Report on Operations Under the Bretton Woods and Related Aggrements Act
I am pleased to present to Members of Parliament and the Canadian public Canada at the IMF and World Bank Group 2010: Report on Operations Under the Bretton Woods and Related Agreements Act.
As Canada’s Governor at both the International Monetary Fund (IMF) and the World Bank Group, I am particularly proud of the unprecedented role that both of these institutions played in economic stabilization throughout the financial crisis and the crucial role that they continue to play through the ongoing global recovery.
With Canada hosting a Group of Twenty (G-20) Leaders’ Summit, a G-8 Leaders’ Summit and a G-7 Finance Ministers’ Meeting, 2010 was a historic year for Canada on the world stage. At the G-20 Summit, Leaders reinforced the push for more resources and governance reforms to increase the ability of both the IMF and World Bank Group to carry out their mandates of promoting global economic stability and poverty reduction.
The institutional reforms committed to in 2010 are very much in line with Canada’s long-term overarching priorities at both the IMF and the World Bank Group: strengthening their governance and accountability, encouraging them to deliver on their core mandates as effectively as possible, and supporting their efforts to ensure that the global growth and stability they foster will have a lasting effect.
The milestones contained in this report are a testament to Canada’s significant contribution to the IMF and the World Bank Group in 2010, and a demonstration of our commitment to helping these institutions build a strong, sustainable global economy.
The Honourable James M. Flaherty, P.C.,M.P.
Minister of Finance
This report to Parliament and the Canadian public provides an overview of the operations of the IMF and the World Bank Group, discusses key developments at both institutions in 2010, describes Canada’s engagement and contributions, and reports on the progress made on Canada’s priorities.
The IMF and the World Bank Group (known as the Bretton Woods Institutions) were founded at the United Nations Monetary Conference in Bretton Woods, New Hampshire, in 1944 to promote reconstruction and economic recovery after World War II. Since then, the mandates of these institutions have evolved to focus on promoting global economic stability and poverty reduction.
Canada is a member country of the IMF and of the World Bank Group’s International Development Association (IDA), International Bank for Reconstruction and Development (IBRD), International Financial Corporation (IFC) and Multilateral Guarantee Investment Agency (MIGA).
As a significant shareholder, Canada has an important governance role at both the IMF and the World Bank Group. Canada is the ninth largest shareholder at the IMF with 2.88 per cent of voting shares. Canada’s contribution to the IMF’s overall quota is SDR 6.37 billion (about US$9.7 billion). Canada is the seventh largest shareholder at the World Bank Group, 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. Canada’s voting power ranges from 2.51 per cent to 3.38 per cent within the World Bank Group’s different institutions.
The Minister of Finance is Canada’s Governor on the Board of Governors of both the IMF and the World Bank Group. Governors delegate day-to-day decisions to an Executive Director at both institutions. Given Canada’s shareholding and engagement at the IMF and the World Bank Group, the Executive Directors representing our constituency at both institutions have traditionally been Canadian.
This report responds to the requirements for annual reporting laid out in section 13 of the Bretton Woods and Related Agreements Act, which states:
The Minister of Finance shall cause to be laid before Parliament, on or before March 31 next following the end of each calendar year or, if Parliament is not then sitting, on any of the first thirty days next thereafter that either House of Parliament is sitting, a report containing a general summary of operations under this Act and details of all those operations that directly affect Canada, including the resources and lending of the World Bank Group, the funds subscribed or contributed by Canada, borrowings in Canada and procurement of Canadian goods and services.
This report is prepared by the Department of Finance in consultation with other government departments and agencies, with input from the Canadian Executive Director’s Office at the IMF and the World Bank Group, as well as input from Canadian citizens and civil society through consultations, stakeholder meetings and correspondence. Within the Government of Canada, the Department of Finance coordinates Canada’s policy advice at the IMF and the World Bank Group, consulting closely with other government departments and agencies, including the Bank of Canada, the Canadian International Development Agency (CIDA, and Foreign Affairs and International Trade Canada.
Additional information on Canada’s official development assistance activities at the Bretton Woods Institutions is available in CIDA’s annual report on the Official Development Assistance Accountability Act.
This report provides an overview of the activities of the IMF and the World Bank Group that are the most relevant to Canada. For more information on the financial performance and operations of these institutions, please refer to their respective annual reports at http://www.imf.org/external/pubind.htm and http://publications.worldbank.org.
This past year saw many important reforms at both the IMF and the World Bank Group. In 2009, the Bretton Woods Institutions were on the front lines in responding to the global financial and economic crisis. In 2010, following the crisis, world leaders moved to strengthen the institutions by implementing important changes to quota and voice that saw more equitable distributions of decision-making power. New and enhanced facilities also strengthened the effectiveness of the institutions and will allow them to contribute even more towards economic stability and poverty reduction as the global economic recovery continues.
The World Bank Group took several important actions over the past year to enhance its long-term legitimacy, credibility and effectiveness, including:
Canada advocated for, and was an integral part of, all of these accomplishments over the past year.
