July 14, 1988 (33rd Parliament, 2nd Session)


James Douglas Manly

New Democratic Party

Mr. Manly:

Well, I can carry on tomorrow and Monday.
Seriously, this is not the routine Bill that its treatment by the House would appear to indicate. It deals with Canada's relationship with the debt-ridden, poverty-stricken nations and peoples of the Third World. The Bill gives the Government authority to provide funds to the International Monetary Fund, through loans and grants, for a trust or any other body established by the IMF. The Government has explained that these moneys are for enhanced structural adjustment facilities, or ESAF. It provides highly concessional terms to the poorest countries faced with the problems of debt repayment and

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structural adjustment. Part of the money coming from Canada will be in the form of a loan and part in the form of a grant.
The purpose of the funds in the form of a grant are to allow very concessional terms to the recipient countries. In other words, the grant funds coming from Canada enable the borrowing countries to borrow the money at very low interest rates. At the same time, the IMF will be paying the regular commercial interest rates to the lending countries such as Canada. The grant portion of the money comes from our official development assistance, ODA.
I am concerned about some of the specifics in the Bill. First, while the Government explained that the purpose of these moneys was for the ESAF, the Bill does not say that. It says "any trust or body established by the IMF". The committee rejected an amendment that would have tightened that up. In the same way, the Bill specifies certain specific sums of money but then goes on to say that any other funds that the Government wants can also be given. In effect, the Bill gives a blank cheque, and again the committee rejected amendments that would have tightened that up.
I am concerned that this Bill has the grant portion of the funds coming from ODA at a time when that assistance as a percentage of our GNP is dropping.
A June 22 Globe and Mail report pointed out that foreign development aid from western countries fell by 2 per cent in real terms last year. According to figures released by the OECD, Canadian overseas aid spending fell as a proportion of Gross National Product from 0.48 per cent in 1986 to 0.46 per cent in 1987. That is a very small percentage drop, but we must compare that with the commitment the Government made when first elected.
At that time the Hon. Secretary of State for External Affairs (Mr. Clark) went to the United Nations and promised that Canada would meet its commitment of reaching 0.7 per cent of its funding for ODA by 1990. Since then we have seen one cut-back after another rather than the fulfilment of that commitment. Now, rather than increasing the percentage of our GNP which goes to development assistance, we are decreasing it. In this connection we are concerned that the grant portion which goes to ESAF is being taken from Official Development Assistance.
Roy Culpeper who studied this matter appeared before the committee and said:
In its recent report, the UN Secretary General's advisory group on financial flows to Africa concluded that $5 billion in additional flows annually would be necessary to secure some economic growth, increased imports, and reduce the debt servicing ratio in sub-Saharan Africa. If the ESAF and other recent initiatives, notably those by the World Bank, are factored in, then the net additional requirement falls to $2 billion annually, still a sizeable amount that we are nowhere close to meeting. However, it is important to realize that the positive effect of the ESAF itself requires additionality; that is, it should mean that new money is flowing into Africa and not simply being taken from existing aid funds.
Unfortunately, Mr. Speaker, that is what is happening. Nevertheless, he and our Party see the ESAF as an advancement on traditional international monetary fund policies. The traditional IMF imposed form of structural adjustment with which we are all familiar involves currency devaluation, cutbacks in social programs, elimination of subsidies on basic food stuffs, cutting back on the public sector, privatization, and forcing Third World nations to spend more and more of their energy in exports and opening up their economies to external investment and control.
Very often this kind of structural adjustment, while being very hard on the poor people in these developing countries, helps local elites to become even more rich because it provides them with a pool of cheap labour, enables them to pick up bargains in terms of privatized parastatals, and so on.
ESAF will continue to impose this kind of conditionality, along the same lines as IMF traditional conditionality, but the funds will go to ease the impact on the poorest of the poor. In other words, there will not be a change in the basic kinds of conditionality that are imposed.
The head of UNICEF pointed out a couple of weeks ago that 40,000 children die every day from hunger and hunger related causes. We do not pay any attention to that because it happens in a quiet way and is far removed from the reality which we in Canada experience. He went on to point out that a good deal of that hunger and those hunger related causes are directly related to the kinds of conditionality that have been imposed upon these nations by forces such as the International Monetary Fund. Canada, as one of the nations which has a significant voice in the IMF, shares some of the guilt and responsibility for the death of those children.
I would like to suggest that there are different kinds of conditionality. In a report entitled "Adjustment with a Human Face", a group of people working with UNICEF suggested that instead of the traditional IMF conditionality we should be working for different kinds of structural adjustment. They make six suggestions.
First, there should be more expansionary macro-economic policies aiming at sustaining levels of output, investment, and human need satisfaction over the adjustment period. In other words, instead of retrenchment and cut-backs there should be expansion.
Second, there should be the use of meso policies to reinforce the more expansionary macro approach and to secure the priority use of resources to fulfil the needs of the vulnerable.
