Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 1 - Evidence - Meeting of February 3, 2016
OTTAWA, Wednesday, February 3, 2016
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to study foreign relations and international trade generally (topic: Argentina: political, economic and international prospects).
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, I want you to note the message that has been given that there is a wide screen front format which, of course, means there will be a more all-encompassing view of the Senate committee for those who wish to watch us at some point.
This afternoon, as you know from our in camera meeting, we have selected a number of topics that we wish to pursue, first of all, to update ourselves to understand these topics more fully, and then to see whether there is something unique that we could add to the foreign policy debate in these areas.
We are very fortunate today to be able to undertake the topic of Argentina's politics, economic and international prospects. We are very grateful to Mr. Allan Culham, who has joined us for a presentation today. He has occupied several positions in various federal government departments, including in the one formerly known as the Department of Foreign Affairs and International Trade.
Mr. Culham was Ambassador of Canada to Guatemala and El Salvador from 1999 to 2002, to Venezuela from 2002 to 2005, and to the Organization of American States from 2010 to 2014.
Mr. Culham, we thank you for accepting our invitation. We had just started up last week, and you kindly responded quickly.
Argentina has been in the news for quite some time, not always in a positive light, with great difficulties with some of the international community and bilateral issues. It appears there is a political change. We're not sure whether that is significant, but with your experience, we thought you would be able to shed some light on the region, with Argentina as the focus. After your presentation, we will turn to questions if we keep efficiently to our time.
Thank you for the time you have taken, the quick response, and for the knowledge and the service that you have given to Canada in all of these various posts. Welcome to the committee.
Allan Culham, Former Ambassador of Canada to Guatemala/El Salvador, Venezuela and the Organization of American States, as an individual: Thank you very much, Madam Chair.
First of all, it is truly a great privilege to be here this afternoon, and I want to thank you and your Senate colleagues for the invitation.
[Translation]
Thank you for the invitation to appear before you this afternoon. I spent 10 years in Latin America during my career as ambassador.
[English]
I want to say that the 10 years I spent as an ambassador in Latin America were among the most exhilarating and exciting years of my professional career.
Madam Chair, it's my strong belief that Canada's relations with the Americas do not get the attention they deserve. I'm very pleased your committee has decided to choose this subject as part of your work to kick off the new year. In my experience, because the Americas are so close to Canada geographically, it often does not get the attention it deserves, as we focus on other big issues around the world.
My first visit to Argentina was in 1993. I was sent there by the government of the time to negotiate, or renegotiate, the nuclear cooperation agreement between Canada and Argentina. This nuclear agreement had been suspended while Argentina was in the midst of a military dictatorship because there were suspicions that Argentina was using Canadian technology to develop a weapon. But with the fall of the military dictatorship in 1983 following the Falkland Islands War in 1982, democracy was restored; hence, nuclear cooperation recommenced with Canada.
That was my first trip into Latin America.
There has been a lot of activity in Canada-Argentina bilateral relations and changes in the hemisphere since those years in 1993. I was just getting ready for the committee, and I noted that the Embalse reactor, which is the CANDU reactor sold to Argentina, is now being refurbished and will come online again in a couple of years. It will provide electricity for another 30 years for Argentina.
So there's a great continuum to our relations that we need to take into account.
Before addressing the subject of Argentina directly, I would like to put it in the context of what is going on in the Americas, because I truly do not believe you can understand Canada-Argentina relations without understanding what is going on in the region, why this is so important to Canadians and the impact of these changes on our own society.
The first thing I would like to say unequivocally right off the top is that Canada is a nation of the Americas. It is not our traditional backyard in that we have focused on Europe and our relations with the United States. We have been economically tied closer and closer to Asia, but we have neglected or not taken into account our own backyard, so to speak, which is the Americas.
You don't need to look any further than the Zika virus that is upon us today. That's just one example, but when you look around at issues such as drugs, migration, organized crime, natural disasters, human rights and democracy, these are all subjects that resonate within Canada. What happens in the Americas has a direct impact on our own society and well-being in Canada. So we are truly planted in the Americas, and we neglect our relations with the Americas at our peril.
My first message this afternoon of significance is that we don't need to look further than last year in the Americas, and in Argentina in particular, to realize that there are substantive and significant changes underway in the Americas. First of all, the subject that is of great interest to you is the election last year of a new government in Argentina. My own personal view is that this is an extremely welcome develop. We had a long-running government of populist nationalist rhetoric in Argentina during the Kirchner years, which was very divisive, very confrontational and not very constructive to the development of constructive international relations.