During 2010, a number of significant reforms to IMF governance, lending facilities and surveillance were implemented. These reforms, which include a realignment of IMF quotas, changes to the composition of the IMF Executive Board, and a strengthening of the IMFs lending toolkit, will help the IMF fulfill its mandate of safeguarding the stability of the international monetary system while promoting sustainable economic growth and raising global living standards. In addition, these reforms will increase the voice and representation of emerging market and developing countries, and make the Fund more representative of the global economy. At the same time, building on its multifaceted response to the global financial crisis in 2009, the IMF was again actively engaged in addressing the needs of its members through timely policy advice, financial support and technical assistance.
Canadian representatives constructively engaged in efforts to reform the Fund’s quotas and governance to strengthen its legitimacy, effectiveness and credibility. The IMF’s members agreed to a landmark package of quota and governance reforms that will significantly increase the voice and representation of emerging market and developing countries at the Fund. Canada also supported and engaged constructively in efforts to enhance the Fund’s lending toolkit. In addition, Canada contributed to improving IMF surveillance by fostering member agreement on making the Fund’s Financial Sector Assessment Program mandatory for members with systemically important financial sectors.
Canada is engaged in the governance of the IMF and the World Bank Group through its Governor on the Board of Governors of both institutions and through its Executive Directors. Canada makes contributions to capital, special funds, trust funds and global initiatives.
Canada was a significant contributor to a number of notable initiatives which made the IMF and the World Bank Group stronger and more effective, including:
This document reports on the progress made by the IMF and the World Bank Group on Canadian priorities identified in last year’s report, as evaluated by Canadian government officials with input from Canada’s Executive Director’s offices. It also reports on how Canada contributed to moving these priorities forward. Finally, the report provides updated forward-looking priorities.
For the past three years Canada has identified three overarching priorities for the Bretton Woods Institutions: governance and accountability, institutional effectiveness, and sustainable poverty reduction and growth.
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 the 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.
Canada sets sub-priorities and actions under each overarching priority and reviews them in each year’s report. Overall, the Bretton Woods Institutions have made encouraging progress on the priorities that Canada set for them in 2010. For easy reference, the summary chart in Annex 2 lists Canada’s priority actions from the 2009 report and provides a colour-coded assessment of Canada’s views on progress made at the Bretton Woods Institutions in 2010.
Full reporting on all priorities is provided in the body of the report.
The IMF works to safeguard the stability of the international monetary system while promoting sustainable economic growth and raising global living standards.
1945—Canada and 28 other countries sign the IMF Articles of Agreement.
1947—IMF begins operations; first loan drawn by France.
1971—United States informs 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—IMF adopts “Guidelines for the Management of Floating Exchange Rates.”
1976—IMF establishes 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, IMF Executive Board adopts the “1977 Decision” to guide IMF surveillance of member economies and exchange rate policies.
1986—IMF establishes 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—Systematic Transformation Facility 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—IMF endorses joint debt relief initiative for heavily indebted poor countries (HIPC Initiative).
2005—IMF begins to implement the Multilateral Debt Relief Initiative 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, 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.
2010—IMF continues to reform its lending toolkit by creating the Precautionary Credit Line, and following the earthquake in Haiti, establishing the Post-Catastrophe Debt Relief Trust to provide debt relief to low-income countries hit by catastrophic natural disasters.
Headquartered in Washington, DC, the IMF is governed by and accountable to the governments of its 187 member countries. Each of the 187 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 illustrated in Figure 1.
The Managing Director, nominated and appointed by the Executive Board, 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 September 15, 2010, the IMF employed 2,500 staff (from 158 member countries). There were significant changes in staffing levels in 2009 and 2010.
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. For information on IEO evaluations, see the section entitled “The IMF’s Response to the IEO’s Evaluations.”
As one of 187 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 Canadian residents and across the globe.
IMF activities focus on three primary areas, all aimed at promoting a prosperous global economy by contributing to international monetary stability:
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 pursuing 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 appropriate corrective measures. Consultations consist of regular staff visits with government and central bank officials, as well as legislators and representatives from the financial sector, industry, trade unions and academia.
Article IV of the IMF Articles of Agreement sets the “rules of the game” that each member country has voluntarily committed to. Each member country is generally obligated to:
The IMF has developed 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). The IMF also publishes Regional Economic Outlook (REO) reports on a semi-annual basis, which discuss recent economic developments and prospects for various regions. In 2010, the IMF also introduced the Fiscal Monitor to analyze and report on fiscal developments in member countries. These reports foster discussion at the Executive Board and within member governments. The Executive Board also holds regular informal discussions on world economic and financial market developments.
Following the global crisis, the IMF increased its surveillance activities to fulfill its mandate of promoting international monetary and financial stability. In 2011 IMF surveillance will be guided by well-defined economic and operational priorities contained in the Statement of Surveillance Priorities, which was adopted by the Executive Board and endorsed by Governors in 2008.
The economic priorities are primarily aimed at improving crisis-related policy interventions to reinforce the global financial system and promote macroeconomic and structural policies that support sustained world growth while keeping global imbalances in check. The operational priorities are intended to improve risk assessment tools and financial sector surveillance, and to integrate a more robust analysis of exchange rates and external stability risks.
