments difficulties related to crises of market confidence.||Available only in the context of Stand-By or Extended Arrangements with an associated program and with strengthened policies to address loss of market confidence. Although amounts provided can be larger than those under a regular Stand-By Arrangement, interest is charged at a penalty rate to encourage early repayment.|
|Compensatory Financing Facility (1963)||Medium-term assistance for temporary export shortfalls or cereal import excesses.||Available only when the shortfall/excess is largely beyond the control of the authorities and a member has an arrangement with upper credit tranche conditionality, or when its balance of payments position excluding the shortfall/excess is satisfactory.|
|Short-Term Liquidity Facility (2008)||Large, upfront, quick-disbursing, short-term financing to help countries with strong policies and a good track record address temporary liquidity problems in capital markets.||Financing is made available without the standard phasing and loan conditions of more traditional IMF arrangements. However, borrowers are expected to certify that they are committed to maintaining strong macroeconomic policies.|
|Poverty Reduction and Growth Facility (1999)||Longer-term assistance for deep-seated balance of payments difficulties of a structural nature; aimed at sustained poverty-reducing growth.||Adopt 3-year PRGF arrangements based on a Poverty Reduction Strategy Paper prepared by the country in a participatory process and integrating macroeconomic, structural and poverty reduction policies.|
|Exogenous Shocks Facility (2006)||Short-term assistance to address a temporary balance of payments need arising from an exogenous shock (e.g. a spike in energy prices).||Adopt a 1-2 year program involving macroeconomic adjustments allowing the country to adjust to the shock and structural reform is considered important for adjustment to the shock, or mitigating the impact of future shocks.|
|Credit tranches and Extended Fund Facility|
|Emergency Assistance— Natural Disasters (1962) and Post-Conflict (1995)||Assistance for balance of payments difficulties related to natural disasters or the aftermath of civil unrest, political turmoil, or international armed conflict.||Minimal conditions are applied, consisting of reasonable efforts to overcome balance of payments difficulties with a focus on institutional and administrative capacity building to pave the way toward an upper credit tranche arrangement or PRGF.|
The Independent Evaluation Office (IEO) completed two evaluation reports in 2009, providing insight into how effectively the IMF executes its trade policy mandate responsibilities and its interactions with member countries.9
The IEO’s trade policy report examines the involvement of the IMF in trade policy issues from 1996 to 2007. The report assesses the nature of the IMF’s mandate in trade issues, the effectiveness of the IMF’s work with other international organizations on trade issues, and whether the IMF’s advice on trade policy was effective. The IEO found that in 2000, as a result of average tariffs falling in most countries, conditionality not effectively creating change in trade policy, and the discord created by unilateral liberalization efforts, the IMF reduced its involvement in trade policy issues. While the general reduction was welcomed by the IEO, the report noted that some gaps in financial and systemic stability followed, including:
The report’s recommendations include:
IMF involvement in trade policy issues must relate to its role in international monetary stability and be proportionate to its place in the broader community of international institutions. Canada agrees with the IEO that the previous scaling-back of trade policy conditionality was appropriate since in our view, program conditionality should be focused on elements that are essential for the success of a program. Trade policy developments are often not central to achieving the objectives of a program. Using the same principles, Canada disagrees with the IEO that there is a need for more IMF resources to be dedicated to trade policy issues. Instead, such expertise could reside with other institutions and IMF staff could obtain the needed information through regular contact with these institutions.
Nonetheless, IMF involvement in trade policy issues may be beneficial in the surveillance of trade in financial services. Efficiency improvements in this sector can increase competitiveness, and surveillance by the Fund would monitor risks and ensure that they are appropriate to sustainable growth.
By exploring the IMF’s interactions with its member countries, the IEO’s second evaluation of 2009 assessed the management and effectiveness of relations between 2001 and 2008. The IEO concluded that the general exchange of views and objective assessments was effective, and that interactions in certain areas such as program and technical assistance were also positive. The report’s findings also include the following:
The report’s recommendations include:
Canada welcomes the IEO report as an opportunity to ensure the Fund’s interaction meets the priority needs of members, particularly in advanced and large emerging markets. However, recent events have already overtaken some of the report’s recommendations, and the perception of the IMF’s credibility and effectiveness has improved because of the Fund’s valuable role in the current global recovery.
Of the report’s recommendations, Canada favours addressing skill shortages by creating a more appropriate balance of expertise within teams rather than expanding the size of missions with "more experts." In addition, Canada believes that the Fund’s improving image could be sustained by encouraging staff to be frank with national authorities and stakeholders about the past, while emphasizing and contrasting the Fund’s current approaches. Finally, Canada supports increased guidance and training
As one of 186 member countries, Canada plays an important collaborative role with our international partners to ensure that the IMF has the tools it needs to fulfill its mandate of promoting international monetary and financial stability. A healthy global economy helps create more jobs for Canadians, promotes stable prices for goods and services and improves our standard of living. Canada’s participation at the IMF encourages international cooperation, sustainable economic growth and better living standards for citizens across the globe.
As a result of the relatively large size of the Canadian economy and its openness to international trade, Canada has a significant voting share at the IMF (see Table 4). Canada holds a seat on the Executive Board, which is composed of 5 appointed member countries and 19 elected member countries and constituencies. Canada’s seat on the Executive Board represents a constituency that includes Ireland and member countries from the Commonwealth Caribbean. Although Canada’s voting share at the IMF is 2.89 per cent, the Executive Director casts the votes of all members of the constituency, for a total of 3.64 per cent. In the event of a vote, the Executive Directors of multi-country constituencies must cast all of the votes of their members as a block.
|Country||% of Total Voting Shares|
Executive Director: Thomas Hockin (Canada)
Alternate Executive Director: Stephen O’Sullivan (Ireland)
Senior Advisor: Glenn Purves (Canada)
Senior Advisor: John Rolle (Bahamas)
Senior Advisor: Pierre St. Amant (Canada)
Advisor: Mathew Sajkunovic (Canada)
Advisor: Peter McGoldrick (Ireland)
Administrative Assistant: Catherine Byrne (Ireland)
Administrative Assistant: Basia Manitius (Canada)
Address: 11-112, 700 – 19th Street N.W., Washington, DC 20431, USA
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 unique but complementary role in promoting global poverty reduction.
The overarching mission of the World Bank Group is to reduce global poverty, focusing on the achievement of the Millennium Development Goals (MDGs). The MDGs set concrete targets for the elimination of poverty and sustained development and provide the Bank and other donors with common targets and yardsticks for measuring results. The Bank concentrates on fostering a climate conducive to investment, job creation and sustainable growth. It also seeks to empower the less fortunate, through the provision of health services, education and other social services, to enable them to participate in development.
Together, the IBRD and IDA are often referred to as "the World Bank." They focus on lending and contributing to development projects that help to reduce poverty. Funding from the IBRD and IDA go to sectors such as education, health, infrastructure, environment and agriculture. The IFC and MIGA support private sector investment in developing countries.
Established in 1944, the IBRD is the original institution of the World Bank Group and its main lending agency, providing loans to middle-income and creditworthy low-income countries with per capita incomes of less than US$17 per day.
The IBRD raises most of its funds in the world’s financial markets by selling AAA-rated World Bank bonds. It lends these funds to its client countries at a rate of interest that is much lower than the rate they could secure on their own. The IBRD can borrow at attractive rates because it is backed by capital commitments from its member countries.
The IBRD does not seek to maximize profit; rather, it aims to earn enough to ensure its financial strength and to sustain its development activities. In 2009, the IBRD committed a historically high US$32.9 billion to 126 projects in developing countries after raising US$44.3 billion on world capital markets.
Latin America and the Caribbean received the largest portion of IBRD funding in 2009 (42 per cent), followed by Europe and Central Asia (27 per cent). IBRD lending for infrastructure (transportation, energy and mining, and water, sanitation, and flood protection) accounted for approximately 37 per cent of total lending in 2009.
In the 1950s, it became clear that the poorest developing countries could not afford to borrow needed capital on the interest terms offered by the IBRD. In response, IDA was set up to lend to very poor countries at zero interest. IDA lending now accounts for approximately one-third of World Bank Group financing and is focused on countries with annual per capita income of less than US$3 per day. IDA offers 35- and 40-year interest-free loans and grants and represents the largest source of development financing for these countries. Seventy-nine countries were eligible for IDA financing in 2009.
New IDA commitments are financed through contributions from donor governments, annual transfers from IBRD and IFC net income, and IDA’s own internal resources (i.e. principal repayment on past loans). Donor contributions make up the largest component of IDA’s finances. Every three years, IDA funds are replenished through new donor pledges, and FY2009 was the first year of a new three-year cycle.
Nigeria and Pakistan were the largest single recipients of IDA funding in FY2009. Regionally, Africa received the largest share of FY2009 IDA resources at US$7.8 billion, or 56 per cent of total commitments. South Asia received 30 per cent of new commitments, totalling US$4.2 billion. Sectorally, public administration, energy and mining, infrastructure, health and education were major focuses for IDA financing.
The IFC works with the private sector in developing countries to reduce poverty and encourage sustainable economic growth. It provides financing for private sector projects, assists in mobilizing financing in international financial markets, and provides advice and technical assistance to businesses and governments. The IFC only provides financing where sufficient private capital cannot be obtained from other sources on reasonable terms. The IFC is now the largest multilateral source of loan and equity financing for private sector projects in the developing world.
The IFC is legally and financially autonomous, but it collaborates and coordinates with the IBRD, IDA, MIGA and other organizations.
In 2009, the IFC committed US$10.5 billion in new investments. The IFC’s total portfolio grew 6 per cent to US$34.4 billion from US$32.4 billion the previous year. New commitments were US$1.2 billion in East Asia and the Pacific, US$2.7 billion in Latin America and the Caribbean, US$2.2 billion in Europe and Central Asia, US$1.3 billion in the Middle East and North Africa, US$1.2 billion in South Asia and US$1.8 billion in Sub-Saharan Africa.
MIGA encourages foreign investment in developing countries by providing guarantees to foreign investors against loss caused by non-commercial risks. MIGA also provides technical support to help developing countries promote investment opportunities and uses its legal services to reduce possible barriers to investment.
In 2009, the total amount of guarantees issued for projects in MIGA’s developing member countries was US$1.4 billion. This is a decrease on 2008 levels, which MIGA attributes to reduced investment flows as a result of the global financial crisis. Nonetheless, the amount is similar to 2007 guarantee levels.
ICSID provides conciliation and arbitration mechanisms for investment disputes between member countries and private investors. Canada is not currently a member of ICSID. However, in 2008, legislation to implement the Convention of the Settlement of Investment Disputes between States and Nationals of Other States, received Royal Assent. The new legislation will come into force on a day to be fixed by Order of the Governor in Council, enabling Canada to move towards ICSID membership. ICSID membership would provide Canadian investors with an additional mechanism for the resolution of investment disputes pursued under international arbitration.
The World Bank Group has in place several bodies to ensure that its activities are achieving results, are carried out with integrity, and are working for the benefit of the vulnerable and disadvantaged in developing countries.