I believe that the election of this new government in Argentina will have a positive impact not only upon our own relations with Argentina but with the role that Argentina can play within the hemisphere to be more constructive and to work for more positive outcomes.
The second major initiative under way is the peace negotiations in Colombia between FARC and the Colombian government. Both sides have committed to reaching a peace agreement during the course of 2016. These negotiations are under way in Havana.
You cannot underestimate the importance of ending this civil conflict in Colombia, one that has been plaguing that country for the last 40 years. If this can come to an end, it will remove a huge barrier to peace-building and democratic development in this part of the world, let alone put Colombia on a path to greater sustainability as it applies to become an OECD member and part of the international community in the fashion that it truly deserves.
The third major element is the rapprochement between the United States and Cuba that culminated with the great handshake between President Castro and President Obama at the Summit of the Americas in Panama last year. This has been an irritant since 1959, when the Cuban Revolution was successful. Over the years, it had become an iconic symbol of irritation between the Latin American community and the United States. Having this issue now on the table and being dealt with is hugely significant for the construction of a positive dialogue within the hemisphere.
The fourth major element is the end of the commodity boom in Latin America and the impact it is having across the hemisphere. In Argentina in particular, which is a resource-based economy, they're also suffering the impacts of this.
Ninety-five per cent of Venezuela's foreign exchange comes from revenue oil sales. The fact that the price of oil has slid from $130 a barrel to $30 a barrel is having a cataclysmic impact on the economy. Combined with the very autocratic regime of Venezuela and President Maduro and compliant with economic collapse that is imminent in that country, this will be a huge humanitarian crisis that the hemisphere will have to face, let alone a political and economic crisis.
That all sounds gloomy, but there are some very positive elements that are going on in the hemisphere. I want to start with Argentina as a place where this is happening.
Just this morning in the newspaper there was a small story that the Argentine government had reached agreement with Italian bond-holders of debt that had been defaulted in 1983. This had been dealt with by the Kirchner government with rhetoric and bitter recriminations about vulture funds, but the new Macri government has chosen to take a more pragmatic approach and to sit down and negotiate to try to come to terms with some of the outstanding economic issues that it faced. It is a very small item but very indicative of a new and pragmatic approach that the Macri government will take to its international economic relations.
I'm also looking forward to a new and constructive role from Argentina on the multilateral stage, in particular its relations with the Organization of American States, which is very close to my heart, having spent four years representing Canada at that organization in Washington.
Argentina was not always constructive in the discussions at the OAS. It often sided with the Bolivarian Revolution members — Venezuela, Ecuador, Bolivia, Nicaragua. I would go so far as to say it worked to almost suborn the organization's effectiveness via a very negative agenda that it brought to the table. I'm looking forward to this changing, and there are indications that this will change.
The message here is that we need to work with countries like Argentina and other like-minded countries within the region for positive and constructive change. I keep using those words on purpose because I do believe we are on the verge of a new era in our relations with Latin America. I have often felt that the pendulum in the Americas had swung far too far to the left, with a very corrosive, divisive, nationalistic, populist rhetoric that was anti-imperialist and anti- American. My job in Washington was to maintain the faith of human rights, good government — what our constitution says: peace, order and good government — to quietly maintain that these are the principles of the Canadian government and that these are the principles that the Americas should be governed by. Now, I do believe that the pendulum has started to come back.
The election of Mauricio Macri in Argentina is hugely important. The elections in Venezuela of an opposition- controlled national assembly are hugely important. There are developments going on with respect to the Trans-Pacific Partnership, which includes Chile, Mexico, Colombia and Peru, as members of the Pacific Alliance and of the Trans- Pacific Partnership.
Just last week, Foreign Affairs Minister Dion met in Quebec City with his counterparts from the United States and Mexico to try to organize this shared North American space better so that we can organize ourselves better in dealing with other issues faced by the Americas.
Madam Chair, there is no doubt in my mind that Canada is a valued partner in the Americas. To some extent, Canadian society is way ahead of the Canadian government in their engagement within the hemisphere, from tourism, to our businesspeople, to our scholars, to our church groups — these are already engaged in the Americas in a very significant way. To some extent, the Canadian government is leading from behind as our Canadian society is becoming engaged in this part of the world in its own right.
I'm going to take advantage, with your permission — and I will circle back to Argentina in my concluding remarks — but now that I'm retired and have not had these talking points approved by the Canadian government, I would like to just offer some words of free advice on the basis of having spent a wonderful career as a civil servant and having spent 10 years as an ambassador in the region, 13 when you count the years I was in Mexico as head of the political section. It is truly an exhilarating and exciting region, and I am very thankful for the privilege I and my family had to grow up in that part of the world.