These surveillance priorities will be reassessed in 2011 as part of the regular triennial surveillance review exercise. The IMF also participates in new data transparency initiatives, including the Principal Global Indicators website, which provides access to key data on G-20 economies.
The IMF offers technical assistance and training in its areas of expertise such as macroeconomic policy, tax and revenue administration, expenditure management, monetary policy, exchange rate systems, financial sector sustainability, and macroeconomic and financial statistics. Improving the technical capacity of member countries is fundamental to promoting sound monetary and macroeconomic policies and enabling effective IMF surveillance. Approximately 85 per cent of technical assistance goes to low-income and lower-middle-income countries. The IMF also provides technical assistance to help countries design and implement poverty-reducing and growth-promoting programs, and to help heavily indebted poor countries with debt reduction and management.
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. Recently, the IMF has adopted a more regional approach to the delivery of technical assistance and training and is increasingly relying on donor financing. In addition to the training offered at the IMF Institute, based in Washington DC, seven regional training institutes for country officials and seven Regional Technical Assistance Centres 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.
|Centre Name (Location)
|Beneficiary Countries and Territories|
|Pacific RTAC (Suva, Fiji)
|Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.|
|Anguilla, Antigua, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, and Turks and Caicos.|
|East AFRITAC—Africa Regional Technical Assistance Centre (Dar es Salaam, Tanzania)
|Eritrea, Ethiopia, Kenya, Malawi, Rwanda, Tanzania, and Uganda.|
|West AFRITAC (Bamako, Mali)
|Benin, Burkina Faso, Côte d’Ivoire, Guinea, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, and Togo.|
|Middle East RTAC (Beirut, Lebanon)
|Afghanistan, Egypt, Iraq, Jordan, Lebanon, Libya, Sudan, Syria, West Bank and Gaza, and Yemen.|
|Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Republic of Congo, Equatorial Guinea, and Gabon.|
|Central America, Panama, Dominican Republic TAC (Guatemala City, Guatemala)
|Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.|
The IMF works much like a credit union. Although it has only limited resources of its own, it has access to a large pool of liquid resources provided by its members, primarily through their payment of quotas, which consist of convertible national currencies, Special Drawing Rights (SDRs) and other widely used international currencies. The IMF 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 that broadly reflect 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 11, 2011, the total quota for the Fund’s 187 members is SDR 217.4 billion (about US$332.0 billion).
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 currencies comprising the US dollar, euro, pound sterling and Japanese yen. The SDR interest rate is determined as a weighted average of the interest rates on short-term financial instruments in the markets of the currencies in the SDR basket.
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 (members that joined the Fund after 1981).
A 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 market‑based 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 on their loans to the IMF 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 various loan facilities or instruments that are customized to address the specific circumstances of each member. The Stand-By Arrangement, which provides the bulk of Fund assistance to middle-income countries, addresses short-term balance of payments problems and typically lasts one to two years. On the other hand, the Extended Fund Facility addresses longer-term balance of payments problems requiring fundamental economic reforms and generally runs for three years.
In 2009, following the financial crisis, the IMF created the Flexible Credit Line (FCL). It provides countries that have strong economic fundamentals and policies with a credit line they can use for crisis prevention purposes. As of December 31 2010, Colombia, Mexico and Poland have accessed the FCL. In 2010, the IMF introduced the new Precautionary Credit Line (PCL). It provides large frontloaded access and assistance to support members facing moderate vulnerabilities but no actual balance of payments need. The first PCL program was approved for Macedonia in January 2011.
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) and more flexible lending facilities are now available under a new brand, the Poverty Reduction and Growth Trust (PRGT).
There are three lending facilities in the new PRGT framework:
Further, as part of the response to the global financial crisis, the IMF is also providing temporary interest relief with zero payments on concessional lending arrangements through to the end of 2011 to help low-income countries cope with the economic crisis. Also, in 2010 the Fund created the Post-Catastrophe Debt Relief Trust to provide debt relief to low-income countries hit by catastrophic natural disasters. Its purpose is to help these countries meet exceptional balance of payments needs that arise from such catastrophes and provide assistance in subsequent economic recovery efforts. The first beneficiary of the trust was Haiti.
Finally, a Policy Support Instrument (PSI) is an option for 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 countries’ policies, informing private and public creditors, official donors and the general public. As of September 2010, Cape Verde, Mozambique, Nigeria, Senegal, Uganda, Tanzania and Rwanda have benefited from PSI arrangements.