The IEG is an independent unit within the World Bank Group reporting directly to the Bank’s Executive Board. The IEG assesses the development impact of IBRD, IDA, IFC and MIGA programs, aiming to provide an objective assessment of their work, create accountability in the achievement of the Bank’s objectives and ensure that the Bank learns from its experiences. In 2009, the IEG conducted 25 evaluations of individual Bank projects and 5 corporate reviews. These reports are available online at: http://www.worldbank.org/ieg.
QAG’s primary objective is to promote increased internal
accountability at the Bank by providing staff with credible, timely
feedback on operational performance and identifying systemic issues affecting
operational performance. It highlights the skills and resources needed
to ensure high-quality work and uses lessons learned to support staff training.
QAG’s homepage is located at: http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/QAG/0,,pagePK:109619~theSi
The Office of the CAO is committed to enhancing the development impact and sustainability of IFC and MIGA projects by responding quickly and effectively to complaints from affected communities. It also supports the IFC and MIGA in improving the social and environmental outcomes of their work and fostering a high level of accountability. The CAO has received 110 complaints since 2000, including 11 in 2009. The CAO’s annual report can be accessed at: http://www.cao-ombudsman.org/publications/.
The primary purpose of the Inspection Panel is to address the concerns of people who may be affected by IBRD and IDA projects and to ensure that the Bank adheres to its operational policies and procedures during the design, preparation and implementation phases of projects. The Panel is appointed by and reports directly to the Executive Board. In 2009, the Panel completed four investigations and received four new requests for inspection. The Panel’s website can be accessed at: http://www.worldbank.org/inspectionpanel.
INT investigates allegations of fraud and corruption in Bank Group operations as well as allegations of staff misconduct, and reports its findings directly to the President. INT also assists in preventative efforts to protect Bank Group funds and ensure they are used for intended purposes. More information on the Department of Institutional Integrity can be found at: http://go.worldbank.org/1ZEK9VGAR0.
The World Bank is governed by 186 member countries. Each owns shares of World Bank stock and thus holds decision-making power. Every World Bank member state appoints a Governor to represent them on the Board of Governors, the highest authority governing the Bank. Canada’s Governor is the Minister of Finance.
The Governors are responsible for core institutional decisions, such as admitting or suspending members, increasing or decreasing the Bank’s authorized capital stock, determining the distribution of net income, and reviewing financial statements and budgets.
They delegate responsibility for the day-to-day running of the organization to 24 full-time Executive Directors, located at the Bank’s headquarters in Washington, DC. Executive Directors are appointed for two-year terms. In October 2008, Mr. Samy Watson was re-elected to represent the constituency that includes Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines. Governments within the constituency provide advice to the Executive Director on issues discussed at the Executive Board. The Executive Director considers this advice in forming his positions and applies his own judgment as an officer of the World Bank.
The Executive Board usually makes decisions by consensus. In the event of a formal vote, however, the relative voting power of individual Executive Directors is based on the shares held by the constituencies they represent.
Voting power at the Bank is mainly a function of the shareholdings held by a country, which in effect means that voting power reflects the relative economic strength of individual members. A small share of a member’s voting power is also determined by basic votes, which are distributed equally among all members.
|Country||% of Total Voting Shares|
|1 China has slightly more votes than Canada, Italy, India, Russia and Saudi Arabia.|
Canada is the seventh largest shareholder at the Bank, having contributed a total of US$5.5 billion in capital subscriptions to the IBRD, IFC and MIGA and US$8.7 billion in donor contributions to IDA. Our voting power ranges from 2.51 per cent to 3.38 per cent within ’s different institutions.
|Amount paid in||334.9||8,719.551||81.3||10.7|
|Subscription share (%)||2.85||3.60||3.43||2.96|
|Voting power (%)||2.78||2.51||3.38||2.48|
Figures are from the 2009 financial statements and annual reports
for the World Bank, IFC and MIGA respectively.
1IDA figure represents Canada’s cumulative contributions.
Executive Director: Samy Watson (Canada)
Alternate Executive Director: Kelvin Dalrymple (Barbados)
Senior Advisor: Donal Cahalane (Ireland)
Senior Advisor: Cal MacWilliam (Canada)
Advisor: Robert Chiew (Canada)
Advisor: Sharon Krooks (Jamaica)
Advisor: Anne Donegan (Ireland)
Advisor: Anita Ambroise (Canada)
Executive Assistant: Monique Piette
Address: MC-12-175, 1818 H Street N.W., Washington, DC 20433, USA
Every three years IDA funds are replenished through donor contributions. The replenishment provides another opportunity for Canada to influence policy, as during this process IDA and its donors discuss policy directions for the upcoming period. Governors from each donor country appoint an IDA deputy to represent them at these discussions, which conclude with a round of donor pledges to replenish the association’s finances. Canada’s IDA Deputy is Mr. John Davies, Director of the International Finance and Development Division of the Department of Finance.
Membership at the World Bank provides significant benefits to Canada, including:
Canada is an important provider of donor funding for the World Bank Group. In 2009, we made the following contributions:11
The global financial and economic crisis was the major focus for the international community and the Bretton Woods Institutions in 2009. The onset of financial instability in 2007 and its subsequent deepening in 2008 resulted in a global economic downturn and steep declines in capital flows to emerging markets. Economic crises spread across advanced, emerging and low-income countries. The IMF’s 2009 Article IV Consultation With Canada, an annual report that reviews Canada’s economic developments and policies, noted that the global economic slowdown and financial market turmoil hurt growth in Canada, but that Canada "entered the crisis from a position of strength, reflecting a track record of strong policy management that has supported underlying macroeconomic and financial stability."
In 2009, governments around the world continued and expanded the extraordinary actions they initiated in the previous year to shore up confidence, support key financial institutions, and restore credit market conditions. They also implemented large and coordinated fiscal stimulus packages to spur economic activity. For its part, Canada implemented one of the largest economic stimulus plans in the G7—as a per cent of gross domestic product (GDP)—through the Government’s two-year Economic Action Plan.
The crisis also created large financing needs in many less developed economies. In 2009, the G20 committed to ensuring that the IMF and the multilateral development banks, including the World Bank, have the resources they need to help the world’s poorest. Canada demonstrated strong international leadership on this by providing these international financial institutions with US$22 billion in additional resources in 2009 to help them respond to the crisis.
The financial and economic crisis reinvigorated the IMF’s central role as a "crisis responder" and provided a key impetus for reviewing how the IMF can be most effective in preventing future crises. The G20 mobilized its support for the IMF and backed significant new measures to ensure that the IMF had adequate resources to help countries respond to the global economic crisis. IMF members supported a general allocation of SDR 160 billion to respond to global liquidity concerns. At the same time, G20 nations recognized that the crisis necessitated a larger lending capability for the IMF. As a result, they committed over US$250 billion in new bilateral resources for the Fund, including US$10 billion from Canada, and endorsed an expansion of the IMF’s contingency financing source—the New Arrangements to Borrow—by over US$500 billion. The IMF’s lending facilities were also retooled to effectively target and constructively deal with the issues at hand, and IMF surveillance processes were reformed to enhance finacial stability.
In last year’s report, Canada committed to play a strong role in ensuring that the IMF has adequate lending resources and that the lending role of the Fund is tailored to the 21st century economy. The section "2009 Report on Canada’s Commitments at the Bretton Woods Institutions" details how Canada pursued its goals in these areas and provides further information on the extraordinary actions that the IMF took in 2009.
The impact of the global financial crisis on many emerging and developing economies (the IMF’s traditional borrowers) resulted in a sizeable expansion of IMF lending in the latter half of 2008 and throughout 2009 (see Chart 10). For many of these economies (in particular emerging Europe), the global downturn brought a sharp reversal of capital inflows from boom years preceding the crisis, which led to large balance of payments funding gaps. Currently, half of all outstanding IMF Stand-By Arrangements are with Eastern European countries (detailed in Annex 7).
|Lending Facility||Purpose||Total Amount||Countries Entering Arrangements|
|Stand-By Arrangement||Medium-term assistance for countries with balance of payments difficulties of a short-term character.||SDR 23.3 billion||Angola, Armenia, Belarus, Bosnia and Herzegovina, Costa Rica, Dominican Republic, El Salvador, Guatemala, Mongolia, Romania, Serbia and Sri Lanka.|
|Exogenous Shocks Facility||Short-term assistance to address a temporary balance of payments need arising from an exogenous shock (e.g. a spike in energy prices).||SDR 494.4 million||Ethiopia, Maldives, Mozambique and Tanzania.|
|Poverty Reduction and Growth Facility||Longer-term assistance for deep-seated balance of payments difficulties of a structural nature; aimed at sustained poverty-reducing growth.||SDR 830 million||Comoros, Côte d’Ivoire, Democratic Republic of the Congo, Ghana, São Tomé and Principe, and Tajikistan.|
|Flexible Credit Line (FCL)||Provides large-scale, targeted and cautionary assistance to member countries with access to international capital markets.||SDR 52 billion||Mexico, Poland and Colombia became the first countries to receive new precautionary FCL arrangements. As of March 2010, no FCL has been drawn upon, and Mexico has concluded its arrangement.|
While the global economy is showing signs of recovery, poor countries are still suffering the consequences of the global recession. In 2009, poor countries were hit hard as private capital inflows, remittances, and income from tourism fell. As a result of these factors, the number of people living in poverty is projected to rise in 2010.
As at the IMF, the World Bank Group’s lending increased in 2009. It committed nearly US$60 billion—an historic high for the World Bank Group and a 54-per-cent increase from 2008.
Highlights of World Bank Group lending, grant and investment activities in 2009 include (see Chart 2):
Taken together, the credits, loans, grants and guarantees issued by the World Bank Group supported 767 projects in 2009.
In addition to ramping up its own lending activities, the World Bank Group played a leadership role in creating a number of specialized facilities to target specific crisis needs and to help catalyze additional donor resources.
This includes the creation of the Global Food Crisis Response Program, a Global Agriculture and Food Security Program, an Agriculture Finance Support Facility, a Rapid Social Response Program, an Infrastructure Recovery and Assets Platform, and an IDA Crisis Response Window. These initiatives provide relief from high food prices, income and food security improvements, access to basic social services and safety net programs, additional infrastructure funding, and extra resources to help vulnerable countries recover from the economic crisis.
The IFC also launched a new Global Trade Liquidity Program, Global Equity Fund, Infrastructure Crisis Facility and Microfinance Enhancement Facility to improve global trade, and provide financing to recapitalize important emerging market banks, viable infrastructure projects and microfinance institutions.
Donor Support for the International Financial Institutions’ Crisis Response
At their 2008 Summit in Washington, the G20 Leaders committed to ensure that the World Bank and other multilateral development banks had sufficient resources to continue playing their role in overcoming the crisis.
As part of this commitment, Canada provided financial support for the World Bank Group’s crisis response measures, including by contributing US$200 million to the IFC’s Global Trade Liquidity Program. In addition, as part of its $600-million G8 commitment on food security, Canada will fund the World Bank’s Global Food Crisis Response Program and its new Global Agriculture and Food Security Program.
Canada supported a 200-per-cent general capital increase at the Asian Development Bank, contributing US$5.3 billion. In addition, Canada implemented an innovative idea to strengthen the Inter-American Development Bank (IDB) with US$4.0 billion and the African Development Bank (AfDB) with US$2.6 billion of extra callable capital, on a temporary basis. These initiatives allowed the IDB and AfDB to increase their lending levels in 2010 by almost 70 per cent and 75 per cent, respectively, helping them address the challenges resulting from the global economic crisis in their member countries. These initiatives are a further demonstration of Canada’s commitment to these institutions and to their development efforts in the Americas and Africa.