Here it goes. These are my David Letterman Top 10 with respect to how we should address our relations with Argentina and the Americas going forward.
The development of personal relationships at all levels is hugely important to our colleagues in Latin America and the Caribbean. So I cannot stress enough the need to travel and for our political leaders to get out to meet with their counterparts in the field, in Peru, Argentina, Brazil and Mexico. These are hugely important countries in the region and hugely important to Canada. The development of personal relationships at the highest political level makes the development of working relationships at my former level that much easier.
On the trade and economic side, we need to strengthen NAFTA, and we need to drive the Trans-Pacific Partnership. We need to deepen our relations with the Pacific Alliance countries.
There are huge economic opportunities in this part of the world, and if I had X millions of dollars to invest and I was looking for a place to invest it in order to live off the dividends in my retirement, I would be looking to South America as a place to do business.
I haven't mentioned the revitalization of the North American Leaders' Summit, because we just had the North American Foreign Ministers Meeting in Quebec City. But we need to revitalize the leaders' summit as well, which had fallen into disuse for the past number of years. Again, it may seem symbolic, but it is hugely important for the doing of business in the months and years that follow. So we need to encourage our leaders to meet to do that.
The Organization of American States is the only multilateral organization in the hemisphere that brings all the countries together under one roof. In previous years, Argentina and its Bolivarian allies had worked to create a new group called the Community of Latin American and Caribbean States, or CELAC, that purposefully excludes Canada and the United States from membership. This group just met last week in Quito, Ecuador, and the President of Ecuador actually called for the abolition of the OAS and for it to be replaced by CELAC as more representative of the hemisphere.
To me, you cannot talk about anything in this hemisphere, whether it is organized crime, drugs or migration, without having Canada and the United States at the table. This is part of what I think is the pendulum coming back again, but we're not there yet when there are still calls for division and exclusion within the hemisphere.
The OAS is where Canada belongs. It is an organization that has structural weaknesses. However, as a country, we need to reaffirm our commitment to the OAS. Our foreign minister should travel to Washington and address the OAS to point out what Canadian priorities are and engage at that level.
I would also seriously suggest, Madam Chair, that Canada should run a candidate for either the Secretary General position at the OAS or at least the Assistant Secretary General position when the elections come up again in three to four years from now. We have just had elections, and we were not interested at the time in putting forward a candidate, but we have been a member of that organization for over 20 years. We pay 11 per cent of the bill of that organization. We bring our Canadian values to the table, and I do believe that we should now step up and take a leadership position at that organization.
I mentioned the Colombian peace process. We need to do everything we can to ensure a successful resolution of that negotiation. Even more difficult will be the actual building of that peace in Colombia. We have a great record in the hemisphere of supporting UN peace missions in Haiti, Guatemala and El Salvador, and we should keep an eye on Colombia to see how that unfolds.
In conclusion, Madam Chair, my apologies if I have strayed from the topic of Argentina, but I do firmly believe that you need to be aware of what I think are the important issues in the hemisphere before being able to understand the importance of Canada and Argentina.
I will go so far as to say that the arrival of the new Macri government in Argentina is a game-changer. It could herald a new relationship between Canada and Argentina. We've had our differences in the past. We've had our differences on the Falkland Islands issue, on the future of the Inter-American Defense Board and the promotion of democracy at the OAS in Washington. Hopefully, with a new Argentine government, we can make progress on all of these issues and at least deal with them in a more constructive manner.
Madam Chair, my last comment is that the next summit of the Americas is coming up in Lima in 2018. It seems like a long way away, but in the ways of the hemisphere and history of the hemisphere, it is not a long way at all. We should use this opportunity to encourage our Prime Minister, our cabinet members, members of the Senate, members of the House of Commons, to engage with our counterparts in the region. You'll be astounded at the level of welcome and warmth of the reception that you will receive in that part of the world. We need to build and to reaffirm Canada's role within the Americas, because it is so vitally important to the future health of our own society, let alone the diaspora communities that we have as part of Canadian society, which have enriched our country to such an extent.
I apologize if I've gone over my seven minutes, but thank you so much for your attention.
The Chair: I think you did go over seven minutes, but I don't think most of us noticed that. You've done an admirable job of reminding us of importance of the hemisphere.
