Thank you, Mr. Chairman.
To begin, I want to commend the Department of Finance for its very informative report on the operations under the Bretton Woods Act and also the staff of the Halifax Initiative for the report card that gives credit to the Department of Finance for much improved work.
In the time available, I propose to comment on three of Canada's objectives as chronicled in that report.
The first point deals with the contradiction between Canada's goal of improving aid effectiveness and the policy advice that is routinely dispensed by the IMF. Last June I was reading an article by an African colleague concerning IMF policies. In one sentence left off the report it reads:
In the case of Zambia, the government was not allowed to employ more health care workers by IMF despite the willingness of the Canadian government to foot the wage bill for the next five years.
I was astonished. Could this be true? Was the IMF actually denying the ability of Canada to pay for health care workers in a country with an HIV prevalence of 17% of the adult population?
I undertook to inquire into this and contacted a number of colleagues in Zambia. What I discovered was disconcerting. Not only was our own CIDA having difficulty dispensing aid, but so was the United Kingdom's Department for International Development, the United Nations Children's Fund, and the World Health Organization. This was part of a broader problem.
I asked myself if Zambia is perhaps an exceptional case. Unfortunately, that is not the case. The IMF itself commissioned a study by its own independent evaluation office to examine allegations that IMF programs were blocking the availability of aid in Africa. The report examined the activities of the IMF in 29 African countries over the years 1999 to 2005. The results of this study I think are very shocking. They show that the IMF has allowed only 28% of anticipated aid increases to be spent, while the other 72% is held back as public savings. In other words, only about $3 out of every $10 in annual aid increases was allowed to be spent. The other $7 was set aside as international reserves or domestic savings.
The prime reason why the IMF does not allow more public spending, even when it could be funded by international donors, is its overzealous commitment to combatting inflation. Countries with inflation below 5% were allowed to spend $8 out of every $10 in aid. Countries with inflation above 5% were restricted to spending just $1.50 out of every $10 in promised aid. Most economists will tell us that moderate inflation, that is inflation in the range of 10% to 20%, is not harmful to economic development. However, IMF programs that are overly restrictive of government spending in the name of fighting inflation are harmful to development. I think a weakness of Canada's report on the Bretton Woods institutions is that it does not deal with this issue, and we do not know what position Canada is taking internally in debates within the Bretton Woods institutions on this issue.
The second area I would like to comment on is the priority that Canada states for promoting sustainable development. This priority is contradicted by World Bank support for fossil fuel extraction in developing countries, which is leading to increased greenhouse gas emissions because of climate change. Canada, along with other G-8 countries, has called upon the World Bank to develop an investment framework for clean energy development. The good news is that the World Bank is making progress in this regard. However, they are starting from a very difficult position. Over the years 1992 to 2004, the World Bank dispensed some $28 billion in financing for fossil-fuel-related projects. This was 17 times as much as the financing for energy efficiency and renewable energy projects.
The good news is this has begun to change. In fiscal year 2005, the World Bank actually dispensed more money for energy efficiency and renewable energy than it did for fossil fuels. However, in fiscal year 2006, we again saw retrogression; the spending for fossil fuels went up by 93%, while for renewable energy and energy efficiency it went up by only 46%. So we still have a long way to go.
Canada, I would hope, would identify itself with the advice given by the World Bank's own extractive industry review, which called for phasing out spending for fossil fuel extraction and devoting the World Bank's resources to renewable energy, to conservation, and to clean energy technologies.
The third and final area I wish to comment on is the Canadian priority around reforming the IMF to strengthen the international financial system. Roy has already touched on this.
What I want to do is put this in a somewhat broader context. Precisely because of the way the IMF conditionality is restrictive of the ability of sovereign nations to make their own decisions, we're seeing a trend in Asia, in Africa, and in Latin America toward the development of new institutions that would not be under the Bretton Woods umbrella. For example, in Asia they're talking about an Asian monetary fund that would be controlled by Asian countries. In Africa they're talking about an African currency and an African central bank. In Latin America, five countries have already moved to develop a bank of the south, which will take their own currency reserves and devote them to their own development priorities.
The Governor of the Bank of Canada, Mr. Dodge, has observed that the IMF is viewed with so much suspicion that it's no longer the best organization to foster a stable monetary environment. That's why we're seeing developing countries taking these initiatives.
Far from being alarmed about this, Canada should welcome these southern initiatives and encourage sovereign countries to take control of their own finances and to build institutions that serve their own needs.
Thank you, Mr. Chairman.