The global financial crisis created an important gap in the supply of trade finance, which is vital to the approximate US$10 trillion in annual global trade flows. Developing economies were particularly vulnerable to this shortage. The Global Trade Liquidity Program (GTLP) was created by the IFC to address this vulnerability by raising funds from international finance and development institutions, governments and banks, and working through global and regional banks to extend trade finance to importers and exporters. Through this arrangement, the award-winning facility is also enticing a return of private sector trade financing sources in developing economies. Canada was the first donor to participate in the GTLP, and its US$200-million contribution is expected to support up to US$2 billion in trade over the next three years. With the contributions of all donors, the facility is expected to support up to US$45 billion in trade over the next three years.
Over the past year, the World Bank Group also continued to move forward on several important reforms including internal governance, decentralization, human resources, transparency and voice. Canada considers internal governance reforms to be an especially important element, as they involve streamlining administrative processes for more timely project approvals and will allow the Executive Board to focus on strategic, rather than operational, issues.
While there has been sound progress, the Bank’s reform efforts are still far from complete, and 2010 will provide a unique opportunity to take a big step forward, as shareholders will be aiming to reach final agreements on four interrelated issues by the 2010 Spring Meetings: voice reforms; the Bank’s request for more capital; the World Bank Group’s post-crisis directions; and other important institutional reforms. The IDA16 replenishment discussions beginning in early 2010 will provide an opportunity to pursue additional reforms, including improvements in the Bank’s support for fragile states, gender and global public goods, as well as climate change.
The section "2009 Report on Canada’s Commitments at the Bretton Woods Institutions" details Canada’s efforts to advance work in these areas.
Since the vast majority of decisions at the IMF are taken on a consensus basis, formal votes by Governors and the Executive Board are rare. Canada affects policy proposals before they are brought to the Board (through informal discussion with staff and management) and works collaboratively with other members of the Executive Board before or during the course of Board deliberations. In 2009, the Executive Director representing Canada, Ireland and the Caribbean did not abstain from or oppose any items voted upon by the Executive Board. The Board of Governors took several resolutions in 2009. The positions taken by Canada’s Governor are described below.
Canada and other shareholders typically raise questions or concerns about specific Bank operations before they get to the Executive Board. As a result, decisions at the Board are generally taken by consensus. Executive Directors may, however, abstain or vote against projects or policies in consultation with their constituencies. In 2009, the Executive Director representing Canada supported all policies and projects approved by the Board, with one exception.
Similarly, the Board of Governors is asked to vote on a number of resolutions throughout the year. Below are Canada’s positions on the five resolutions taken in 2009.
Canada’s Executive Directors at the IMF and World Bank met with a variety of stakeholders, including governmental and civil society organizations and those pursuing business opportunities at the respective institutions.
In 2009, the IMF Executive Director and his staff met with many Canadian, Irish and Caribbean officials and civil society organizations, often alongside their counterparts from the Executive Director’s Office at the World Bank. These meetings included representatives from the Brookings Institution, Results-Résultats Canada and the Canadian Forces College. Staff from the Executive Director’s office also participated in seminars and events with various civil society guests, hosted by the IMF’s External Relations Department.
In 2009, the World Bank Executive Director’s Office met with representatives from Canadian and international civil society, including the Debt and Development Coalition of Ireland, Results-Résultats Canada, Oxfam International, ActionAid International, the Halifax Initiative, the Social Justice Committee of Montréal, Bridges Across Borders and the North-South Institute. Staff from the Executive Director’s office also met with students from Queen’s University, the University of Ottawa and McGill University.
Last year’s report outlined the Government of Canada’s 2009–2011 priorities for the IMF and the World Bank Group, which would guide the Government’s engagement at these institutions. The priorities are grouped under three themes: 1) governance and accountability; 2) institutional effectiveness; and 3) sustainable poverty reduction and growth. Canada indicated specific short- and medium-term actions the Government would take to pursue these priorities.
1. Governance and Accountability—Playing a leadership role in pushing for innovations in the governance and accountability structures of the Bretton Woods Institutions.
2. Institutional Effectiveness—Encouraging both institutions to deliver on their core mandates as effectively as possible.
3. Sustainable Poverty Reduction and Growth—Supporting the IMF and World Bank’s efforts to ensure that the growth and stability they help foster today will have a lasting effect over the long term.
Overall, encouraging progress has been made in Canada’s priority areas. For easy reference, this summary chart lists Canada’s priority actions from the 2008 report and provides a colour-coded assessment of Canada’s views on progress made at the Bretton Woods Institutions (BWIs). Full reporting on actions, results and remaining challenges is provided after this chart.
Colour code: Good progress, Some progress, Little progress
|1) Governance and Accountability|
|Priority 1.1 Governance Reforms: Enhance the legitimacy of the BWIs through a more representative governance structure.|
|Short-Term 2009||Ratify the 2008 agreements on IMF quota and voice and World Bank Group voice and participation reforms and urge other members to do the same.|
|Medium-Term 2009–2011||Work towards greater voice and participation of developing and transition countries to more adequately reflect changing economic weights in the world economy and contributions to IDA. Commensurate with increased voice and participation, we will also push the major emerging market economies to take on more responsibility in donor financing, including IDA.|
|Medium-Term 2009–2011||Work to promote corporate governance changes that increase IMF legitimacy, effectiveness and credibility.|
|Priority 1.2 Transparency: Build on past progress on institutional transparency.|
|Short-Term 2009||Push the Bank towards greater transparency during the review of its disclosure policy in 2009 by advocating for a move from the current policy that lists the types of information that can be disclosed to one that allows disclosure of any information, except for a limited list of exclusions.|
|2) Institutional Effectiveness|
|Priority 2.1 IMF Surveillance and Crisis Prevention: Support reforms to give more "bite" to surveillance.|
|Medium-Term 2009–2011||Continue to push all IMF members to undertake and publish the results of Financial Sector Assessment Program (FSAP) reviews. Encourage better integration of FSAP results into IMF Article IV reviews of member economies and call for mandatory publication of these reviews, enhancing the usefulness of those annual surveillance exercises.|
|Medium-Term 2009–2011||Support enhanced IMF-Financial Stability Forum collaboration on early warning systems for financial sector weaknesses and determining regulatory responses.|
|Medium-Term 2009–2011||Work to improve the integration of the IMF’s analysis of financial system developments in the Global Financial Stability Report with the assessment of trends in the real economy provided by the World Economic Outlook. Support Fund work to make this analysis more applicable to policy making in member countries.|
|Priority 2.2 Aid Effectiveness: Get the most development impact from IMF and World Bank resources.|
|Short-Term 2009||Push the World Bank Group to put in place meaningful decentralization of authority and personnel to enable it to play its critical role in donor coordination, for example, through its management of Multi-Donor Trust Funds at the country level.|
|Medium-Term 2009–2011||Canada will urge the World Bank Group to increase the use of randomized impact evaluations to affect policy decisions. To enhance the World Bank Group’s accountability, Canada will push the Group to make more of its program evaluations public in a timely fashion.|
|Medium-Term 2009–2011||Urge the Bank to use Poverty and Social Impact Analyses (PSIAs), as appropriate, for programs Canada jointly supports with the World Bank Group. We will also ensure that Bank management implements the recommendations from the current independent assessment of PSIAs.|
|Priority 2.3 Innovation for Private Sector Participation in Development: Continue to support new ways to promote private sector participation.|
|Medium-Term 2009–2011||Push for greater use of innovative tools to tackle global public goods (e.g. Advance Market Commitment, Caribbean Catastrophe Risk Insurance Facility [CCRIF]).|
|Medium-Term 2009–2011||Leverage Canada’s leadership position as the CCRIF’s largest donor to further improve the CCRIF and push for expanded insurance facilities in areas such as heavy rainfall and agricultural risk.|
|Priority 2.4 Resources and Lending Facilities: Ensure that the IMF and World Bank Group have adequate resources and appropriate instruments to fulfill their mandate.|
|Short-Term 2009||Engage at the IMF to ensure it has adequate lending resources through transparent, flexible and timely mechanisms.|
|Short-Term 2009||Support IMF efforts to modernize and rationalize its lending toolkit. Lead international efforts to develop a common view on the Fund’s lending role in today’s globalized economy.|
|Short-Term 2009||Work with G20 partners to ensure that the World Bank has sufficiently flexible resources and instruments to respond to the financial crisis.|
|3) Sustainable Poverty Reduction and Growth|
|Priority 3.1 Debt Sustainability: Avoid another lend-and-forgive cycle.|
|Medium-Term 2009–2011||Press for the full compliance of all participants in the joint IMF-World Bank Debt Sustainability Framework.|
|Medium-Term 2009–2011||Leverage Canada’s leadership role in the World Bank’s new Debt Management Facility for Low-Income Countries to build capacity in heavily indebted poor countries.|
|Medium-Term 2009–2011||Promote increased levels of IDA grant financing to low-income countries to enable them to weather the current crisis without jeopardizing their debt sustainability.|
|Priority 3.2 Failed and Fragile States: Better tools to assist fragile states.|
|Medium-Term 2009–2011||Use the IDA15 mid-term review to advocate for a longer period of exceptional IDA allocations for countries that have not succumbed to conflict but are rather re-engaging with IDA after prolonged inactivity.|
|Priority 3.3 Gender: Mainstreaming gender considerations across operations.|
|Medium-Term 2009–2011||Encourage the World Bank to update its operations manual to mandate the full integration of gender equality objectives into tangible World Bank programs.|
|Priority 3.4 Environment: Linking development and the environment in a manner that is consistent with BWI core mandates.|
|Medium-Term 2009–2011||Canada will leverage its position as a major donor to the Climate Investment Funds to stress the importance of performance measurement and to ensure that new climate change financing initiatives have effective monitoring and evaluation frameworks in place.|
The Government of Canada is committed to promoting good governance and accountability both at home and in its relations with the international community. One of Canada’s main objectives at the Bretton Woods Institutions is to ensure that they are well governed and accountable to their members. It is critical that the BWIs’ governance structures represent their members and that their operations reflect the priorities agreed to by those members. Further, the BWIs must be financially sustainable and transparent. These elements are central to the institutions maintaining their relevance and legitimacy in an evolving global context.
A key challenge for the BWIs over the last few years has been to adopt a more representative governance structure in order to reflect a changing global economy.
In July 2009, Canada ratified amendments to the IMF Articles of Agreement to reflect the 2008 IMF quota and voice agreement, and has used venues such as the IMFC and the G20 to encourage other countries to do the same. As of December 31, 2009, 47 countries have ratified the amendments.
The 2008 agreement represented an initial step towards a deeper agreement that is still under negotiation. With the increased urgency to prevent future crises, there is a heightened global desire for a more effective and representative IMF. As a result, IMF member countries have agreed to an ambitious target of January 2011 to complete the next quota review agreement.