We have studied in detail Brazil. Times have changed since we filed that report. We have also looked at our relations with Mexico, and this committee previously looked at trade issues in the region. So some of our work has been focused on South America or the region, but you've brought us up to date, and I think you strategically put Argentina in that point.
I want to ask for some clarification. You're very optimistic about Canada's involvement and influence in OAS. Would you extend that to joining the Inter-American Court?
Mr. Culham: There was a throwaway remark which I decided to skip over, and it's called the American Convention on Human Rights.
The Chair: Yes.
Mr. Culham: Canada is not a signatory of the Americas convention on human rights. The United States is not, and a few Caribbean countries are not as well.
This has also become a bit of an irritant when Canada goes to Washington and to the Organization of American States and speaks about human rights and the importance of it within Canadian foreign policy. The question inevitably comes back: Well, why don't you sign the AmericanConvention on Human Rights?
When I talked to the lawyers here in town, it's because a number of clauses are problematic, given the Canadian Constitution and our legal framework — for example, abortion, freedom of expression and the death penalty. Nonetheless, the convention could be signed with reservation saying that "these clauses do not apply for the following reasons."
It has been quite some time since we last examined this issue about whether Canada could or should sign the American Convention on Human Rights. My own personal view is that we should look at the issue again very seriously, and we should sign it. If we need to reserve certain parts of the convention because they don't fit with Canadian legal framework, then I believe we should do so. But it has become an irritant and I think it's something that we should look at more closely in the future.
The Chair: For the benefit of this committee, the Human Rights Committee actually studied the Inter-American Court and recommended that we sign, but with reservations, noting that Canada in the past has been rather wary of putting reservations in international agreements because there's a great appetite from others to do so. But we felt in this case that it was legitimate, particularly in the case of the OAS, because reservations are used there and understood there.
With the consent of the committee, I will ask our clerk to circulate that report on the OAS, particularly on the Inter- American Court, for your information of the work of the Senate in this area.
Senator Downe.
Senator Downe: I'm wondering, in your opinion, how much of an irritant our position is in the Falkland Islands with the Government of Argentina.
Mr. Culham: I think it's a very important irritant. Argentina believes very strongly that the Malvinas, as they call it, are part of Argentine territory. Thirty years after the Falklands War, Argentina launched a major public relations campaign to bring the issue into every international forum you can imagine, from the United Nations to the OAS to the G77, G20, et cetera.
To me, it's a matter of self-determination. The principle of self-determination applies. The decolonization committee of the United Nations has made it sacrosanct that people can decide their own future. Argentina believes that the 5,000 people of the Falkland Islands are not a people, that they are extensions of British citizens and that they already have citizenship and a homeland. Suffice to say it's an issue that's not going to go away. Argentina will continue to keep this issue in the public's eye. Every year it's celebrated or acknowledged that the sovereignty of Argentina over the Falkland Islands is reaffirmed.
I will say that there is a large element of support for this position within our allies within Latin America. At the Organization of American States General Assembly, when the annual resolution on the Falkland Islands comes up, Canada's traditional position has been to simply abstain from it, not recognize it as an issue.
There are other issues that come up, such as the eternal conflict between Chile and Bolivia on access to the sea. It's a subject of a very bitter resolution, and Canada has abstained from that as well.
In recent years, with the last government, we actively voted against that resolution on the Falkland Islands. Where previously our Latin American colleagues were happy for us to abstain, they were not very happy for us to be taking a negative position with respect to that issue, but suffice to say that's what we did. It is a major irritant in the Americas, and it's an issue that's hugely important to Argentina.
Senator Downe: We voted against it recently. How many others would have voted against it?
Mr. Culham: Canada was the only one. Belize abstained because they have their own border dispute with Guatemala.
It's a tricky issue. Many of the Caribbean islands became independent on the basis of self-determination. So where this principle is cut is kind of hard politics. Argentina was very persuasive and brought this forward in a very emotional and historical grievance manner, so it became hard within the OAS for some of the other people who may have had concerns regarding this issue to vote against it.
Senator Downe: You indicated Canada's contribution to the OAS is about 11 per cent of their overall budget, and I know we're quite active in the OAS. What contribution does the United States make and how active are they in the OAS compared to Canada?
Mr. Culham: The United States pays over 60 per cent of the budget. It's based on the size of the economies of the countries. Antigua and Barbuda pays $17,000 as their annual quota. The United States, as a huge economy, pays 60 per cent of the budget. We're talking about a budget of about $82 million per year, so 40 to 45 million. We pay 11 per cent. But we have been overtaken by Brazil now. We're now the third largest contributor, because Brazil's economy, up until last year anyway, was growing faster than our own, and their population is much larger than ours as well.