|Credit Facility (Year Established)||Purpose||Conditions|
|Credit tranches and Extended Fund Facility|
|Stand-By Arrangements (1952)||Provides medium-term assistance for members with short-term balance of payments difficulties.||Adopt policies that provide confidence that the members’ balance of payments difficulties will be resolved within a reasonable period.|
|Flexible Credit Line (2009; reformed 2010)||Provides large-scale, targeted and precautionary assistance for members with access to international capital markets.||Very strong ex ante macroeconomic fundamentals, economic policy framework and policy track record.|
|Extended Fund Facility (1974)||Provides longer-term assistance to support members experiencing serious medium-term payments imbalances due to structural weakness, to address long-term balance of payments difficulties.||Adopt a 3-year program with a structural agenda and an annual detailed statement of policies for the next 12 months.|
|Precautionary Credit Line (2010)||Provides large frontloaded access and assistance to support members with no actual balance of payments need and facing moderate vulnerabilities.||Sound economic fundamentals, institutional policy frameworks and policy track record. Need to commit to a focused set of policies aimed at reducing the remaining vulnerabilities identified.|
|Facilities for low-income members|
|Extended Credit Facility (2009)||Succeeds the Poverty Reduction and Growth Facility to 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)||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)||Provides rapid low access with limited conditionality for urgent balance of payments needs.||Assistance is provided as an outright disbursement. The facility does not have program reviews or ex post conditionality, except in the case of repeated use, where a track record of performance would be required in advance of the disbursement unless the financing need is primarily caused by an exogenous shock.|
In 2010, landmark reforms to the IMF and its lending facilities were agreed to. These reforms strengthen the institution’s legitimacy, effectiveness and credibility—all long-standing objectives of the Canadian government.
Spearheaded by the efforts of the G-20, in 2010 the IMF’s members approved a major overhaul of the Fund’s quotas and governance, strengthening the Fund’s legitimacy, credibility and effectiveness. The IMF reform agreement involves a comprehensive package of governance reforms that will significantly increase the voice and representation of emerging market and developing countries (EMDCs) at the Fund, mainly through realignment of IMF quotas and reforms in the composition of the Executive Board.
Quota reforms include a doubling of aggregate quotas and a major realignment of quota shares among members, resulting in a dual shift of quota shares of over 6 per cent to under-represented countries and to dynamic EMDCs. The quota realignment will be implemented on a “best effort” basis by the October 2012 IMF Annual Meetings. In addition, in pursuit of a quota formula that better reflects global economic weights, the reform agreement includes a commitment to complete a review of the current quota formula by January 2013.
The second part of the agreement constitutes reforms to the composition of the IMF Executive Board. These include:
Lending Activity and an Enhanced Toolkit
Building on its reinvigorated role as “crisis responder” in the face of the global financial crisis, the IMF further improved its lending toolkit and expanded its country lending in 2010.
In 2010, the IMF reformed its lending facilities by modifying the Flexible Credit Line (FCL) for countries meeting high qualification standards, such as Mexico. Reforms to the FCL involve greater access and increased duration of the term of the facility, which can be renewed, to a maximum of two years. The IMF also filled a hole in its lending toolkit by introducing the new Precautionary Credit Line, which provides large, conditional, frontloaded precautionary access to support members with no actual balance of payments need and facing moderate vulnerabilities.
A steady increase in IMF lending that began in early 2008 continued in 2010 due to the effects of the global financial crisis, coupled with the impact of the European sovereign debt crisis. New IMF lending commitments in 2010 were highlighted by a Stand-By Arrangement for Greece and an Extended Fund Facility for Ireland, as well as renewed FCLs for Colombia, Mexico and Poland.
Table 3, Chart 1 and Chart 2 highlight the IMF’s lending activities.
|Lending Facility||Total Amount Agreed (SDR)||Countries Entering Arrangements in 2010|
|Stand-By Arrangement||40.4 billion||Antigua and Barbuda, El Salvador, Greece, Honduras, Iraq, Jamaica, Kosovo, and Ukraine.|
|Standby Credit Facility||77.2 million||Honduras and the Solomon Islands.|
|Extended Credit Facility||956.5 million||Armenia, Benin, Burkina Faso, Grenada, Guinea-Bissau, Haiti, Lesotho, Malawi, Mauritania, Moldova, Sierra Leone, and Yemen.|
|Flexible Credit Line||47.5 billion||Colombia, Mexico, and Poland.|
|Extended Fund Facility||19.8 billion||Armenia, Ireland, and Moldova.|
The global crisis highlighted the need to modernize IMF surveillance to ensure that spillovers from economic developments and policies in one country to others are adequately captured in surveillance assessments. In 2010, the IMF made important progress on improving financial sector surveillance by gaining member agreement to make the Fund’s Financial Sector Assessment Program a mandatory part of Fund surveillance for members with systemically important financial sectors.
In 2010, IMF staff prepared implementation plans for Executive Board–endorsed recommendations following from two 2009 Independent Evaluation Office (IEO) evaluations.
The first evaluation examined how effectively the IMF executes its trade policy mandate. In response to the IEO’s recommendations, the Fund will focus on reprioritizing its trade policy work through six interconnected initiatives:
The second evaluation assessed the Fund’s interactions with member countries. It concluded that the general exchange of views and objective assessments were effective, and that interactions in areas such as program and technical assistance were also positive. Going forward, the Fund will build on existing plans and ongoing reform initiatives by:
In 2010, the IEO evaluated the IMF’s performance in the run-up to the financial and economic crisis. A report on the IEO’s findings was prepared and discussed by the Executive Board in early 2011.
The IEO has identified possible topics for evaluation over the medium term. Topics were suggested by all member countries. The topics are consistent with the IEO’s objectives of enhancing the learning culture within the Fund, strengthening the Fund’s external credibility, promoting greater understanding of the work of the Fund, and supporting the Executive Board’s institutional governance and oversight responsibilities. The possible topics identified for evaluation are surveillance, technical and design issues, the internal governance of the IMF, and the Fund’s interaction with external stakeholders. Final topics for evaluation will be determined based upon consultations with member countries.