In preparation for the next quota review, Leaders agreed at the G20 Pittsburgh Summit in September 2009 to a shift IMF quota share to dynamic emerging markets and developing countries of at least 5 per cent from over-represented countries to under-represented countries using the current quota formula as the basis. This quota shift is a priority for Canada, and we will push for an accelerated agreement in time for the October 2010 IMF Annual Meetings and November 2010 G20 Summit. Throughout 2010, Canada will be active in supporting voice reforms at both BWIs, including negotiations for a new, lasting IMF quota agreement.
|Short-Term Action:||Support negotiations for a new, lasting quota agreement to boost IMF legitimacy by increasing the voice of under-represented emerging markets and developing country members.|
In January 2009, the World Bank’s Board of Governors voted to approve the fall 2008 agreement for the first phase of the Bank’s voice reforms, and this included a positive vote submitted by Canada’s Governor. This cleared the way for part of the agreement to be implemented, including an additional seat for Sub-Saharan Africa on the Executive Board. However, another part of the agreement related to increasing the voice of low-income countries through additional voting power and required an amendment to the World Bank’s founding Articles of Agreement. This necessitated formal ratification by member countries’ parliaments. Canada took the steps required for this ratification, and in February 2010 Canada officially ratified the agreement.
Phase II voice reforms, furthering and extending the 2008 reforms, have been challenging. Significant disagreements remain unresolved and a concerted effort will be required to reach resolution by April 2010.
Canada has been working to advance these discussions. This includes playing an active role in promoting an agreement at the G20 Leaders Summit in Pittsburgh, and at the October 2009 Development Committee meeting, to move "towards equitable voting power in the World Bank over time through the adoption of a dynamic formula which primarily reflects countries’ evolving economic weight and the World Bank’s development mission, and that generates in the next shareholding review a significant increase of at least 3 per cent of voting power for developing and transition countries, in addition to the 1.46 per cent increase under the first phase of this important adjustment, to the benefit of under-represented countries. While recognising that over-represented countries will make a contribution, it will be important to protect the voting power of the smallest poor countries." We view this as a significant step forward in moving towards a final voice reform agreement in 2010.
We intend to continue participating as a constructive partner in these discussions as shareholders move towards a final agreement by spring 2010. We will advocate for the final agreement to include two features in particular: 1) protection for both the smallest and poorest countries to ensure that they do not see their voting power diminished; and 2) inclusion of a measure of IDA contributions that provides incentives for donors, including emerging donors, to provide support for the institution.
In addition, Canada’s Executive Director at the World Bank currently chairs the Committee on Governance and Executive Directors’ Administrative Matters, which leads the voice reforms process within the Bank. As such, Canada has played a lead role in forging consensus, advancing the voice discussions and will be key to any eventual agreement.
|Short-Term Action:||Work towards a final agreement on World Bank voice reforms in 2010, including protection for both the smallest and poorest countries, and building in incentives for donors, including emerging donors, to support IDA.|
Altogether, the ongoing voice reforms at both the IMF and World Bank are important in enhancing the legitimacy of these institutions. As such, these reforms will be a Canadian priority going forward.
|In 2010, enhancing the legitimacy of the BWIs through meaningful voice reforms will be a priority for Canada.|
While the IMF membership is focused on increasing legitimacy through quota reforms, the Fund must also ensure that its institutional governance framework supports effective engagement with member governments to meet global economic challenges. The Fund must be able to make decisions quickly and transparently, member governments must be ready to act to address threats identified by credible Fund surveillance, and IMF management and staff must be more accountable for the quality of their work. In the 2008 report, Canada noted its intention to seek improvements in IMF corporate governance, including the role of the Executive Board and the IMFC, the performance and accountability of IMF management, and ways to promote better member engagement with the institution.
Debate on IMF corporate governance reforms intensified in 2009, with the March publication of a report by the Committee on IMF Governance Reform, chaired by Trevor Manuel, former Minister of Finance for South Africa. At subsequent IMFC, G20 and IMF Executive Board meetings, Canada reiterated the importance of pushing ahead on corporate governance reforms, with some success. The Minister of Finance argued strongly that the Fund needs greater input from Governors, Executive Directors that focus more on strategic issues and less on day-to-day operations, and a Managing Director who is selected on merit—regardless of nationality—and who operates under an appropriate accountability framework. In 2009, thanks to pressure from Canada and like-minded countries, the G20 called for all international financial institution (IFI) heads to be selected through open, transparent and merit-based processes. At the Annual Meetings in Istanbul, the IMFC committed to adopt such a process for IMF management at the 2010 Spring Meetings in April 2010. Canada will actively push for this to come to fruition not only at the IMF this year, but at all IFIs, with a view to ending the long-standing tradition of reserving certain IFI leadership positions for nationals of select countries or regions.
In September 2008, Dominique Strauss-Kahn, Managing Director of the IMF, appointed former South African Minister of Finance Trevor Manuel to chair a committee of eminent persons to discuss and provide recommendations on IMF governance reforms. Mr. Strauss-Kahn tasked the committee with determining what changes to the Fund’s institutional framework would enhance its capacity to respond to its membership’s needs.
The committee found that the relationship between the IMF and its members no longer appropriately reflects the distribution of economic activity in the world economy. It also found that IMF effectiveness requires a governance structure that is adaptable and gives members who use IMF lending and capacity-building services a meaningful voice in decision-making.
The committee recommended several specific actions to improve the Fund’s governance. These included: realigning quota shares between members; activating a ministerial council that would make strategic decisions for the Fund; increasing the responsibility and accountability of senior management; setting a strategic focus for the Board; and ensuring an open and transparent selection of the Managing Director. In Canada’s view, many of the committee’s recommendations represent principled proposals for IMF corporate governance, while others do not adequately increase the IMF’s legitimacy, credibility and effectiveness. We expect these recommendations to form the basis of further analysis and IMF and G20 deliberations over the short to medium term. The committee’s report can be found at: http://www.imf.org/external/np/omd/2009/govref/032409.pdf.
G20 countries have assembled a working group to build consensus around quota and governance reforms underway within the IMF. South Africa and Australia are co-chairing the group.
The working group intends to reach agreement in several specific areas, as directed by G20 leaders. The group must determine a "G20 view" on an acceptable redistribution of quota share from over-represented countries to emerging market and developing countries by at least 5 per cent, while protecting the voting share of the poorest member countries of the IMF. Parallel to this rebalancing, the working group will also advise on an appropriate increase to IMF quotas. Regarding corporate governance, the working group will discuss the size and composition of the IMF’s Executive Board, as well as ways to enhance the Board’s effectiveness. Finally, working group members will propose new open, transparent and merit-based processes to appoint heads and senior leadership of IFIs.
The working group expects to gain G20 Leaders’ agreement for its proposals in November 2010, with the goal of broader IMF member agreement by January 2011.
Further, in December 2009, the IMF Executive Board reviewed the Fund’s transparency policy and supported several proposals to enhance transparency at the IMF. As part of these proposals, the Board endorsed a new overarching transparency principle stating, "the Fund will strive to disclose documents and information on a timely basis unless strong and specific reasons argue against such disclosure." Canada supported the new transparency proposals and will continue to push for increased transparency at the Fund.13
Progress on other corporate governance reforms, however, has been delayed by the massive IMF effort exerted on dealing with the global financial and economic crisis, as well as the desire of many members to settle the issue of quotas before delving into other reform debates. Canada remains of the view that an updated quota and voting structure aimed at increasing legitimacy should be complemented by corporate governance reforms to make the Fund more effective and credible. Therefore, we will push in 2010 at the G20 and at the IMF Board to make concrete progress on Board effectiveness, ministerial engagement, management selection and operational accountability.
|Medium-Term Action:||Promote IMF corporate governance changes to bolster ministerial oversight, increase the Executive Board’s strategic role and introduce a more robust independence-accountability framework for senior management who are hired on merit.|
As we consider the World Bank’s requests for capital and replenishment resources, we will also want to see that the Bank has a comprehensive reform agenda. We want to make sure that this is not just a bigger bank, but a better bank as well.
The Bank has put tremendous effort into initiating a number of reforms, including those in the areas of internal governance, decentralization and human resources. These reforms have the potential to be transformative and we commend the Bank’s leadership on this. Going forward, we would like to see a clear results framework for this reform agenda, with measurable targets, and a regular performance review by the Board to ensure accountability.
We also think it would be useful to have a focal point to consolidate budget and operational authority within Bank management to align expenditure with strategic priorities, including the reform agenda, and drive operational adjustments for cost savings where there is scope.
In addition, we want to be sure that the Bank has a sound business model, in which revenues and costs line up sustainably. This includes loan pricing that covers administrative costs. This is a critical part of putting the Bank on sound financial footing to meet future challenges and goals.
Finally, as chair of the Committee on Governance and Executive Directors’ Administrative Matters (COGAM), Canada’s Executive Director has played a leading role in proposing, considering and gaining agreement on numerous reforms. While significant work on internal governance reform remains, many important reforms have already been implemented, particularly reforms aimed at improving Board-Management engagement and the Board’s effectiveness and efficiency. COGAM will now increasingly focus on the ambitious broader institutional reforms noted above.
|Medium-Term Action:||Press for a World Bank Group corporate strategy that incorporates benchmarks to track progress and review performance on its reform agenda. Push for a focal point under the President, responsible for bringing together all operational and budgetary aspects of the reform agenda, and ensuring a sound and sustainable business model.|
The Committee on Governance and Executive Directors’ Administrative Matters (COGAM) is one of the Board’s five standing committees. Its role is to assist the Board on issues related to the governance of the institutions of the World Bank Group, the Boards’ own effectiveness, and the administrative policy applicable to Executive Directors’ offices. On August 21, 2009 Mr. Samy Watson, the Executive Director for Canada, Ireland and the Caribbean, was selected as Chair of COGAM.
In March 2009, Mr. Watson led consultations with Executive Directors to strengthen internal governance at the World Bank Group. The report, entitled Review of Internal Governance: Conclusions and Proposals, was considered and endorsed by the Development Committee at the Spring Meetings in April 2009. Many of these recommendations have been introduced or are being advanced at both the Board and operational levels. COGAM’s work program since September has facilitated the discussion and development of proposals and policy enhancements based on the report. In February 2010, COGAM reviewed and reported progress in a paper entitled Review of Internal Governance: Update. The committee, under Mr. Watson’s leadership, will continue to address reforms of the Bank’s internal governance going forward. Some of the elements of COGAM’s ambitious work program are outlined below.
Since September 2009, COGAM has met both formally and informally to discuss the topic of enhancing voice and participation for the IBRD and IFC, with all Executive Directors being invited to participate on an equal basis. The Chairman arranged the informal meetings in advance of COGAM as a means of clarifying and addressing contentious issues and facilitating progress. In this complex area, which has a myriad of stakeholder concerns, COGAM continues to facilitate progress by highlighting members’ positions and bringing forward a range of options for consideration by both the Development Committee Governors and Deputies.
Enhancing Board effectiveness focuses on improving systems, structures, documentation, Board agenda and practices. Proposals for strengthening agenda setting have been endorsed by COGAM and agreed by the Board. This will facilitate a greater strategic oversight role by clustering sectors and regions to enhance discussion and comparison, identify trends and provide performance monitoring data. A revised policy paper template was also endorsed, and successful implementation will ensure that policy papers will be consistent across the Bank both in terms of structure and format.
