There’s a question about Canada’s opposition to boosting the International Monetary Fund’s resources that officials have difficulty answering: Politics and ideology aside, does the IMF need the money?
Bank of Canada Governor Mark Carney avoided a direct answer at a press conference Wednesday, as did a senior finance official on a conference call convened to preview this weekend’s IMF meetings in Washington, where the fund’s bid to raise some $400-billion (U.S.) will be the central point of discussion.
They said the answer was complicated, and depended on one’s outlook for the global economy. Neither offered their own opinion. “These judgments should be taken in the context of yes, partially preventative, but also in the context of need,” Mr. Carney said in Ottawa. “That will be part of the discussion that we have over the next few days, and I suspect over the course of the coming months, and potentially years.”
The avoidance surely isn’t because Canada’s top economic leaders don’t have an answer. The central bank and the Finance Department have an adequate stable of PhD economists capable of running the numbers of the IMF’s request.
Instead, the unwillingness to confront the core issue – whether the lender of last resort for 188 countries has the capacity to do its job in the face of the serious risks posed by the European debt crisis – exposes the debate for what it really is: a political and ideological contest within the Group of 20 over the euro zone’s handling of the default of three of its 17 members.
As in any game, Canada risks getting caught on the losing side. That became a greater possibility Wednesday as U.S. opposition softened, leaving the Harper government out of step with its closest ally.
The Obama administration’s opposition to the IMF’s request suddenly softened Wednesday, following a $60-billion pledge by Japan on Tuesday. In Puerto Vallarta, Mexican Finance Minister Jose Antonio Meade, who will chair a meeting of his G20 counterparts in Washington on Friday, told reporters he expected “good progress” on meeting the IMF’s request.
Canada’s stand has strong support among academics and former officials who agree that richer European nations, especially Germany, could do more to stem the debt crisis.
But the politics of the debate over IMF resources are shifting, complicating the Canadian government’s resolute stand. Canada’s reputation on the international stage could be bruised, or the Harper government could contribute to the fumbling of an attempt to show financial markets that the Group of 20 is serious about safeguarding the global economy.
“We need to do our part when everyone else is doing their part,” said former finance minister John Manley, who now leads the Canadian Council of Chief Executives in Ottawa.
“When we’ve got good company, that's one thing,” Mr. Manley added, saying he suspects Canada's opposition is linked to that of U.S. and Britain. “If we’re alone, Canada doesn't block consensus.”
Finance Minister Jim Flaherty kept up the attack Wednesday, telling reporters in Toronto that “the Europeans need to step up to the plate much more than they have,” according to a report by Reuters.
However, in Washington, an important ally in the effort to squeeze more out of Germany and Europe’s other big economies signalled that the game was over.
Describing his approach to the IMF’s request for additional resources as a “strategy” to force Europe’s hand, U.S. Treasury Secretary Timothy Geithner dropped a previous argument that the IMF has all the money it needs to deal with the risks facing the global economy. Instead, Mr. Geithner embraced IMF Managing Director Christine Lagarde’s pledge drive, predicting she would receive substantial contributions this weekend, demonstrating the IMF can raise money “very, very quickly” if it needs to.
“I think that’s good because that will prove to the world that there is a substantial capacity that can reinforce what Europeans are doing and help cushion if necessary the effects of a European trauma for the rest of the world,” Mr. Geithner said.
The comments suggest a shift in the U.S. position on IMF resources from obstructionist to cheerleader. The Obama administration has no intention of seeking authority from Congress to contribute to an IMF increase, but it will no longer obstruct others from doing so.
Mr. Geithner’s softening appeared to isolate Canada as the last vocal critic of the IMF’s push for additional recourses, one Mr. Carney characterized as a back-door effort to bail out Europe. “I’d underscore that the IMF is there to serve all of its constituent members, not just one continent,” he said.
Canadian officials insisted there is no consensus within the G20 on Ms. Lagarde’s call for her richer members to contribute emergency loans. Japan’s offer supplemented the $200-billion euro zone countries had put on the table, and Australia and Mexico have indicated that they will participate. Non-G20 countries Denmark, Sweden and Norway have committed a combined $26-billion.
“I don’t think Canada is irredeemably hurting itself with its position on Europe,” said Bruce Montador, a former senior Finance official who is now a senior fellow at the University of Ottawa’s Graduate School of Public and International Affairs.
But “if everyone comes around,” leaving Canada isolated, “that would be different,” Mr. Montador said. “If that comes about, maybe we should reconsider our position.”