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 most member countries from the Commonwealth Caribbean. Although Canada’s voting share at the IMF is 2.88 per cent, the Executive Director casts the votes of all members of the constituency, for a total of 3.63 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 bloc.
Canada’s contribution to the IMF’s overall quota is SDR 6.37 billion (about US$9.7 billion). Canada’s quota represents 2.93 per cent of the total and, aside from special loan arrangements sometimes in force, it corresponds to the maximum amount that it could be asked to lend from its international reserves to the IMF to assist other members experiencing financial difficulties. Quota also determines the voting power of each member country. Canada’s contribution to the overall quota is in addition to a temporary US$10-billion bilateral loan that Canada provided to the IMF as part of the 2009 G-20 commitment to bolster Fund resources during the crisis. In 2010, this temporary loan proved to be vital. Assistance provided to Greece and Ireland to backstop their government finances and support their financial system demonstrated the necessity for larger lending programs.
|Country||% of Total Voting Shares|
Executive Director: Hon. Thomas Hockin (Canada)
Alternate Executive Director: Stephen O'Sullivan (Ireland)
Senior Advisor: Glenn Purves (Canada)
Senior Advisor: John Rolle (Bahamas)
Advisor: Kimberly Beaton (Canada)
Advisor: Mathew Sajkunovic (Canada)
Advisor: Peter McGoldrick (Ireland)
Administrative Assistant: Basia Manitius (Canada)
Administrative Assistant: Sandra Mendes (Brazil)
Address: 11-112, 700 – 19th Street N.W., Washington, DC 20431, USA
Canada is also a major contributor to the IMF’s training programs, including the Caribbean Regional Technical Assistance Centre (CARTAC) and the Financial Sector Reform and Strengthening Initiative. 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. This technical assistance centre opened in 2009 and Canada is providing ongoing funding.
Canada is the largest international donor to CARTAC, providing $25 million for 2010–2013. To complement CARTAC, the Canadian International Development Agency (CIDA) developed the Support for Economic Management in the Caribbean (SEMCAR) program to provide long-term interventions for tax, customs and public financial management that will also include the provision of hardware and information technology systems to address emerging financial information needs. SEMCAR was designed in 2009 and will be implemented by the World Bank with the assistance of the IMF. CIDA will finance the three-year $19.2‑million project.
In 2010, Canada’s Executive Director at the IMF and his staff met with many Canadian, Irish and Caribbean officials and civil society organizations, often alongside officials from the Executive Director’s Office at the World Bank. These meetings included representatives from the University of Ottawa, Queen’s University and Carleton University. 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 group.
Canada’s Voting Record in 2010
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 attempts to influence the development of policy proposals before they are brought to the Board (through informal discussion with staff and management) or to influence other members of the Executive Board before or during the course of Board deliberations. Below are the positions taken by Canada’s Governor on the four resolutions taken by the Board of Governors in 2010. As well, the Executive Director representing Canada, Ireland and the Caribbean recorded three abstentions in 2010.
(Only Oppositions or Abstentions listed)
The Government of Canada is committed to promoting good governance and accountability both at home and in its relations and operations in the international community. One of Canada’s main objectives at the Bretton Woods Institutions (BWIs) is to ensure that they are well governed and accountable to their members. It is critical that the BWIs’ governance structures be representative of their members and that their operations reflect the priorities agreed 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.
2010 Action: Support negotiations for a new IMF quota agreement
In July 2009 Canada ratified amendments to the IMF Articles of Agreement to reflect the 2008 IMF quota and voice agreement, and in 2010 used venues such as the International Monetary and Financial Committee and the G-20 to encourage other countries to do the same. As of December 31, 2010, 100 members constituting 83.13 per cent of total voting power have ratified the amendments. The 2008 agreement will become effective when ratification is completed by 113 members having at least 85 per cent of total voting power.
While the 2008 agreement was a step in the right direction, it was widely accepted that further voice reforms were necessary to enhance the legitimacy of the IMF. As a result, IMF member countries and the G-20 agreed in principle to deliver a new quota agreement.
Throughout 2010, Canada stressed the need to deliver a new IMF quota agreement. In October 2010 in Gyeongju, South Korea, G-20 Finance Ministers and Central Bank Governors reached a landmark agreement on a comprehensive package of IMF governance reforms that will significantly increase the voice and representation of emerging market and developing countries (EMDCs) at the Fund. As part of the agreement, there will be a shift in IMF quota shares of over 6 per cent to under-represented dynamic EMDCs, a doubling of aggregate quota levels, and a commitment to review the current quota formula ahead of the next review. Also, the composition of the IMF Executive Board will be reformed through a number of measures to increase the representation of EMDCs. Canada is firmly behind the new quota and governance reform agreement, as it constitutes a significant deliverable for the IMF and the G‑20, which delivered on its commitment to reach a new quota deal by January 2011.
Throughout 2011, Canada should begin the necessary domestic legislative steps to bring the new quota agreement into effect, and should encourage other IMF members to do the same in a timely manner.