COGAM also considered a proposal for early conditional approval of low-risk operations. This will facilitate a small but significant shift from project approval to Board oversight. COGAM also agreed to a proposal to introduce a quarterly Financial and Operational Outcomes Flash Report. Its purpose is to produce a more timely, focused and consistent view of the key financial indicators of the Bank on a quarterly basis. Finally, COGAM considered and made recommendations on proposals to advance work on the review of the oversight agencies, on delegation of authority and on waivers.
Mr. Watson also moderated at an event on International Right to Know Day on September 28, 2009. The focus of discussion was on the World Bank’s disclosure policy and featured presentations from the Global Transparency Initiative and from the World Bank Group. On November 17, 2009, the Board approved the Access to Information Policy.
As the IMF and World Bank continue to refine their mandates, necessary resources and governance structures, Canada will emphasize that any institutional reforms should result in legitimacy, credibility and accountability.
|Building on our previous reform efforts at the Bretton Woods Institutions, we will continue to push the IMF and World Bank to increase their legitimacy, credibility and accountability.|
Governance and operational transparency are a basic tenet of effective institutions, and we are pleased that the World Bank continues to take steps to become an increasingly transparent institution.
In November 2009, the Executive Board approved the Bank’s new Access to Information Policy, which achieves the desired move from a list of information that the Bank would disclose, to a policy under which the Bank will disclose any information in its possession that is not on a list of exceptions. We see this as an important paradigm shift in how the Bank approaches access to information and a model for other multilateral institutions. We look forward to the implementation of this policy in July 2010.
A second major Canadian objective is to ensure that the BWIs carry out their mandates effectively. This means focusing services on BWI core competencies, responding to member country demands, coordinating with other international partners, and exploring innovative ways to reach the BWIs’ goals.
Canada has an ongoing interest in effective IMF surveillance of members’ economic and financial policies that reduces the risk of global economic, financial and monetary instability. Despite recent improvements in surveillance, there is still much to accomplish on the effectiveness and willingness of IMF members to heed Fund advice, publish all surveillance reports, and cooperate to identify solutions to common economic and financial threats. Canada is thus concentrating on initiatives to promote member engagement, as well as providing advice to the IMF through the Executive Board on more technical issues that affect the accuracy and appropriate scope of IMF surveillance.
In 2008, Canada committed to several actions that aimed to enhance the effectiveness of surveillance. These included supporting an improvement and expansion of Financial Sector Assessment Program (FSAP) reviews, enhanced IMF-Financial Stability Board collaboration, and better integration of IMF analysis across the Fund’s financial and economic reports. Each of these achieved some progress in 2009, and due to their overlapping nature, reporting is combined below.
To encourage greater transparency regarding financial sector vulnerabilities, Canada has been working hard to increase member participation in the joint IMF-World Bank FSAP. Canada was the first country to participate in the program in 1999, the first to publish the results of its assessment and, more recently, one of the first to undergo an FSAP update. In 2008–2009, Canada championed mandating public FSAPs within the G20 and ensured that G20 members each committed in the November 2008 Washington Declaration to undertake an FSAP review. In last year’s report, we committed to continue to push other members to undertake and publish the results of FSAP reviews, as well as to encourage better integration of FSAP results into IMF Article IV reviews of member economies to enhance the usefulness of those annual surveillance exercises. The Minister of Finance repeated this message in the G20 and at the IMFC. While some key IMF members have shown an increased receptiveness to FSAP participation and publication, other members remain to be convinced of the merits of a more transparent and independent IMF. Canada will continue to push for greater commitment to FSAP participation, especially for systemically important national financial sectors.
IMF collaboration with the Financial Stability Board (FSB), a group of leading national financial sector regulators and policy makers, has gained prominence since the 2008–2009 crisis. As both an FSB and IMF member, Canada supported broadening the FSB membership in 2009 to include key emerging market economies, as well as enhancing IMF-Financial Stability Forum collaboration to create "early warning" systems to identify national and international financial sector and real economy threats, and then determine appropriate regulatory responses. A concrete output in 2009 was the initiation of a new Early Warning Exercise (EWE) at the semi-annual IMFC meetings, where IMFC members (IMF Governors) are briefed in a confidential session on the key risks in financial sectors and national and regional economies. Canada hopes that going forward, this session will provide a frank reality check for key policy makers, helping to solidify their resolve for action if and when needed. As well, we will promote the use of EWE findings in informing the focus of Fund surveillance reviews and special reports.
The relative performance and strong regulation of Canada’s financial sector became more apparent to the world during the recent crisis and has given us more clout in multilateral efforts to counter future crises through better regulation, international cooperation and surveillance. Canada was a lead player in the G20 and FSB in 2009 and will provide leadership in 2010, including through our hosting of the G20 Summit in June. We will continue to push in both fora for an effective division of labour and surveillance cooperation as the FSB continues to build its resources over the medium term. It will be important for the IMF to better define its role in financial sector systemic stability oversight, to balance the more microprudential/regulatory focus of the FSB.
As mentioned, however, member commitment to the goal of strengthened IMF surveillance is not universal, and the IMF is still revising the focus of its FSAP reviews and macrofinancial surveillance to prevent the emergence of new stability threats. This work will be ongoing, and the Government of Canada and our representative at the IMF Executive Board will seek to provide guidance and deliver our messages of support for more effective and transparent surveillance when opportunities arise.
|Medium-Term Action:||Encourage IMF members to increase surveillance engagement and transparency, and the Fund to improve its ability to identify, communicate and spur member responses to stability threats.|
Getting the best development outcomes from our aid spending is a priority for Canada. To this end, the Government of Canada has set out an ambitious agenda to improve the cost effectiveness, focus and results of our aid programs, including our multilateral support.
The World Bank has increased its field presence to respond better to clients and integrate better global and country knowledge. In 2009, the World Bank had 37 per cent of its staff in country offices, and the World Bank is now looking at a more flexible and global model to pursue greater decentralization. Canada welcomes the World Bank’s efforts towards greater decentralization of authority and personnel as these efforts are producing benefits for both the entire Group and its clients. Going forward we would like to see the Bank improve and ensure an effective presence in fragile states.
Canada is satisfied with the IFC’s flexible and prudent decentralization policy with the goal of increasing development results by having greater contact with clients on the ground. In 2009, the IFC had more than 54 per cent of its staff in the field. We are particularly pleased with the IFC’s significantly increased field presence in the Caribbean, a region traditionally considered under-served by the IFC. We now consider the Caribbean, as a region, to be well served by the IFC. This is an important development as the region responds to the economic crisis and the downturn in tourist revenues.
The IFC is to be commended for enhancing its presence in IDA countries and fragile states as such decentralization increases opportunities to respond proactively to client needs and is critical for countries that require support to mitigate the impact of global economic changes. IFC efforts have also demonstrated a strong link between increased field presence and growth in their business volumes and diversification of their investment portfolio.
In 2009, Canada urged the World Bank to increase the use of randomized impact evaluations— specifically raising this issue at the IDA15 mid-term review in November. Randomized impact evaluations are the most rigorous form of evaluation and while not applicable to all situations, they should form a larger part of the toolkit to determine effective interventions and improve aid effectiveness.
The Independent Evaluation Group (IEG) is an independent unit within the World Bank that reports directly to the Bank’s Board of Executive Directors and uses randomized impact evaluations. Its findings and recommendations are based on its independent evaluations of strategies, projects, programs and corporate activities of the World Bank Group. The Bank could benefit from improving the ease with which these evaluations are accessed, as well as setting clear goals in terms of the frequency of and the budget for these evaluations. Canada will use IDA16 negotiations to push for benchmarks on the number of and the budget for these evaluations.
|Medium-Term Action:||Encourage the World Bank Group to increase the use of randomized impact evaluations, as appropriate, to affect policy decisions.|
In our view, the World Bank has leveraged the collective body of work from its own research unit, the IEG, and best practices from other multilateral and bilateral development partners, to design the right instruments and processes to improve the ability of the World Bank to manage and track development results. This is a significant achievement considering the scope and complexity of the delivery model and the rapidly evolving operating environment.
Canada welcomes the continued improvement of the IDA results management system. This system tracks the improvement in outcomes in IDA countries and the effectiveness of the World Bank initiatives in producing these outcomes. Several significant actions have been taken since its inception to strengthen and improve the system, such as introducing standardized core sector indicators and improving the quality of results frameworks.
It is also important that the IFC, as a development institution, be measured not only by its economic and financial results, but by its development results as well. While the IFC has made significant progress recently in this regard, our Executive Director’s office intends to remain firmly engaged in ensuring that the IFC remains committed to achieving development results, at both the individual project and institutional levels, and has the tools and systems to measure such results.
As this year will mark a decade since the World Summit on Sustainable Development established the Millennium Development Goals and their respective targets, we anticipate that the World Bank will be asked to focus more on outcomes, where challenges and opportunities for improvement exist. In its latest Annual Review of Development Effectiveness, the IEG observed that "in many projects information is not sufficiently rigorous or comprehensive to provide stakeholders a picture of what really changed as a result of the project." The IEG also noted that the IDA results management system "still faces significant challenges to fuller implementation" and its systematic use is not a reality.
|Medium-Term Action:||Push the World Bank Group to strengthen its capacity to manage and track development results.|
The Bank has created a PSIA Trust Fund to increase the application of PSIAs throughout the Bank. We are hopeful that this will have a positive impact on both the number of PSIAs undertaken and incorporation of their findings into Bank programs and operations. The IEG conducted the first independent evaluation of the World Bank PSIA work in June 2009. The evaluation concluded that, while some PSIAs have been highly effective, the overall approach has had limitations, such as the inconsistent integration of PSIA information in policy and program prescriptions.
Canada considers the Bank Management’s agreement with these IEG recommendations a step forward in the enhanced integration of this analysis. Canada will continue to monitor the implementation of the recommendations agreed to by the Bank and will encourage the Bank to use PSIAs in programs and projects that are funded by Canada.
Of all the Millennium Development Goals (MDGs), the least progress has been made on MDG 5—maternal health, as each year 500,000 women die from causes related to pregnancy or childbirth. In addition, MDG 4 targeting child health is not on track, as each year 9 million children die before their fifth birthday. This unacceptable situation is why Canada has made maternal and child health in the world’s poorest regions the top priority for our G8 Summit in June.
The essential package of interventions needed to improve child and maternal health is known and is not expensive. The cost of training health workers, vaccinations, better nutrition and clean water is within reach of the international community. It is also known that the effective delivery of these basic, inexpensive and effective health and nutrition services is dependent on the strength of health systems in each country. In addition to championing a major initiative to improve the health of women and children in the world’s poorest regions at this year’s G8 Summit, Canada will press the World Bank to increase its focus on strengthening health systems—a comparative advantage for the Bank. Strong health systems will form the foundation that allows progress on maternal and child health indicators and we will push to make this a focus for the upcoming IDA16 replenishment discussions.
|Medium-Term Action:||Press the World Bank to improve health system investments, which will be foundational for improvements in maternal and child health.|
Canada is a strong advocate at the Bank for innovative initiatives that harness the strengths of the private sector for development. We believe this is particularly important as the Bank explores its role in providing global public goods. The magnitude of the financial and technical challenges that many of these issues present is beyond the scope of what governments can provide on their own. We cannot expect to succeed unless this challenge is also taken up in the marketplace.