So we do pay a pretty hefty part of the freight at the OAS. As a result, I would say not only our financial contribution but what I mentioned before, what Canada can bring to the table, I think we should be playing more of a leadership role at the OAS than we are at the moment.
Senator Downe: How active are the Americans? They pay 60 per cent. Compared to Canada, how active are they?
Mr. Culham: After a year, they still only have an acting ambassador to the OAS. It could be they have trouble getting confirmations through Congress, but they are active. They do see it as important. During my time there, the Secretary of State addressed the OAS on two or three different occasions. So, yes, they are active.
Senator Johnson: Thank you for your excellent presentation.
You've touched on the relations between Canada and Argentina. Why are they not as close as they could have been? Give us some concrete challenges and opportunities in deepening our relationship. You mentioned visits by leaders, visits by members of Parliament and senators. I totally agree that South America is certainly a continent we want to develop relationships with, but obviously we have a long way to go.
Mr. Culham: Yes, we do have a long way to go. To some extent, our economies are fairly complementary in that we're resource-based, to a large extent. I think a large source of Argentina's wealth in the last five years has been soya bean exports, for example, but they're also major wheat producers, major agricultural producers — wine and beef. We all enjoy these products internationally.
Where we do have a comparative advantage is in financial, engineering and resource management services. I do believe that we have tried to get free trade agreements with Mercosur, of which Argentina, Brazil, Uruguay and Paraguay are the membership. With the previous Kirchner government, these negotiations were not going to go anywhere, quite frankly. Venezuela became a member of Mercosur. So it's been very hard to engage on trade negotiations with Argentina as part of the Mercosur umbrella.
I'm not sure whether this is going to change, because Venezuela is still a member of Mercosur. However, the President of Argentina, Macri, has said that he's not pleased with the democratic behaviour of Venezuela and will consider having Venezuela removed from the organization because it does not qualify as a democratic state, which could make trade negotiations with Argentina and Mercosur more effective.
Our trade with Argentina is quite modest in the ways of the world, but it's hugely important for those countries which are actually engaged in it.
I mentioned the CANDU reactor at the beginning of my remarks, and SNC-Lavalin is the chief contractor, I believe, on the refurbishment of the plant. This is a beneficial commercial relationship for both countries.
I just think that we need to take advantage of Argentina's new-found pragmatism in its international financial relations. It's still early days with the Macri government in power, but let's keep an eye on this over the next three, four or five years and see what opportunities can emerge.
My message of engagement is just the first step. Once we get down there and engage Argentina — the government, business and civil society — I'm convinced opportunities will emerge that will be attractive to both Canada and to Argentina.
Senator Johnson: In terms of the Macri government, you touched extensively on the OAS, and of course Argentina is a member of several regional organizations, for example, UNASUR, CELAC, and the Rio Group. How will the new government deal with that, and to what extent will its membership in these organizations figure in their new domestic and foreign policy?
Mr. Culham: One of the strengths and one of the weaknesses of the Americas is that they are overlapping organizations, so it's tremendously confusing.
Senator Johnson: Is the OAS the critical one for us and for them with this new regime?
Mr. Culham: Absolutely. It should be our first point of contact with the Argentine government multilaterally through the OAS.
Since I'm no longer a civil servant, I will say that CELAC is not a positive organization within the Americas, mainly because it's built on the principle of exclusion. It purposely excludes Canada and the United States. It was a product of President Chavez and the Chavista Bolivarian Revolution. It was based on principles in the early days that I don't think were conducive to harmonious international relations.
Senator Johnson: But has it worked for them without Canada and the United States there? Has it worked for them the way they structured that?
Mr. Culham: I think it has become more of a political body as opposed to a cooperation body. The OAS actually engages in programming and activities. It does election monitoring. It does public service reform activities. It has the commission on human rights, which has been hugely successful.
These are all principles which every country can aspire to, and I think that's why the OAS has to prosper in the future.
Senator Johnson: The Rio Group does what?
Mr. Culham: The Rio Group is a successor to the G77 within Latin America. Let's focus on the OAS as where we should put our eggs.
[Translation]
Senator Rivard: Senator Downe talked about the negative effects issues like the one involving the Falkland Islands have had on Argentina's reputation. That hurts the country's global reputation.