2010–2012 Action: Promote IMF corporate governance changes
While the focus in 2010 was on increasing legitimacy through quota reforms, the Fund must also ensure 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 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 International Monetary and Financial Committee (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, but was crowded out in 2010 by the emphasis on obtaining a new quota deal. Nevertheless, at the IMFC, G-20 and IMF Executive Board meetings, Canada reiterated the importance of pushing ahead with corporate governance reforms. The Minister of Finance advocated strongly that the Fund needs greater input from Governors and Executive Directors 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. The IMF made an attempt to increase Ministerial engagement at the 2010 Annual Meetings by streamlining the meeting format to allow Ministers to attend all meetings and sessions.
In 2010, reflecting pressure from Canada and like-minded countries, the G-20 reiterated its call for the heads of all international financial institutions (IFIs) to be selected through open, transparent and merit-based processes. The IMF failed to deliver on a commitment made at the 2009 Annual Meetings to adopt such a process by the Spring Meetings in April 2010. Canada will actively push for this to come to fruition not only at the IMF, 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.
Canada is of the view that, with quota reforms complete, corporate governance reforms should now be a key priority. At the G-20 and the IMF Executive Board, Canada will push for concrete progress to be made on Board effectiveness, transparency, Ministerial engagement, and management selection and accountability in 2011.
As both the IMF and World Bank continue to refine their mandates, necessary resources and governance structures, Canada should emphasize that any institutional reforms should increase legitimacy, credibility and accountability.
A second major Canadian objective is to ensure that the Bretton Woods Institutions (BWIs) are effective in carrying out their operations. This means focusing services on the BWIs’ core competencies, responding to member country demands, coordinating with other international partners, and exploring innovative ways to reach the BWIs’ goals.
Supported by the Articles of Agreement, the IMF’s basic role is to promote international monetary cooperation and global economic and financial stability. It does this primarily through bilateral and multilateral surveillance and dialogue with members, as well as through the provision of balance of payments financing and technical assistance to member countries in need. Canada has consistently stressed that the main focus of IMF reform should be to enhance these core functions without unnecessarily broadening the scope of IMF operations.
2009–2011 Action: Push for the Fund to focus on bolstering its core functions
Through its lending reforms in 2010, the IMF made good progress in enhancing existing tools and filling in gaps in its lending toolkit. However, Canada noted that the Fund needs to be careful not to overextend its lending role beyond its mandate. In addition, the IMF needs to reinforce its ability to distinguish solvency from liquidity crises, and not simply focus on providing larger amounts of liquidity.
The IMF needs to promote global economic stability by ensuring that surveillance tools are effective and comprehensive. A number of surveillance initiatives bore fruit in 2010. Most notably, the Fund decision to require Financial Sector Assessment Programs during the Article IV process for systemically important countries will help enhance financial sector surveillance. The IMF also revisited discussions surrounding the Fund’s role regarding cross-border capital flows, but a consensus on this issue has yet to be reached.
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 effectiveness and the 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.
2009–2011 Action: Improve IMF surveillance and increase IMF member engagement
In 2009, Canada encouraged the Fund to improve its ability to identify, communicate and spur member responses to economic stability threats. Canada also stressed the need for the Fund to enhance the effectiveness and traction of bilateral surveillance while strengthening its multilateral approach to surveillance. In 2010, important progress was made in some of these areas.
Canada committed to strive to increase member participation in the joint IMF-World Bank Financial Sector Assessment Program (FSAP) to enhance transparency regarding financial sector vulnerabilities. Canadian efforts were rewarded in 2010 as the IMF made the FSAP a regular and mandatory part of Fund surveillance for members with systemically important financial sectors, which will take place at least once every five years under each country’s annual Article IV review. Canada has always been a leader in promoting and participating in this program. This is a major step toward enhancing the Fund’s economic surveillance in the wake of the recent crisis, which originated in the financial sectors of large and globally interconnected countries.
While there has been progress in recent years towards improving multilateral surveillance, including a stronger focus on spillovers, there is still scope for further improvement at the IMF. Canada strongly supports efforts to strengthen multilateral surveillance at the Fund, and should engage constructively in this discussion in 2011. Progress was made in 2010 through the G-20 Mutual Assessment Process (MAP), which is part of the overarching Framework for Strong, Sustainable and Balanced Growth. The IMF provided important analysis on how the G-20’s respective national and regional policy frameworks fit together, and developed a forward-looking analysis on whether policies pursued by G-20 countries are collectively consistent with achieving a more sustainable and balanced global economy. Canada played a key role in promoting this process, as Canada and India chaired the G-20 MAP Working Group and provided guidance on technical assistance from the Fund and other organizations.
In addition, there is broad support at the Fund for producing, at least on a trial basis, reports on spillovers from countries whose policies or circumstances may significantly affect the stability of the global financial system. Spillover reports will start this year on a trial basis. Moreover, members are also receptive to the idea of conducting multilateral consultations as needed to foster collaboration on specific topics that have systemic implications. Thematic multi-country reports are seen as a useful vehicle for promoting a better understanding of cross-country linkages.
