Finance Committee on May 17th, 2012

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is the 61st meeting of the Standing Committee on Finance. We are televised today. Our orders of the day are pursuant to the order of reference of Monday, May 14, 2012. We are studying Bill C-38, an act to implement certain provisions of the budget tabled in Parliament on March 29, 2012, and other measures.

Colleagues, we are on part 4, division 13, which deals with the Bretton Woods and Related Agreements Act.

We have with us Mr. Campbell, from the Department of Finance.

Mr. Campbell, I'll let you give an overview of this division, and then we'll have questions from members.

[Glenn Campbell, Director, International Policy and Analysis Division , Department of Finance]

Thank you.

Division 13 pertains to strengthening the legitimacy and effectiveness of the International Monetary Fund. The IMF is a key global institution in assisting the international community through economic, financial, and monetary crises. The fund is referred to as a Bretton Woods Institution, along with the World Bank, due to their origins under the 1944 agreement.

The legislative provision relates to the ratification of the 2010 quota and governance reform agreement among 187 countries, in particular to double all countries’ quota share in the international financial institution and to allow for more voice and representation of emerging market and developing economies. The agreement stems from the IMF resources agreement following the G-20, and the IMFC following the 2008–09 financial crisis. Each member country is assigned a quota share, based broadly on its relative position in the global economy as determined by a formula. A member's quota determines its voting power as well as its financial commitment to the IMF.

Clause 375 amends section 7 of the Bretton Woods and Related Agreements Act to reflect an increase in Canada's quota subscription from roughly $6.3 billion special drawing rights, SDRs, to $11 billion. An SDR is the unit of account at the IMF and is worth approximately 1.5 Canadian dollars at the current exchange rate. Canada's quota--i.e., potential financial commitment--will therefore increase to approximately $17 billion Canadian from $10 billion. This is a non-budgetary item, in which it has no direct fiscal impact. Any lending under the IMF is paid interest and is treated as an asset under Canada's foreign exchange reserves.

Clause 376 is a housekeeping measure that amends section 13 of the Bretton Woods Act to change the date of the annual report to Parliament under the act from March 31 to September 30. This will align the date of the government's annual report on the operations of the IMF and the World Bank with the annual report on development assistance.

Aside from the quota doubling included in this bill, there is a treaty amendment before Parliament that pertains to amendments of the article agreement to reflect modest changes to the governance structure of the IMF. That's sitting before Parliament now.

I am willing to take questions, Mr. Chairman.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Campbell.

We will begin with Mr. Caron.

You have the floor.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

I would like to know whether you think the special drawing rights and general resources of the International Monetary Fund are currently at a sufficient level to protect Canada, the United States and the European nations from a potential default on Greece's debt.

[Glenn Campbell]

Rather than speculate on any particular event, I would say that the government's position is that with the conclusion of this agreement with the IMF having roughly $1 trillion, at present, of what we call forward commitment capacity--available lending resources—Canada's view is that the IMF, after this agreement, has sufficient resources to deal with any imminent threats and risks. At the present time, the IMF has $400 billion U.S. worth of available lending capacity at its disposal. It also has commitments from all the member countries that if it were to need additional resources, they would be there in a time of need. The view of the Government of Canada is that following the ratification of the 2010 agreement, there is sufficient quota, and there are sufficient resources commitment behind the IMF at the present time. The IMF is already engaged in a program to support Greece at the present time.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

I assume you base your projections on various scenarios, but do you have an idea of the impact a potential default on Greece's debt would have on Canada's economic growth?

[Glenn Campbell]

I'm not prepared to answer that at the present time. However, I believe the minister has stated that Canada is not immune from international crisis, and that's why we're following the issue in Europe very closely.

[Guy Caron, NDP, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

I am going to keep my subsequent questions for the witnesses who speak later.

[The Chair, Conservative, James Rajotte]

Merci.

[Paul Dewar, NDP, Ottawa Centre, ON]

I'd like to--

[The Chair, Conservative, James Rajotte]

There are three minutes left.

[Paul Dewar, NDP, Ottawa Centre, ON]

I have a question about the World Bank. Who's our representative right now at the World Bank?

[Glenn Campbell]

Canada has appointed an executive director who leads the Canadian constituency, along with a number of Caribbean countries and Ireland, and that person's name is Marie-Lucie Morin.

[Paul Dewar, NDP, Ottawa Centre, ON]

Are you aware whether they have ever been present at a committee of Parliament?

[Glenn Campbell]

I look after the IMF, not the World Bank, but I can certainly get back to the committee on that question.

[Paul Dewar, NDP, Ottawa Centre, ON]

For the record, Chair, I think you'll find we haven't had a presentation—unless I'm wrong—at the foreign affairs committee. I'm wondering if you've recently had a presentation from our representative to the World Bank at the finance committee.

[The Chair, Conservative, James Rajotte]

We haven't, but for clarification, what does this have to do with the budget act?

[Paul Dewar, NDP, Ottawa Centre, ON]

What was referenced are changes to Bretton Woods, which is touched by the World Bank. If we're going to be looking at this in a fulsome way at some point, I was wondering if you would contemplate having representatives from the institutions that are being touched on.

[The Chair, Conservative, James Rajotte]

For clarification, do these amendments touch on the World Bank at all?

[Glenn Campbell]

No, they do not.

[The Chair, Conservative, James Rajotte]

Okay.

We can certainly take it under advisement.

[Paul Dewar, NDP, Ottawa Centre, ON]

It was just a point of clarity. Thank you.

[The Chair, Conservative, James Rajotte]

Okay, great. Thank you.

I'm going to go to Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Chair.

Thank you for being before us today.

Given the current turmoil and challenges, we understand the rationale for increasing our commitment, and other countries' IMF partners are doing the same. Are we doing so with our other partners proportionally?

Has there been some analysis, or do you have some analysis or insight on the impact on what the prudential strength of the IMF would be if the euro were threatened by a Greek departure and the contagion that would lead to others with similar fiscal challenges potentially doing the same? What would be the potential threats to the prudential strength of the IMF in that sort of event?

[Glenn Campbell]

That's a very good question.

On the first one, the agreement pertaining to quota, Canada is participating with its proportional share. The quota determines what our financial contribution is, and a quota system determines the size of our economy and a degree of openness. Roughly speaking, the size of one's economy leads to the amount you must contribute as a commitment to the IMF pending an agreement, and that also translates into voting rights, which you're able to use and exercise when managing the fund.

The basic tenet of the International Monetary Fund, first and foremost, is that it has primary creditor status. It means that whenever it engages in any entity—a sovereignty entity—everything else is subordinated. Whatever happens when the IMF is involved, part of the conditions are that the IMF always gets paid back. That has been the case through the history. When it's been involved, particularly in emerging market crises and Asian crises in the past, agreements under which the IMF lends its balance sheet are always according to very strict stringent conditionality, to which the receiving sovereign must abide in terms of what structuring it needs to make. Then, it's usually monitored very closely by the IMF such that it does in the end get paid back.

The concept of the IMF is that you take a country off borrowing from sovereign markets, you get a lower borrowing rate, and you force it to make structural change such that it's in a position to repay all other countries. At present the IMF has 50 years of experience and a lot of resources at its disposal to withstand any major shock.