Can you remind us of the sovereign debt crisis? I think that, about 10 or 15 years ago, the country decided, like a company going bankrupt, to offer all lenders 10 cents or 15 cents. The Americans were surely affected. Do you remember whether Canadian banks were involved? What was the impact? A government often has to borrow to develop and, when its creditors repay only one part of the debt, that has an impact. We also know that the country had to brutally reduce the value of the currency on several occasions and, in addition, as in the case of the latest disaster, inflation is rampant there.
What is the impact of all that? For example, does the repayment of a sovereign debt at a fraction of the price encourage foreign investors to take risks, or can the arrival of a new government, which is like a breath of fresh air, restore investors' confidence?
Mr. Culham: Thank you for your question.
[English]
A year and a half ago, Argentina came to the OAS with a huge delegation, including their foreign minister, economic minister and finance minister. The purpose was to drum up support for Argentina's position in the face of what they referred to as the "vulture funds" in New York. Those were holdouts from the debt renegotiations that had happened 10 years ago, where Argentina had managed to reach settlement with 80 per cent of its debtors, but the 20 per cent were holdouts for the full value of the debt that had been incurred.
It became a very heated political, rhetorical exercise. It was presented as Argentina in the face of rapacious Western economic imperialism and capitalism, and that "We need the support of the world to face down the international financial community." It presented all sorts of reforms of the IMF, the Toronto Stock Exchange and other regulatory entities.
In the excitement at the OAS, which these issues tend to engender, it got great political support for the Argentine position. Now, our position was that this was not an appropriate subject for discussion at the OAS. It was beyond our understanding and purview and that it should be dealt with in other fora. In fact, it was before the American courts at the time.
All of that is to say that the change that is going to happen in Argentina on all of the issues that you have touched on — the devaluation of the currency; the level of inflation; the revalidation of statistics, which had become a political issue under the former Argentine government because they weren't properly reporting their inflation rates and their production rates because they were being manipulated for political purposes — should not be underestimated The adjustments that are going to have to take place economically and internally within Argentina should not be underestimated.
My personal view is that this period of dislocation, so to speak, must occur with regard to devaluation, inflation and the end of subsidies. I saw in the news that electricity production is no longer going to be subsidized in Argentina because it was draining the public coffers and was not sustainable in the long run.
Our own Bank of Nova Scotia, which had a large investment during the time of the default, as you talked about, is thankfully an issue that has now been solved, but it was a big bilateral irritant between Canada and Argentina, and, more importantly, between the Bank of Nova Scotia and the Argentine government.
Whether this will all send positive signals to investors, we shall see. But I didn't think that there were a lot of positive signals to investors under the former government. Under the new Macri government in Argentina, I believe that, over time, the signals will become more positive. Maybe there will be a resumption in foreign direct investment and more healthy trade relations between Argentina and the rest of the hemisphere. We can hope so.
Senator Dawson: You come early in our process. We always have to prioritize where we will be studying issues. Last year, we had the same debate when we were talking about Asia.
You make a compelling case for Argentina being an important part of it, but at the same time, you do come back to the OAS as part of the solution.
As we go forward, do you think we should be targeting Argentina, or should we be looking at it more globally and recognizing the fact that if we don't find global solutions for South America, we won't, on an individual basis, be able to improve that much with Argentina?
Also, where are we as far as Cuba and the OAS are concerned, and the U.S., obviously?
Mr. Culham: When I was sitting in Washington, as the multilateral ambassador in Washington, it quickly became apparent that I could not be effective without good bilateral relations with Chile, Mexico and Brazil. We would be reporting to our colleagues in the hemisphere, and they would be reporting to us. It is not either/or; in fact, the multilateral cannot be effective without solid bilateral relations with the individual countries.
The OAS General Assembly meets every year at the foreign minister level. The last one was actually supposed to be held in Haiti, but because of financial constraints it was held in Washington. My last OAS General Assembly was in Paraguay. It was hugely important because our foreign minister was there and all the other foreign ministers were there. They talk bilaterally, but we also talk multilaterally; it is not an either/or equation.
On the issue of Cuba, Cuba has been suspended from the OAS. It is still a member of the OAS; it just doesn't participate. There's a beautiful room at the OAS where the original funding countries — you have probably seen it, Madam Chair — have these beautiful carved wooden chairs for just the 18 countries that originally founded the OAS. Cuba is there. Canada had a chair even though we didn't join; it was more of a hopeful thing that we would eventually see the light and join the OAS. We didn't join until 1989.