The Bank has responded proactively to demands that it engage on global public goods by launching the new Climate Investment Funds and a Global Trade Liquidity Program. The Bank also focused its 2008 World Development Report on agriculture, and responded on the food security front with innovations such as the Global Food Crisis Response Program and the Global Agriculture and Food Security Program.
In addition, the Advance Market Commitment (AMC) for pneumococcal disease reached a major milestone in October 2009 when four manufacturers submitted offers to supply vaccines under the AMC structure. An AMC is an innovative way to protect the lives of the world’s poorest children by making vaccines available in developing countries more quickly. Under an AMC, donors provide incentives for vaccine makers to accelerate their efforts by putting money aside with a promise to supplement the purchase price of vaccines if they are developed and meet specified efficacy and safety standards.
Industry’s participation provides initial proof of the power of the AMC concept, and was a significant step towards realizing the goals of the AMC. The supply offers are now under evaluation to ensure that they offer developing countries the best results in terms of longer-term supply.
Canada was the first country to announce a financial contribution to the pneumococcal AMC and is now the third largest donor, contributing US$200 million to the US$1.5-billion initiative. In addition to Canada, the other donors to the pneumococcal AMC include Italy, the United Kingdom, Norway, Russia and the Bill & Melinda Gates Foundation.
Canada has proactively encouraged the application of the pilot AMC to other global health areas, and with other like-minded partners has called on the World Bank and the Global Alliance for Vaccines and Immunization to reconvene an independent committee of experts to consider options for a potential second global health AMC.
Going forward, Canada will continue to collaborate with other donors and World Bank staff to explore opportunities to apply the AMC concept to areas including global health, agriculture and financial services.
|Medium-Term Action:||Push for greater and more effective use of innovative tools to tackle global public goods (e.g. AMC and catastrophic risk insurance facilities).|
Good progress was made on expanding the Bank’s insurance facilities to areas such as heavy rainfall and agriculture. On February 24, 2010, the CCRIF and the Caribbean Institute for Meteorology and Hydrology launched the Regional Rainfall Model, enabling the provision of excess rainfall insurance policies for Caribbean countries. Also, in December 2009, the IFC launched the Global Index Insurance Facility, an innovative program that expands developing countries’ access to insurance for natural disaster and weather risks. Going forward, Canada will continue to look at ways to support the development and implementation of these and other innovative insurance products.
The CCRIF offers rapid and guaranteed cash payment when a catastrophic natural disaster hits a country insured under the Facility. Such rapid access to funds fills the post-disaster liquidity gap, finances immediate post-disaster recovery, and allows governments time to mobilize additional resources for longer-term reconstruction activities.
Canada has been involved in the CCRIF since its early stages, actively working with our Caribbean constituents to create a financing option that responds to their needs. The Executive Director representing Canada at the Bank played a key role in gaining full Caribbean participation in the Facility. Canada has also demonstrated its commitment to the CCRIF by contributing US$17.5 million to the initiative, making Canada the Facility’s largest donor, as well as actively encouraging other donors to contribute. Canada remains the top donor to date.
As it pools the individual risks of participating countries, the CCRIF lowers the cost of insurance coverage by approximately 40 per cent, thereby providing Caribbean countries with an insurance option that would be too costly to undertake individually. In addition, donor contributions to the Facility serve to lower premium payments even further.
The negative effects of the economic crisis are threatening hard-won development gains. A Canadian priority is to ensure that the IMF and the World Bank Group have adequate resources and appropriate instruments to fulfill their lending mandates and respond to crises, as per our G20 commitment.
In 2009, the World Bank was very responsive to the global financial crisis, showing leadership in setting up a number of crisis facilities to encourage additional donor resources to help developing countries. Canada participated in these efforts, and was the first donor to participate in the IFC’s Global Trade Liquidity Program, with a US$200-million contribution. This program was designed to support trade in developing markets and address the shortage of trade finance resulting from the global financial crisis. In addition, the Prime Minister announced at the 2009 G8 Summit that Canada would provide a three-year $600-million agriculture package—a doubling of our existing spending in this area. A portion of these resources will be channelled to the World Bank for the new Global Agriculture and Food Security Program, as well as to assist with immediate food security concerns through the Global Food Crisis Response Program.
These efforts complement an innovative Canadian initiative to bolster the Inter-American Development Bank and the African Development Bank with extra callable capital on a temporary basis. This ensured that these institutions could sustain their lending to developing countries through the crisis and recovery periods. This temporary callable capital gave the Inter-American Development Bank and the African Development Bank US$4 billion and US$2.6 billion in additional lending space, respectively.
However, additional donor resources to help developing countries, especially low-income countries, recover from the crisis have been slow to materialize. Therefore, although the Bank has been very proactive in addressing the crisis, lacklustre donor performance regarding low-income countries necessitates a ranking of "some progress" for this action item. For this reason, Canada supported the creation of a temporary IDA Crisis Response Window, approved by IDA donors and the Executive Board in December 2009, to provide US$1.3 billion in additional resources to help low-income countries recover over the next year.
Looking ahead, one priority for Canada in 2010 will be to work with other shareholders to complete a review of the IBRD’s capital needs. We were pleased that the IBRD was able to provide a rigorous response to the crisis and dramatically increase lending activity, and we recognize that this has now put pressure on its resources. However, as a capital increase would involve a direct budgetary impact for shareholders, the size and cost will have to be well justified before a decision is made. Canada hopes that the next cycle of discussions for the replenishment of IDA resources, due to start in the first half of 2010, will be accelerated to allow for early agreement on this financing for low-income countries. We will want decisions on capital and replenishment resources to be linked to a sound reform agenda at the Bank.
|Short-Term Action:||Complete the review of the Bank’s financial capacity, including capital needs, and seek early conclusion of the IDA16 replenishment.|
The World Bank established the GAFSP in response to calls, in 2009, from the G8 in L’Aquila and the G20 in Pittsburgh to develop a multilateral trust fund to scale up sustainable agricultural and food security assistance to low-income countries. The primary objective of the GAFSP is to improve the income and food security of poor people in developing countries by filling existing financing gaps in ongoing country and regional programs through more and better public and private sector investment in agriculture and rural sectors.
The GAFSP aims to achieve this objective by ensuring country ownership, reinforcing existing efforts, such as the Comprehensive Africa Agriculture Development Programme ensuring rapid disbursement of funds and facilitating participation by the private sector and non-governmental organizations. The GAFSP adds value by strengthening public-private sector links, providing additional and rapidly available resources for sustainable agricultural development, and ensuring country ownership by linking funding to developing countries’ identified priorities and strategies.
Canada views the GAFSP as an excellent example of donors taking a collective step towards meeting the L’Aquila commitment. The GAFSP is being funded with new resources, is focused on food security and sustainable agricultural development, and most importantly, is explicitly linked to regional and country identified priorities and strategies. We see the GAFSP as an effective means to improve food security through sustainable agricultural development, and Canada plans to be among the first contributors to the program.
As the financial and economic crisis deepened and progressed, the IMF sought novel measures to actively respond to and mitigate the effects of the crisis. The Fund received substantial support from G20 Leaders who backed new resource allocations for IMF use. Canada was a leading partner in this G20 support.
Among the increased lending resources for the IMF was over US$250 billion in bilateral financing from G20 members. In July 2009, Canada was among the first to announce that it reached a (US$10-billion) borrowing agreement with the IMF to provide the Fund with temporary resources for member countries that require balance of payments assistance during the economic crisis. These resources are offered in addition to our roughly US$10-billion permanent quota commitment. Canada worked with other IMF members throughout 2009 to bring these new lending arrangements into an expanded and more flexible New Arrangements to Borrow (NAB), which provides a multilateral set of rules for the activation and use of bilateral loans over and above the quota commitments of select creditor countries. The NAB reforms are expected to be finalized in the first half of 2010.
To address global liquidity concerns, the IMF also gained member support (led by the G20) for an allocation of SDR 160 billion to its member countries. These SDRs are held at the IMF and can be traded in for the hard currency of other members if one member country’s central bank needs additional foreign exchange liquidity during a crisis. As the allocation was done in relation to countries’ quota shares in the Fund, more than a third of the allocation went to emerging market and developing country members. Canada supported the SDR allocation as a stability-enhancing measure during a time of constrained global foreign exchange liquidity, a fundamental role of the SDR.
Finally, the G20 endorsed doubling the IMF’s concessional lending capacity for low-income countries, and doubling access limits for each loan under the Poverty Reduction and Growth Trust (PRGT). Canada backed these changes in order to ensure adequate resources were available to low-income countries hit particularly hard by the global economic crisis. We also led the way in providing the resources to make this happen by negotiating an additional loan commitment of $800 million to the IMF’s PRGT to be used for lending to low-income countries. Along with these resource increases, the IMF reformed its concessional lending toolkit, as explained above in "An Introduction to the International Monetary Fund."
Going forward, the final piece of the resources workplan will be to determine an appropriate increase in IMF quotas at the quota reform discussions in 2010, which are aimed at bolstering the voice of under-represented emerging market economies and developing countries, and thus enhancing IMF legitimacy. Although IMF quotas relative to the size of the global economy are below the historical average, a quota increase must be consistent with the lending role the membership wants the IMF to take. Over the coming year, Canada will advocate for a quota increase that would appropriately reflect this and would enable the Fund to respond to the needs of members in the 21st century global economy.
|Short-Term Action:||As part of quota negotiations, push for the increase in quota resources to reflect the lending role of the Fund.|
In last year’s report, Canada noted that the Fund’s lending toolkit must evolve to keep up with the diverse needs of the membership and the globalized economy. It is noteworthy, therefore, that in 2009, the IMF developed an effective lending framework to support both the needs of low-income countries as well as those of dynamic emerging market economies that could be susceptible to international financial crises and contagion problems.
As a long-standing creditor to the Fund—and donor to its low-income country lending trust fund, the PRGT—Canada played an active role in the debates at the Executive Board, G7 and G20 over the lending reforms proposed by the IMF. In all discussions, Canada sought to ensure any reforms produced the right incentives for governments (e.g. appropriate charges and financing limits to dissuade excessive borrowing), the right signals for markets (e.g. providing confidence) and the most appropriate forms of policy conditionality to promote adjustment where needed to help countries emerge from crisis. Canada argued that too much money, offered at too little a cost without appropriate protections, could lead to the risk-inducing perception in markets that the IMF will always bail out countries and investors, possibly causing more instability in the long run.
The financing structure that materialized for both low-income and emerging market countries is detailed above in "An Introduction to the International Monetary Fund." Overall, Canada views the structure as a good balance between the desire for the IMF to provide confidence to markets and liquidity support for members during crises, and the need for countries to pursue adjustments to correct for failings in their policy frameworks. Though these reforms are very new, the IMF is considering further lending innovations, specifically targeted at liquidity provision for members as an alternative to accumulating their own foreign reserves. This issue will be debated at the G20 in 2010.
Canada will argue for a considered and deliberate approach to further reforms, given the limited experience with the new framework and the fact that many countries are facing increased debt pressures stemming from economic stimulus spending during the crisis. Future crises may thus arise from insolvency, and providing more, inexpensive IMF liquidity (and thus debt) would not solve those situations.