While some progress was made in 2010, member commitment to the goal of strengthened IMF surveillance is not universal, and the IMF is still exploring ways of establishing efficient multilateral surveillance to prevent the emergence of new stability threats. The relatively strong performance and regulation of Canada’s financial sector should add to Canada’s credibility and leadership as it continues to push for more effective international cooperation, surveillance and transparency.
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 G-20 commitment.
2010 Action: An increase in quota resources that reflects the role of the Fund
The 2010 quota review entailed discussions not only on the realignment of relative quota shares among members, but also on the appropriate increase in overall aggregate IMF quota resources. Since one role of IMF quotas is to represent the financial obligation of member countries to the Fund, an increase in quotas represents an increase in resources available to the Fund. Canada consistently stressed that the increase in quota resources should be adequate to credibly facilitate the current lending mandate of the Fund, and should properly reflect the IMF’s nature as a quota-based institution. This meant that any proposed increase in quotas would need to be accompanied by a commitment to re-evaluate the appropriate level of the IMF’s New Arrangements to Borrow (NAB), a set of bilateral borrowing arrangements between the IMF and its largest members including Canada.
As part of the G-20 agreement on IMF quota and Executive Board reform, IMF members agreed to an aggregate quota increase of 100 per cent, coupled with a corresponding decrease in the size of the NAB, to be implemented by the 2012 IMF Annual Meetings. The increase in quotas reinforces the ability of the Fund to meet its lending needs, and the increased proportion of quota resources to overall resources is consistent with ensuring that the IMF remains a quota-based institution.
Further, as part of the Leaders’ commitments at the London Summit in 2009, the G-20 agreed to reform and increase the size of the IMF’s multilateral borrowing arrangements through a significant expansion of the NAB. The main priority in 2011 will be to finalize the necessary member consents to activate the expanded NAB. To bring the expanded NAB into effect, the IMF still needs formal consent from 7 of the existing NAB members. As of January 2011, consent has been provided by 15 members, including Canada.
2010–2012 Action: Fund programs with sound economic principles and workable solutions
In 2010, many countries continued to struggle in their efforts to recover from the global economic downturn. As a result, Canada supported a number of IMF financing programs to help facilitate economic adjustment.
A Stand-By Arrangement was necessary for Greece in 2010 to backstop government finances in the face of rapidly growing budget deficits and debt levels. Under this program, Greece has committed, with the assistance of Fund staff, to implement a multi-year stabilization program to consolidate public finances, safeguard the financial system, and promote the necessary structural reforms to restore competitiveness, including in the labour market.
In addition, an Extended Fund Facility was approved for Ireland in late 2010 to backstop government finances and support the financial system in the face of high budget deficits and rapidly mounting debt levels. Under the program, Ireland committed to implement the Irish National Recovery Plan (2011–2014) to restructure the banking system, consolidate public finances, and promote the necessary structural reforms to restore competitiveness and promote economic growth.
In addition to providing funding programs under existing lending facilities, in 2010 the IMF implemented a series of measures aimed at strengthening its lending toolkit. In 2009, Canada and the G-20 called on the IMF to review its crisis lending toolkit to enhance the tools for crisis prevention. Consultations among IMF members, G-20 Leaders and stakeholders led to the development of instruments enabling the Fund to respond more effectively to evolving economic challenges. In 2010, a major overhaul of the Fund’s lending framework was approved, including reforms to the Flexible Credit Line (FCL) and the introduction of the new Precautionary Credit Line (PCL). Canada was an active participant in these initiatives.
The FCL is designed to meet the increased demand for crisis prevention and mitigation lending for countries with proven track records of robust policy frameworks and strong economic fundamentals. Reforms to the FCL in 2010 centred on increasing the flexibility and predictability of the instrument, making it more attractive to the strong-performing countries it was designed for. Canada supported the IMF proposal to eliminate the implicit cap of 1,000 per cent of quota, and to increase the maximum term from one to two years, with an interim review of continued qualification after the first year.
The new PCL is designed to bridge the gap between the FCL and the High-Access Precautionary Stand-By Arrangement. The PCL is intended for countries with sound economic and policy track records, but which have moderate vulnerabilities and may not yet meet FCL qualification standards. The PCL combines a qualification process with regular reviews and ongoing conditionality aimed at addressing vulnerabilities identified during qualification. The PCL has a duration of between one and two years, and is only available to countries that do not face an actual balance of payments need at the time of approval, bolstering its role in crisis prevention. Moreover, the PCL can play a crisis resolution role by providing immediate access to funding if a country experiences an unexpectedly large balance of payments need.
To make its financial support more flexible and tailored to the diversity of poor countries, the IMF has revised its concessional low-income country lending toolkit under the umbrella of the Poverty Reduction and Growth Trust (PRGT). The PRGT’s assistance and conditionality are guided by a country’s Poverty Reduction Strategy, which is country-specific and involves broad-based participation by civil society and the private sector.
In Budget 2010, Canada provided $800 million in loan resources and $40 million in subsidy resources to the PRGT to support its activities in low-income countries, which is consistent with the commitments made at the G-20 London Leaders Summit.
Canada has consistently advocated for IMF lending programs that promote solid macroeconomic frameworks as the foundation of program guidance. Going forward, Canada should continue to push for IMF programs that are 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.