Cuba has said that they do not want to be part of the OAS — still. The OAS has invited Cuba to come back, subject to Cuba obeying or having the standards that OAS members are expected to adhere to with respect to democracy and human rights. Cuba does not want the scrutiny of the OAS with respect to its democracy and human rights, for whatever reason. As such, it has chosen not to accept the dialogue with the OAS about rejoining that organization.
Who knows what will happen. We have had some kind of rapprochement with the United States. Will the UN embargo on Cuba ever be released? Will there be a new government in Cuba within the next five years? Will change come? Everything could change.
At least for now we're on the path to engagement. Canada never broke its relations with Cuba; Canada and Mexico were the only two countries that did not break relations with Cuba since 1959.
So there is some history here. The ways of the world, especially in the Americas, do not move quickly at times on issues, and the Cuba issue is one that is still unfolding. But I'm hopeful that one day Cuba will indeed become a solid member of the OAS as well.
Senator D. Smith: I spent 10 days in Cuba last month, and I'm hopeful too, but that's another story.
I appreciate very much your insights on Argentina. You did start off by talking about the Americas as a whole. I am curious about your thoughts as to how the United States and Canada are viewed by Latin Americans.
To give a totally insane and crazy example: This 40-foot wall that Trump wants to build at the Mexican border — which Mexico will, of course, pay for — would some Latin Americans think, "That's not a border for Mexico; it is a border for Latin America as a whole"? Is there a bias there, or can we hopefully dismiss that as Trump nonsense?
Are there some deep-rooted feelings that Latin America isn't taken seriously in the same way that Europe and parts of the Far East really are?
I'm musing there a bit, but I think you get the point I'm making. I'm intrigued by how you react to that.
Mr. Culham: You cannot talk about the Americas without recognizing the huge historical baggage the United States carries in that part of the world. You can go back hundreds of years, and there's a great history of U.S. intervention or engagement —
Senator D. Smith: Bullying.
Mr. Culham: — in this part of the world. Our colleagues south of the Rio Grande have long memories. It is part of the didactic between the two sides.
In Canada, we don't have that same historical baggage. We didn't become a member of the Americas until 1989. We talk about our special relationship with the Caribbean, with our Nova Scotia and Newfoundland fish going south and rum coming north, but historically we were not really part of the great Americas.
You are quite right, sir, that there is a lot of positioning with respect to the United States and Canada when it comes to a lot of issues in the Americas.
On the 40-foot wall and migration, there's no word in Spanish for "immigration." It is called migración. There's no word. It is just "migration." There's no such thing as immigration.
So as the Canadian ambassador in Washington, who was speaking French and English and having the word "immigration" on the table — that's what we believe in as Canadians; namely, the rule of law. We accept and welcome immigrants who fill in the paperwork, and 250,000 to 300,000 are welcomed into Canadian society every year. But when it came to resolutions, "immigration" was not a word that was understood. It was migración, migration. People felt they had an intrinsic right to move across borders and migrate.
So there was a gentle conflict on the whole issue of movement of people within the Americas.
Canada is an observer at the Pacific Alliance. We did think about becoming a member of the Pacific Alliance, but one of the principles of the Pacific Alliance is the free movement of people between the four countries concerned: Chile, Peru, Mexico and Colombia. So until we square that little circle, we will continue to be observers at the Pacific Alliance.
Senator D. Smith: Do you have some thoughts on a strategy that Canada should be thinking about developing — maybe there are certain aspects of it already under way — that further distinguishes our identity that we're not just locking arms with the States on everything, that the identity can be emphasized more and would be received by them in a much more open-minded way?
Mr. Culham: It is a tough issue because we were often isolated at the OAS with the United States on such issues as Venezuela, migration and drugs. Quite frankly, I didn't mind that; in fact, I would have hoped that other countries would have joined the United States and Canada a little more often when it came to what I thought were some fairly sensible positions.
While there is a danger of being perceived as in lock-step with the Americans, I do believe that we are different and that people see us as different. They see Canadian society in a different light than American society.
Senator Cordy: This exchange has been really good. It is always more interesting when it is a former diplomat, when you don't have your speaking notes. I appreciate your openness here today.
You talked about the abolition of CELAC and that it would be the best-case scenario. How likely is that to happen?
Mr. Culham: Not likely, unfortunately, from my point of view.
Senator Cordy: One thing you said was that before we talk about multilateral engagement and discussions with Latin American countries, we have to have bilateral relations. Do we have good bilateral relationships with the countries in Latin America, or are some better than others?
Mr. Culham: We have excellent bilateral relationships. We have a really good network of embassies and high commissions throughout the hemisphere. In deference to my colleagues, we have some really first-class diplomats — Spanish speakers, French speakers — out there engaging these countries.
