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Reforming International Financial Institutions

 
Comments to Forum on International Financial Institutions
David Kilgour, Secretary of State (Latin America and Africa)
University of Alberta, Edmonton, October 18, 1997


Good afternoon. I am very pleased to be able to add my comments to your discussion of the changing role of international financial institutions. Your discussions have covered many aspects of this complex topic. Most of us would agree that IFIs must be reformed to adapt to changing times as we near the 21st century. It is harder to achieve a consensus on how these changes can occur.

Canada has been a strong supporter of IFI reform, and in particular we support the agenda put forward at the Halifax Summit of the G-7. We all remember the Mexican peso crisis of a couple years ago, and the disruptive effect it had not only on Mexico, but on that country’s NAFTA partners and other countries throughout the world. Canada supports the Halifax initiative to strengthen the surveillance capability of the International Monetary Fund in order to predict and avoid similar crises. But recently another aspect of IFI reform has been on my mind.

In September I visited the Great Lakes region of Africa. That visit brought home to me just how important another of the Halifax initiatives is -- the move to reduce the debt burdens of some of the world’s poorest countries. Uganda was one of the countries I visited, and is the first recipient of debt relief under the Heavily Indebted Poor Countries -- HIPC -- Initiative.

The HIPC Initiative is being led by the World Bank and the IMF, but it came about as one of the reforms suggested at the G-7 Halifax Summit. Canada has been a strong supporter of this initiative since its inception. Not all G-7 countries have been as favourable to this initiative as Canada. More work must be done to keep all countries on side and to ensure that the G-7 maintains its credibility by living up to the commitments made at summits in Halifax, and Lyon, France.

Uganda is one of the world’s poorest countries. Its per capita income is only slightly above $200 U.S. For years it suffered under the brutal dictatorships of Idi Amin and Milton Obote, and the civil war and atrocities that accompanied those regimes. Since 1987, in the years following the dictatorships, the government -- with assistance from the World Bank, IMF and bilateral donors -- has brought in a substantial number of economic reforms. This has contributed to considerable economic growth rates, averaging 6 per cent or higher since 1987. Unfortunately, Uganda is still plagued by poverty.

Uganda has a foreign debt of about $3.6 billion, which is small in global terms, but huge for the size of its economy. Its debt servicing in 1993 -- both capital and interest payments -- consumed more than 57 per cent of Uganda’s exports. Since the HIPC initiative, Uganda is expected to have a sustainable debt to exports ratio of 20 per cent.

With a heavy reliance on coffee and cotton exports, Uganda must diversify its economy. Despite following generally sensible economic policies in recent years, Uganda is still burdened by its debts of the past. These remain a serious obstacle to Uganda’s economic recovery.

Not all the countries that experienced the debt crisis of the 1980s have the same abilities to recover. Many middle-income countries, especially in Latin America, now have their debts under control. Some of the world’s poorest countries, especially in Africa, have experienced great difficulty repaying their debts to multilateral institutions. Some of the poorest countries found themselves on a debt treadmill from which they could not escape, and which stood in the way of their efforts to develop.

As a result of the discussions at Halifax and Lyon, it was agreed that a more comprehensive approach to debt relief needed to be implemented for the countries that were committed to economic adjustment policies. Some IMF gold would be sold to fund the initiative. Systematic relief was provided both for multilateral debt to IFIs, and bilateral debt in the Paris Club. Both the IMF and World Bank have created special trusts to be funded from their own resources and bilateral contributions.

Uganda was the first country to be approved for relief. Canada argued for low targets of debt to exports and debt service to export ratios. We believe that targets must be realistic in order to ensure that Uganda and similar countries can emerge from the process with sustainable debt burdens, without endangering their abilities to develop their economies.

Discussions have been underway this year to extend the program to other countries that are among the poorest of the indebted countries. These include Burkina Faso and Bolivia, and a third tier of countries will include Guyana, Mozambique, and Ivory Coast.

Canada has been a strong supporter of debt relief for heavily indebted poor countries. We were pleased to see positive decisions taken on Uganda, Burkina Faso, and Bolivia, and we look forward to similar decisions soon on the next tier of countries.

It is in no one’s long-term interest for any country to leave the HIPC initiative with doubts still remaining about the sustainability of its debt. Canada, therefore, will be looking at each case to ensure that targets are realistic, and that countries can exit from the program with good prospects for recovery.

Ultimately, it is in everyone’s interest to see the world’s poorest countries move from being aid recipients to trade participants. My visit to Uganda also impressed me with that country’s resources and economic potential. Last year Canada imported $12.5 million worth of products, mostly coffee, from Uganda. In turn, we exported $10.1 million in products to Uganda. But there is great potential for that trade to increase as Canadians of Ugandan origin, typically Ismailis expelled by Idi Amin, return to do business with their former homeland.

The climate for trade with the world’s poorest countries will not improve until the debt crisis is put behind them. The HIPC Debt Initiative is an important step in the evolution from aid to trade, and it is one that Canada will continue to support strongly in cooperation with the IMF, the World Bank, the G-7, and other countries.

 
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