Canada also committed in last year’s report that we would push the IMF to not only appropriately reform its existing lending toolkit, but also to carefully review its optimal lending role. Some have noted a desire to provide financing solutions for all members in all situations, even if it is not the appropriate lending role of the Fund. This can weaken the safeguards on IMF resources (which allow Canada and others to book their resources at the IMF as safe international reserves), and can go counter to the IMF’s basic role of promoting an appropriate balance between providing financing and promoting policy adjustment.
In IMFC statements, at the Executive Board, and in G7 and G20 fora, Canada called for a reconsideration of the role of IMF lending in the 21st century global economy. Consistent with our efforts, the Fund will release a staff report in early 2010 with considerations on the desired role and resulting form of IMF lending. Canada will push at the Executive Board and in the G20 for a stronger consensus on members’ expectations regarding what lending role the IMF can and cannot be expected to play. It will be important to have a clearer idea of when and how the IMF should provide financing to inform its appropriate size and any changes to the broader global architecture in resolving financial and economic crises.
Beyond lending, Canada has consistently argued that the challenges of the 21st century global economy, and the fundamental changes that have occurred since the Fund was created over 60 years ago, call for the IMF membership to debate again what role we want the IMF to play today in pursuit of its basic stability promotion mandate. A better-defined role and expectations for the IMF in stability promotion are needed. This would also inform the types of surveillance and corporate governance innovations that are required for the IMF to carry out its mandate in a transparent and credible manner. The IMF’s mandate is therefore of central importance.
In 2009, Canada began to lobby more strongly for the consideration of the IMF’s mandate in reforms. Canada and some like-minded members successfully put mandate discussions on the IMF’s 2010 policy agenda, and this discussion about the mandate will inform IMF revisions to the scope and focus of surveillance and lending, the size of quota resources and changes to corporate governance in 2010 and beyond. However, open questions surrounding the appropriate Fund role for the 21st century global economy have led to some calls for IMF involvement in new areas, creating pressure for an expansion of the IMF’s mission and the possibility of inappropriate overlap with the work of the multilateral development banks (e.g. longer term development initiatives), or with national central banks (e.g. the IMF as a true lender of last resort or a global central bank).
Canada will engage actively in the mandate/role discussion, proposing that the IMF focus on its core surveillance, lending and technical assistance functions, including:
This must be supported by an appropriate corporate governance framework.
|Canada will encourage the IMF to remain focused on its core mandate of stability promotion.|
|Medium-Term Action:||Engage in IMF mandate review and push for the Fund to focus on bolstering its core surveillance and crisis lending/conditionality functions, and not expand its operations into non-core areas.|
After a relatively benign global economic environment in the years leading up to 2008, IMF lending picked up significantly with the onset of the global financial crisis. For Eastern Europe in particular, a number of new IMF programs were introduced throughout 2008 and 2009, all of which were monitored closely by Canada. While many of these programs have been effective in bringing about much-needed adjustments, some have experienced considerable difficulties, resulting in a number of lengthy program delays. In most instances, political considerations have been the driving force behind these difficulties.
This has brought to the forefront our desire to revisit the fundamental nature of IMF lending programs with a view to ensuring that they are as effective and principle-based as possible. The basic purpose of IMF lending is to provide assistance to countries in balance of payments difficulty, restore macroeconomic stability and ensure sustainable economic growth. Canada supports the consideration of all available policy options to achieve balanced macroeconomic adjustment rather than focusing IMF country programs too narrowly on one area. For instance, the adjustment burden should not be unfairly borne by the poorest within the domestic population. Further, to help facilitate the adjustment process through policy and financial cooperation, Canada encourages crisis resolution strategies that appeal to regional peers and private financial institutions operating in recipient countries. An example of this is obtaining commitments from parent banks to maintain exposure to their subsidiaries operating in the crisis country.
Canada has consistently advocated for IMF programs that include sound macroeconomic frameworks and minimize domestic or international political constraints from forming the basis of program advice. Going forward, Canada will continue to be actively engaged in IMF program monitoring and will push for programs that are centred on sound economic fundamentals and that seek to transfer the least amount of the adjustment burden onto the poor.
|Medium-Term Action:||Push for Fund programs to be based on sound economic principles and workable solutions, with targeted conditionality.|
Sustained and balanced economic growth is critical for poverty reduction. Another main objective for Canada is to ensure that the poverty reduction, growth, and macroeconomic stability that the IMF and World Bank foster have lasting results.
The IMF and the World Bank have played a vital role in changing borrowing and lending behaviours to prevent the reaccumulation of unsustainable debt levels. Canada has also taken a leadership role in these efforts through the continuous evaluation and provision of constructive input on the Debt Sustainability Framework, which monitors and aims to prevent the reaccumulation of unsustainable debt; the enhancement of the Debtor Reporting System, to collect debt data to improve the transparency of lending and borrowing activities; and the creation of the Non-Concessional Borrowing Policy, to put in place stronger incentives for countries to ensure that debt sustainability is maintained.
However, many countries are still at a high risk of debt distress, including many that have received comprehensive debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). Their efforts to make progress are further complicated by the frequency of external financial, economic and environmental shocks that often threaten the recovery, growth and stability of these nascent economies. It is imperative that development banks and donors alike continue their efforts to ensure that low-income countries are provided with the tools and advice they need to maintain their debts at sustainable levels. Canada remains strongly committed to these efforts and will continue to support low-income countries in reaching their long-term development goals.
The World Bank and the Fund both use debt sustainability analyses when making lending decisions. Canada strongly supports the concept of basing lending decisions for low-income countries on their individual debt sustainability analyses. Unfortunately, not all creditors observe these guidelines, and some loans continue to be made that jeopardize the debt sustainability of recipient countries. Therefore, although the BWIs comply with the Debt Sustainability Framework, the lending actions of a limited number of countries necessitate a "little progress" ranking for this action item.
|Medium-Term Action:||Push for agreement from all creditors to abide by lending limit guidelines established by the IMF-World Bank’s Debt Sustainability Framework when providing resources to low-income countries.|
In April 2009 the Debt Management Facility (DMF) steering committee met to launch the initiative. As a member of the steering committee, Canada will scrutinize the results of the DMF’s first year of operations at the next scheduled meeting in Tunis in March 2010.
|Medium-Term Action:||Use Canada’s membership in the newly established Debt Management Facility steering committee to ensure it provides targeted, cost-effective technical assistance to low-income countries.|
Low-income countries have been hard hit by the economic crisis through declining external trade, remittances and foreign direct investment. In 2009, Canada supported the creation of a new temporary financial support mechanism at the World Bank to mitigate the impact of the economic crisis on poor countries. This temporary IDA Crisis Response Window will provide US$1.3 billion in additional resources to help low-income countries recover over the next year.
To complement IDA’s efforts to increase financing to low-income countries, the Fund in 2009 revamped its concessional lending window, the Poverty Reduction and Growth Trust (PRGT), whose eligibility list is almost identical to that of IDA. Over and above substantial positive improvements to its lending and financing framework, the Fund instituted two measures to increase the concessionality of its PRGT operations. First, it permanently lowered the lending rate on all current and future PRGT loans by 50 per cent, so that after the grace period the new rate is at a historic low of only 25 basis points. Second, low-income countries will receive an exceptional suspension of all interest payments due to the IMF under the PRGT through to the end of 2011.
After reaching its "HIPC completion point" in mid-2009, Haiti was granted debt relief under both the MDRI and HIPC initiatives. As part of this process Canada forgave all outstanding bilateral debts owed by Haiti and contributed to substantial debt relief on its outstanding multilateral debt obligations. On January 12, 2010, Haiti suffered the most devastating earthquake in the western hemisphere in a century, crippling its economy and threatening its long-term debt sustainability. Given the exceptionally difficult task of crisis response and reconstruction, Canada called for extraordinary financial support to Haiti and pushed for this to include further debt relief on its remaining multilateral and bilateral debt. At a Canadian-hosted G7 finance ministers meeting in February 2010, ministers agreed that Haiti’s debts to IFIs should be forgiven and that the G7 will work with partners to ensure this is accomplished expeditiously.
|Medium-Term Action:||Ensure that Haiti’s outstanding debt to international financial institutions is completely forgiven and that reconstruction assistance be provided in the form of grants or highly concessional loans so as not to compromise Haiti’s long-run development efforts.|
Canada has a long-standing and close relationship with Haiti. On top of leading a consensus on forgiving all remaining bilateral debt for Haiti at the G7, the Canadian Government took unprecedented action in responding to the devastating earthquake Haiti suffered on January 12, 2010. Our rapid response mechanisms, including the dedicated Disaster Assistance Response Team, allowed us to get urgently needed relief supplies to Haiti, to deploy personnel to UN humanitarian agencies, and to provide cash contributions to key humanitarian partners in the immediate aftermath of the disaster. This was an important boost that assisted the overall Canadian and international response.
Additionally, the Canadian Government agreed to match eligible funds raised by private donations, estimated to be close to $130 million, and to continue tariff-free treatment for Haitian exports to Canada.
Canada has also been a leader in the international coordination of the response to the Haiti earthquake. Two weeks after the earthquake, we hosted the Montréal Conference with the Government of Haiti, where world leaders set in motion a joint approach to Haiti’s reconstruction and development. Canada will continue to play a leadership role in the humanitarian and long-term response to the earthquake in Haiti.
Successfully reintegrating failed and fragile states into the global economy represents another major challenge for the global community. Close to 15 per cent of the world’s population, or 1 billion people, live in fragile states. The World Bank estimates that poverty rates in these countries average 54 per cent compared with 22 per cent for low-income countries as a whole. Moreover, in the future, poverty is expected to become increasingly concentrated in these states. Canada has therefore been advocating for stronger multilateral support for these countries to complement our own large bilateral aid programs in countries like Afghanistan and Haiti. We are encouraged by the Bank’s analysis and knowledge-sharing work related to failed and fragile states, and we have collaborated with the Bank to provide financial and policy support to the upcoming World Development Report 2011 on security and development.
While the Bank has been improving its capacity to support fragile states over the last few years, we believe further enhancements are still needed. We would in particular like to see an increase in the volume and length of IDA’s special allocations for fragile states, as we are concerned that the current approach does not go far enough. Engagement in fragile states is a long-term commitment, and as reflected in Organisation for Economic Co-operation and Development best practices, at least 10 years of engagement and sufficient levels of financing are needed to ensure tangible and lasting results.