Third, there should be sectoral policies aiming at restructuring within the productive sector to strengthen employment and income generating activities and raise productivity in low-income activities, focusing in particular on small farmers and informal sector producers in industry and services.
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Fourth, there should be improvement in the equity and efficiency of the social sector by restructuring public expenditure both between and within sectors by improving the targeting of interventions and their cost effectiveness.
Fifth, there should be compensatory programs to protect basic health and nutrition during the low-income adjustment. Two major elements of such policies are public works employment schemes and nutrition interventions encompassing targeted food subsidies and direct feeding for the most vulnerable.
Sixth, and perhaps the most important, is monitoring of the human situation, especially of living standards, health, and nutrition of low-income groups during the adjustment process so that needs may be identified and the effectiveness of adjustment programs assessed and modified accordingly. Monitoring of human conditions, especially the health and nutritional status of the population, particularly that of vulnerable groups, should be given as much weight in monitoring adjustment as monetary variables have in the conventional approach.
In other words, when there is need for some kind of international intervention in the economy of one of these struggling nations, instead of imposing the kind of cut-backs and decimation of the local economy that the IMF has done traditionally, there should be a kind of structural adjustment that places the priority on human needs.
There has been a number of suggestions made in the last few weeks and months for debt forgiveness. When I think of debt forgiveness I think of a story which we studied in Grade 10 called The Revolution at Satan's Trap by Norman Duncan. The story was about a small outport in Newfoundland where the local people were indebted to the trader. No matter how many fish they caught they were always indebted to John Woll, the trader. By a combination of circumstances it so happened that they finally had him in a situation where he had to agree to a form of debt forgiveness and had to restore to the people what was rightfully theirs. However the story ended as follows:
And within three years John Woll possessed again all that he had yielded, and the world of Satan's Trap wagged on as in the days before the revolution.
In other words, debt relief without changing the system does not really change anything. Debt relief by itself is not going to help unless something is done about commodity prices.
The IMF, acting as international monetary policemen, has forced low commodity prices on the Third World which keep them in debt. Then it keeps dribbling these nations small amounts of money, sometimes just enough to keep them from defaulting but never enough to enable them to get out of debt. I mentioned earlier that the UN committee which considered this issue said that there was need for $5 billion a year. We are falling far short of the amount which is desperately needed if Africa is ever to get out of the deep pit into which we have
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helped to put it as a result of the ecological destruction it is facing right now.
We must realize the basis of debt. Often democratically elected Governments are now faced with having to repay debts which were contracted by dictators. It is interesting to note that three-quarters of the debt of Nicaragua was contracted by Somoza. Twenty per cent of Third World debt is for the purchase of military goods. A great deal of it ends up financing elite consumption and megaprojects which often have very little developmental impact upon the great mass of the people. Sometimes these debts were contracted and in fact forced upon Third World countries by banks in Europe and North America simply because they wanted to make quick bucks.
In the September 1983 issue of Harpers, a Mr. S. C. Gwynne wrote an article entitled "Adventures in the Loan Trade". He told how as a young loans officer 25 years of age he had visited some 28 different countries in a period of six months, flogging money for a medium-sized bank in the midwestern United States. He described how he knew that when he made those loans they would simply not be repaid adequately, but in order to make them one only needed to get the guarantee of the government or the local national bank. By the time they defaulted on the loans, he and the other people who had been involved in making the loans had passed on to some other job.
The entire loans business that took place in the middle 1970s was simply a way in which the western banks became very greedy. They pushed money without adequate investigation into the ways in which loans would be repaid.
Susan George, in an excellent book entitled A Fate Worse Than Death made an excellent analysis from the perspective of someone concerned with development itself. She pointed to the impossibility of ever having debts, which amounted to over a trillion dollars for the Third World as a whole, paid in full, in hard currency. At the same time she opposed a policy of total debt forgiveness. As she pointed out, this often simply kept local elites and local dictators in place.
Instead, Susan George calls for a new type of restructuring, a new type of approach to the whole debt problem. It was radical in the sense of going to the root of the problem. She tied debt to the whole issue of development and democracy.
The repayment of debt should be tied to the development and democracy issues as well. For example, a country's bilateral debt could be dedicated to a development fund to which each debtor country would make regular interest payments. The development fund would have broadly based management from that country, including people from the rural area, proper representation for women and for different ethnic groups. Susan George said:
The development fund would finance projects and programmes determined by consultation and consensus, focusing primarily on rural areas. Various groups (village councils, associations of young people, women, artisans,

