Canada’s law makers performed a valuable service this week, adding Bank of Canada Governor Mark Carney’s comments on the dispute over IMF funding to the public record.
Mr. Carney, perhaps the most respected economic official in the country, was rather quiet at last weekend’s meeting of the International Monetary Fund. He didn’t attend a press conference with Mr. Flaherty on April 20, and he made no other public appearances.
Canada’s central bank chief was asked about Canada’s opposition to IMF managing director Christine Lagarde’s pledge drive during separate appearances at the House Finance Committee and the Senate Banking Committee. Ms. Lagarde successfully raised $430-billion (U.S.) in bilateral commitments, but Canada was one of the few rich economies to refuse.
The finance minister complained that Europeans have too many votes at the IMF, creating a conflict of interest when it comes to setting the terms for loans to the region. Mr. Flaherty said the problem should be addressed; a stand that he maintained had support in the Group of 20, even though few others voiced the concern publicly.
It’s worth keeping this issue alive for two reasons. One, Mr. Flaherty’s lonely stand likely has done some damage to Canada’s reputation at the G20 and the IMF, which will make it harder for the Harper government to push its international agenda. At the same time, if the issues that Mr. Flaherty has raised are legitimate, then others should rally to his cause.
First thing to note about the parliamentary appearances is the eagerness of members of Canada’s governing party to draw out Mr. Carney on the matter. Here’s Winnipeg member of Parliament Sherry Glover’s question:
“…Our minister was in Washington for G20 meetings and talked a great deal about the IMF’s response to the European debt crisis and specifically our minister questioned the `troika system’ that is being applied by the IMF and Europe where the agencies jointly monitors aid to European countries with the European Union and the European Central Bank. Minister Flaherty noted, and I’m going to quote him, he said `That’s not the traditional way the IMF operates. Traditionally the IMF would direct what needed to be done.” So can you more fully explore the concerns raised by Canada and explain why it is that the IMF should reexamine its quest to find sustainable solutions in this crisis?”
And here’s the question put to Mr. Carney by Conservative Senator Donald Oliver:
“…Our finance minister raised some concerns about the IMF and the way it was dealing wit the European debt crisis. He used the word `troika’ and he said, `Why is the IMF dealing with the European Union, the European Central Bank. Surely this is the job for the IMF to take the lead on these things.’ So my question is could you explain a little bit more to us what it behind our minister of finance’s concerns. Is this a serious issue for Canada? And if so, what way? And if it is, what can be done about it?”
Hmm. One might be tempted to suggest that Ms. Glover and Mr. Oliver share the same researcher. No matter. Mr. Carney dutifully explained the situation in a more complete way than was offered over the weekend in Washington, where many people were left stunned by Mr. Flaherty’s sudden concern with the way the IMF was safeguarding its members’ money.
The IMF’s lending in Europe is unusual because it is doing so alongside the European Union and the European Central Bank. Typically, the IMF operates alone, giving it a free hand to negotiate the terms of its loans. Canada is worried that this ad hoc arrangement could become the norm.
“It’s not clear that this system is suitable going forward,” Mr. Carney told the Senate committee. “If there were to be a new program with another European economy, a larger European economy, wouldn’t it be better, wouldn’t it be more appropriate that the IMF’s relationship with that economy were as it historically is, where it’s solely the IMF setting the conditions? And I’ll finish by saying that this discussion, or this issue, found some sympathy in Washington.”
Peggy Nash, the New Democratic Party’s finance critic, asked a better question, one that suggested a legitimate curiosity in the subject. She asked simply if Mr. Carney would explain the pros and cons of the IMF’s funding increase.
Pro: “…the value of this is the process of adjustment in a number of European economies to solve the underlying balance of payments, fiscal and banking issues will take time. It will be measured in years, not weeks or weekends or months. Over the course of that time it is possible that access to markets won’t be there, or wont be there on sustainable terms and there will be a need to draw on these resources. So having sufficient resources to address that possibility is advisable. That’s the main pro.”
Con: “The con is partially around governance and resources provided from Europe. Ultimately, it’s a government of Canada decision. The last point, if I may, is just that all of this has to be looked at in the context of current resources of the IMF and are they adequate and judgments can be made around that as well.”
Mr. Carney’s comments offer context for Mr. Flaherty’s decision to oppose IMF funding. The Harper government is choosing a principled stand on fairness at an international institution over participating in multilateral initiative that could ease strains in global financial markets.
Most of Canada’s peers, including Britain, Australia and South Korea, signed up for the later. The United States is the only other significant holdout.
So parliamentarians now have a clear understanding of the issue. The next step is articulating their own feelings on a major international issue – an issue on which their government has taken an unconventional position, without fully explaining why.