In this respect, we are especially concerned that IDA does not provide countries like Haiti enough in special allocations to allow them to achieve results before transitioning them back to the Performance-Based Allocation (PBA) mechanism, under which they experience a major fall in funding from IDA. As a fragile state that is not considered a "post-conflict" country, but a country "re-engaging with IDA" after a prolonged period of inactivity, Haiti receives only two years of special allocations with three years of phase-in to the regular PBA system. This compares to four years of special allocations with six years of phase-in to the PBA for countries classified as post-conflict. Re-engaging countries also receive a much smaller volume of assistance from IDA compared to post-conflict countries. Canada pushed for these re-engaging countries to be treated the same as post-conflict countries during the IDA15 replenishment discussions, but we were unable to secure agreement. We plan to pursue this again during the 2010 IDA16 replenishment discussions
Additionally, the Bank has embarked on reform efforts towards decentralization and delegation of authorities to the field. Canada supports the Bank’s efforts to acknowledge and address remaining challenges in ensuring adequate human resources and decision-making are devolved to country offices in fragile and conflict states, such as Sudan, where programming requires efficient, flexible and consistent responses.
|Medium-Term Action:||Use IDA16 negotiations to push for an increase in the length and volume of exceptional IDA allocations for failed and fragile states, such as Haiti, while pressing for the implementation of reforms to ensure that the World Bank offices in these states have the right human resources and delegated authority.|
Although the World Bank Group has policies on gender and development in place, their implementation has been uneven and as such, Canada will continue to be a strong advocate of gender issues at the World Bank Group.
While there has been some good progress in this area, we would like to see continued effort in integrating gender equality objectives into World Bank programming. There has been a lot of discussion and debate on this issue over the last year, including an IEG evaluation and response from management. The IEG evaluation highlights some recent success, including positive results from the 2007 Gender Action Plan and a four-year initiative to target specific gaps that had earlier been identified in the Bank’s gender work. However, the evaluation also points out that gender is still not being properly mainstreamed across all of the World Bank’s programming. For example, the Bank is still not meeting its goal of carrying out a gender assessment for every country in which it has a program, and the IEG found that overall there was slow progress or even a decline in incorporating gender considerations into project proposals in a meaningful way.
The World Bank will be preparing a transition plan to preserve the positive momentum generated by the Gender Action Plan beyond its closing date in 2010. We will push for this exercise to include a monitoring framework, with clear targets for progress on gender mainstreaming.
|Medium-Term Action:||Push the World Bank to include a monitoring framework, with clear and measurable targets for progress on gender mainstreaming, as part of its Gender Action Plan’s transition strategy.|
Sustainable growth cannot be achieved without significant progress in addressing the world’s environmental challenges. In many developing countries, the costs of environmental degradation have been estimated at 4 to 8 per cent of GDP annually. Natural resource degradation—depleted soils, insufficient water supply, rapidly disappearing forests and collapsed fisheries—threatens the health of millions of people. Pollution also continues to present a major health threat: an estimated 6 million people die annually, and many more get sick, in developing countries from water-related diseases, indoor air pollution, urban air pollution and exposure to toxic chemicals. The World Bank has a role in combating and coping with environmental threats and climate change.
The World Bank Climate Investment Funds (CIFs) are a collaborative effort among the multilateral development banks and countries to bridge the financing and learning gap between now and a post-2012 global climate change agreement. Canada has contributed $100 million to the Pilot Program for Climate Resilience (PPCR) within the Strategic Climate Fund (SCF) of the overall investment fund, which focuses on assisting developing countries to adapt to the effects of climate change. Canada is represented on the Trust Fund Committees for both the PPCR and the SCF.
As part of both of these committees, Canada has been active in the establishment of performance measurement frameworks for funds developed under the SCF, including the PPCR. Moreover, given that there are multiple funds currently being developed, we have worked with the Trust Fund Committee to establish a working group on the harmonization of the CIF results measurement framework. This will enable us to compare the performance and results across the various climate investments underway through the CIF over time.
Moving forward, we intend to continue to work through the Trust Fund Committee to ensure that the CIFs are achieving results, incorporate learning over time, and take necessary steps to harmonize activities with any new climate funds that may emerge from international climate change negotiations.
This year, the World Bank has been taking steps to implement its 2008 Strategic Framework for Development and Climate Change. Canada agrees with the IEG’s 2009 findings that the World Bank’s approach to the environment has become increasingly proactive and multilevel. The Bank’s increased emphasis on mainstreaming environmental results in its operations is encouraging, although the uneven performance in country programs remains a key challenge.
Canada will continue to monitor the Framework’s implementation, and we will remain active in consultations regarding new energy and environment strategies. In particular, we will work to ensure that climate change considerations are incorporated into other bank activities, particularly those financially supported by Canada, such as in agriculture.
|Short-Term Action:||Ensure climate change considerations are integrated into other World Bank activities, notably those related to agriculture and new project decision-making. Ensure appropriate linkages to climate change in the preparation of both the World Bank’s Environment and Energy Strategies throughout 2010, and encourage enhanced environmental indicators as part of IDA16.|
|Medium-Term Action:||Ensure that the Climate Investment Funds are achieving results, incorporating learning over time, and taking necessary steps to harmonize activities with any new climate funds that may emerge from international climate change negotiations.|
The following summary chart includes actions identified in last year’s report that will be carried forward for 2010–2012, as well as the new priorities and actions introduced in the previous section. To provide a more cohesive reporting structure in next year’s report, priorities have been reordered but are still grouped with the action items under three broad themes: (1) Governance and Accountability; (2) Institutional Effectiveness; and (3) Sustainable Poverty Reduction and Growth.
|1) Governance and Accountability|
|New Priority 1.1 Voice Reforms: Enhance the legitimacy of the BWIs through meaningful voice reforms.|
|Short-Term Action (2010)||Medium-Term Action (2010–2012)|
|Work towards a final agreement on World Bank voice reforms in 2010, including protection for both the smallest and poorest countries, and building in incentives for donors, including emerging donors, to support IDA. New|
|Support negotiations for a new, lasting quota agreement to boost IMF legitimacy by increasing the voice of under-represented emerging market and developing country members. New|
|New Priority 1.2 Institutional Reforms: Building on our previous reform efforts at the BWIs, we will continue to push the IMF and World Bank to increase their legitimacy, credibility and accountability.|
|Promote IMF corporate governance changes to bolster ministerial oversight, increase the Executive Board’s strategic role and introduce a more robust independence-accountability framework for senior management who are hired on merit. New|
|Press for a World Bank Group corporate strategy that incorporates benchmarks to track progress and review performance on its reform agenda. Push for a focal point under the President, responsible for bringing together all operational and budgetary aspects of the reform agenda, and ensuring a sound and sustainable business model. New|
|2) Institutional Effectiveness|
|New Priority 2.1 IMF Mandate: Canada will encourage the IMF to remain focused on its core mandate of stability promotion.|
|Short-Term Action (2010)||Medium-Term Action (2010–2012)|
|Engage in IMF mandate review and push for the Fund to focus on bolstering its core surveillance and crisis lending/conditionality functions, and not expand its operations into non-core areas.|
|Priority 2.2 IMF Surveillance and Crisis Prevention: Support reforms to make surveillance more effective.|
|Encourage IMF members to increase surveillance engagement and transparency, and the Fund to improve its ability to identify, communicate and spur member responses to stability threats.|
|Priority 2.3 Resources and Lending Facilities: Ensure that the IMF and World Bank Group have adequate resources and appropriate instruments to credibly fulfill their lending mandates.|
|As part of quota negotiations, push for the increase in quota resources to reflect the role of the Fund. New||Push for Fund programs to be based on sound economic principles and workable solutions, with targeted conditionality. New|
|Complete the review of the Bank’s financial capacity, including capital needs, and seek early conclusion of the IDA16 replenishment. New|
|Priority 2.4 Aid Effectiveness: Get the most development impact from World Bank resources.|
|Encourage the World Bank Group to increase the use of randomized impact evaluations, as appropriate, to affect policy decisions.||Push the World Bank Group to strengthen its capacity to manage and track development results. New|
|Press the World Bank to improve health system investments, which will be foundational for improvements in maternal and child health. New|
|Priority 2.5 Innovation for Private Sector Participation in Development: Continue to support new ways to promote private sector participation.|
|Push for greater and more effective use of innovative tools to tackle global public goods (e.g. AMC and catastrophic risk insurance facilities).|
|3) Sustainable Poverty Reduction and Growth|
|Priority 3.1 Debt Sustainability: Avoid another lend-and-forgive cycle.|
|Short-Term Action (2010)||Medium-Term Action (2010–2012)|
|Ensure that Haiti’s outstanding debt to international financial institutions is completely forgiven and that reconstruction assistance be provided in the form of grants or highly concessional loans so as not to compromise Haiti’s long-run development efforts. New||Push for agreement from all creditors to abide by lending limit guidelines established by the IMF-World Bank’s Debt Sustainability Framework when providing resources to low-income countries. New|
|Use Canada’s membership in the newly established Debt Management Facility steering committee to ensure it provides targeted, cost-effective technical assistance to low-income countries. New|
|Priority 3.2 Failed and Fragile States: Better tools for assisting fragile states.|
|Use IDA16 negotiations to push for an increase in the length and volume of exceptional IDA allocations for failed and fragile states, such as Haiti, while pressing for the implementation of reform to ensure that the World Bank offices in these states have the right human resources and delegated authority. New|
|Priority 3.3 Gender: Mainstreaming gender considerations across operations.|
|Push the World Bank to include a monitoring framework, with clear and measurable targets for progress on gender mainstreaming, as part of its Gender Action Plan’s transition strategy. New|
|Priority 3.4 Environment: Linking development and environment in a manner that is consistent with BWI core mandates.|
|Ensure climate change considerations are integrated into other World Bank activities, notably those related to agriculture and new project decision-making. Ensure appropriate linkages to climate change in the preparation of both the World Bank’s Environment and Energy Strategies throughout 2010, and encourage enhanced environmental indicators as part of IDA16. New||Ensure that the Climate Investment Funds are achieving results, incorporating learning over time, and taking necessary steps to harmonize activities with any new climate funds that may emerge from international climate change negotiations. New|
 An SDR (Special Drawing Right) is the international reserve asset created by the IMF to supplement the existing official reserves of member countries. The SDR serves as the unit of account of the IMF and its value is based on a basket of key international currencies: the euro, the US dollar, the Japanese yen and the British pound sterling.
 Reports to the IMF’s Board of Governors.
 Reports to the IMF’s and World Bank’s Boards of Governors.
 The constituency includes Guyana for the DC only.
 Canada has a voting share of 2.78 per cent at the International Bank for Reconstruction and Development and a voting share of 2.96 per cent at the International Development Association.
 For the October 2009 WEO see: http://imf.org/external/pubs/ft/weo/2009/02/index.htm and for the October 2009 GFSR see: http://www.imf.org/External/Pubs/FT/GFSR/2009/02/index.htm.
 All figures and activities in this section are for the World Bank’s 2009 fiscal year (July 1, 2008 to June 30, 2009)
 Canada’s first demand note issuance under IDA15 ($384 million) was made in December 2008 instead of the anticipated timeline of January 2009 as the IDA15 replenishment became effective earlier than anticipated and IDA requested an early note issuance as permitted under the terms of the replenishment resolution. The encashment of this demand note is scheduled for April 2009.
 As required under the Bretton Woods and Related Agreements Act, this report outlines Canada’s activities at the IMF and World Bank during the 2009 calendar year. In some cases, however, the listed data are sourced from the financial reports of either Canada, the IMF or the World Bank. As a result, some reported items follow fiscal reporting schedules rather than the calendar year. Canada’s fiscal year is April 1 to March 31, the IMF’s fiscal year is May 1 to April 30, and the World Bank Group’s fiscal year is July 1 to June 30.
 For more information on the Executive Board’s review, see http://www.imf.org/external/np/sec/pn/2010/pn1004.htm.