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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