2010 Action: Ensure that Haiti’s outstanding debt to international financial institutions is completely forgiven
The Government of Canada responded quickly to the tragic earthquake that hit Haiti in January 2010. While Canada had already cancelled all bilateral debts owed to it by Haiti prior to the earthquake, following the tragedy Canada led a G-20 consensus to forgive over US$825 million Haiti owed to international financial institutions. Canada was the first country to make all of its payments required to cancel Haiti’s debt, totalling US$32.6 million.
2010–2012 Action: Full compliance with the Debt Sustainability Framework
Canada strongly supports basing lending decisions to low-income countries on their individual debt sustainability analysis and debt management capacities. The World Bank, IMF and regional development banks continue to use debt sustainability analyses when making decisions on financial support to poor countries.
Although Canada and the Bretton Woods Institutions comply with the Debt Sustainability Framework, unfortunately not all other creditors observe these guidelines, and some creditors continue to provide loans that may jeopardize the debt sustainability of recipient countries. Therefore, the inability to date of the Bretton Woods Institutions to get all bilateral creditors to lend on these principles of debt sustainability necessitates a “little progress” ranking for this action item.
To move forward on global standards for debt sustainability, Canada encourages the IMF and the World Bank to continue to work collaboratively with other organizations, such as the United Nations Conference on Trade and Development (UNCTAD) and the Organisation for Economic Co-operation and Development (OECD), to ensure that their responsible lending guidelines are consistent with the IMF and World Bank’s Debt Sustainability Framework.
The following chart includes actions identified in last year’s report that will be carried forward for 2011–2013 as well as new priorities and actions introduced in the previous section. They are grouped under three broad themes: (1) Governance and Accountability; (2) Institutional Effectiveness; and (3) Sustainable Poverty Reduction and Growth.
|Priority 1.1 Governance Reforms: The IMF and the World Bank should continue to be legitimate, credible and accountable institutions.|
|The IMF should implement the 2010 quota and Executive Board reform agreement.|
|World Bank Group and IMF leadership positions should be staffed through open, transparent and merit-based selection processes, regardless of candidate nationality.|
|The IMF should have strong Ministerial oversight, a strategic role for the Executive Board, and a robust independence-accountability framework for senior management who are hired on merit.|
|Priority 2.1 IMF Mandate: The IMF should remain focused on its core mandate of stability promotion.|
|The Fund should remain focused on strengthening its core surveillance and crisis lending/conditionality functions, and not expanding its operations into non-core areas.|
|Priority 2.2 IMF Surveillance and Crisis Prevention: IMF surveillance should be more effective.|
|New and updated surveillance initiatives should enhance the efficiency and effectiveness of Fund analysis, fill in gaps in the current surveillance framework, and remain grounded in the core mandate of the Fund.|
|The IMF should work effectively with the G‑20 to provide analysis in the G‑20 Mutual Assessment Process.|
|IMF members should be engaged and transparent with IMF surveillance, and the Fund should be effective in identifying, communicating and spurring member responses to stability threats.|
|Priority 2.3 Resources and Lending Facilities: The IMF and the World Bank Group should have adequate resources and appropriate instruments to fulfill their lending mandates.|
|The IMF’s expanded New Arrangements to Borrow should come into effect, and the IMF should secure adequate resources for the transition to this new borrowing framework.|
|IMF programs should be based on sound economic principles and workable solutions, with targeted conditionality.|
|New and reformed lending instruments should be consistent with the role of the Fund and designed to protect against potential moral hazard implications.|
|Priority 3.1 Debt Sustainability: The IMF and the World Bank Group should provide financial resources to developing countries in a manner that promotes development and does not jeopardize the sustainability of their debt or risk a debt default.|
|The IMF and the World Bank should continue to work collaboratively with other organizations, such as United Nations Conference on Trade and Development and the Organisation for Economic Co-operation and Development, to ensure that their responsible lending guidelines are consistent with the IMF and World Bank’s Debt Sustainability Framework.|
|The IMF should ensure that programs supported by the Poverty Reduction and Growth Trust always include a comprehensive debt sustainability analysis and, where appropriate, explicit lending (concessional and non-concessional) limits that are consistent with the institution’s new non-concessional borrowing policy.|
1 The SDR, or Special Drawing Right, serves as the unit of account of the IMF, and its value is based on a basket of currencies comprising the US dollar, euro, pound sterling and Japanese yen.-
2 Canada’s constituency includes Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana (World Bank Group only), Ireland, Jamaica, Saint Kitts and Nevis, Saint Lucia, and Saint Vincent and the Grenadines.
3 For the October 2010 WEO see http://www.imf.org/external/pubs/ft/weo/2010/02/index.htm, for the October 2010 GFSR see http://www.imf.org/external/pubs/ft/gfsr/2010/02/index.htm, for the October 2010 REO see http://www.imf.org/external/pubs/ft/reo/reorepts.aspx, and for the November 2010 Fiscal Monitor see http://www.imf.org/external/pubs/ft/fm/2010/02/fmindex.htm.
5 The voting share of all members of the constituency will change somewhat once the 2008 and 2010 quota and voting share agreements come into effect.