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peasants, etc.) could apply to the fund for seed money to undertake their own self-managed projects.
The fund would also provide money for revolving credit schemes to make modest loans directly to farmers and other small-scale rural entrepreneurs (with priority here given to the landless and to women.)
Each payment made by a government into its own national development fund would trigger a corresponding reduction ... of its external debt in hard currency by the IMF, the multilateral development banks and the official bilateral creditors.
Rigid, IMF-type conditionality would give way to a more flexible system. Whereas adjustment has always meant increasing agricultural exports, no matter how grim the internal food situation, and drastic curtailment of basic services in health, education, staple-food subsidies, creative conditionality would take the form of contracts.
These negotiated contracts would concern equitable, democratic management of national development funds and the terms for matching, in hard currency, each step towards improved performance.
She was suggesting that instead of nations like Canada and others that control the IMF just dribbling out bits of money to these nations to enable them to keep from defaulting, and at the same time imposing a kind of conditionality on them which put them on the rack, we should be developing a new approach. Rather than these countries paying money back to the First World, they should be paying money into their own development funds, which should be tied to genuine democracy and a genuine approach to development.
I urge the Government to consider this kind of radical policy. I urge it to recommend this policy to the IMF and the World Bank. It is a better policy than we practised last fall when there was a lot of criticism of the Government for its forgiveness of debts to Anglophone and Francophone nations in Africa that often had very bad human rights records.
Some of us felt some queasy about that. On the one hand, we did not want to criticize the Government for a generous gesture to the nations of Africa, but on the other hand we looked at some of the nations which did not have good human rights records and we wondered what was the real value of forgiving those debts. Instead, if we worked to establish this kind of internal development fund and insisted that local elites paid into the development fund to help their own people, perhaps we would have been doing a whole lot more for genuine development in our world.
The ESAF is a small step forward. One of my concerns, which is shared by other members of our Party, is that it is under the direction of the International Monetary Fund. We know that the one nation which cracks the whip for the IMF is the United States of America. Yet the United States is not putting any money into ESAF. We are contributing to a fund that will be controlled by the United States, which is not making any contribution to it.
ESAF is a small step forward, and I think we should be taking the much larger step recommended by Susan George. I regret that Bill C-126 does not have the kind of checks and balances that I think parliamentarians should have insisted upon. I would urge the Government to consider a radically new approach to the whole question of Third World debt.

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