I don't think we have very good relations with Venezuela at the moment. I think that is the major point of crisis going forward in the short term, but generally speaking, we have excellent bilateral relations with countries in the Latin American-Caribbean region.
Senator Cordy: What is the challenge to get Latin American countries to work multilaterally? If we have good bilateral relations, what is the next step? How do we go from there to "let's work together on OAS"? That would be one example.
Mr. Culham: Going back to this alphabet soup — CELAC, UNASUR, the Rio Group, et cetera — from a Canadian interest point of view, these do not serve our interests. However, we need to engage through the OAS all of the countries. That has to be our primary multilateral point of contact. Using that in conjunction with our excellent bilateral relations and network of embassies and high commissions, we can counter the rather negative influence that the ALBA countries — another alphabet soup out there — have brought to the OAS.
I will go so far as to say one of my greatest disappointments and shocks when I sat down at the OAS table is that I thought we were all there together representing our national interests but with the actual well-being and health of the organization as our common objective. I was wrong. There are actually people at the table whose instructions are to weaken and confound the organization and to prevent it from doing its job. After I suddenly realized what was going on, I found that to be hugely disappointing.
I'm hoping, with the Macri election, the Venezuela elections and this pendulum shifting back to the centre again, that we may be on the verge of a renewal in the Americas as epitomized by the OAS, where we can actually get on with the job.
The Chair: We have one witness by video conference. There are two other senators that put their names down for questions. Can we cut off at this point, or is there a burning question? All right, thank you very much.
Mr. Culham, you can see the interest you generated. You certainly put Argentina in the proper perspective of what our foreign policy should be towards the region. Argentina is a significant, changing part, but we must not forget how it works into the framework of all of South America. Thank you very much for that.
We may call on you again, and I trust you will respond as well as you have this time. We very much appreciate it.
We're very pleased that on short notice our next witness, Mr. Sergio Berensztein, President and Director General of Berensztein Consulting Firm, agreed to come before the committee by video conference.
I understand, Mr. Berensztein, that you are in Indiana, but you are basically in Argentina. We just happened to catch you en route on one of your trips. You work as a political analyst, and all of the new developments in Argentina are extremely important to know for this committee.
I'm going to ask you to make some opening comments about what you believe the situation is in Argentina now. Is it a significant a change? Is it too soon to make that comment? Please add any other comments you would like to make.
Unfortunately, our time has been condensed due to these technical difficulties, and therefore I will have to curtail some questions and answers. But if you have opening remarks, I will then turn to questions and answers.
Welcome to the committee, Mr. Berensztein.
Sergio Berensztein, President and Director General, Berensztein Consulting Firm: Thank you very much. It is a pleasure to be here.
Argentina is at a turning point after more than a decade of a very populist and radical administration. We had free and fair elections in October and November, and President Macri won by a small margin but was able to capitalize on the consequences of populist policies, i.e., high inflation, a stable economic environment and quite authoritarian policies being implemented by an otherwise quite popular president.
Argentina is the first country in Latin America that is experiencing this transition from a populist authoritarian regime to hopefully a more open and democratic political realm. Countries such as Venezuela, Ecuador, Bolivia, Nicaragua and Argentina were part of this trend towards a very unusual left. It was not a social democratic left. It was rather a nationalistic populist version of leftist policies.
Certainly to understand what happened in Argentina in the last decade or so, I recommend you bear in mind the very deep crisis we had in 2001, which is in comparative perspective to something like Greece without the help of the European Union, the IMF and the international community in general.
As a consequence of that crisis, Argentina experienced a drop of more than 30 per cent in GDP, high unemployment, and that triggered this trend towards what is called "illiberal democracy." That is a political realm that is still running elections, but the policies implemented are not democratic in the sense of providing opportunities for the opposition to have a role in politics to use Congress as a way to create consensus. It was rather a hybrid presidential system with President Néstor Kirchner first and then President Cristina Fernández de Kirchner really making all the decisions using the powers of the executive branch.
I think I will end my introductory comments with this. As you know, we had very good commodity prices between 2003 and 2012. Many countries in Latin America grew quite a bit because of that, especially energy prices and other soft commodities — food in particular — and that really helped the region grow a lot.
The fact is that we had a pretty substandard outcome in terms of real development, but for a while, the region in general, Argentina in particular, had the sense that things were getting better. Thanks to increasing fiscal revenue, many governments were able to transfer money to the poor through different policies, including the enlargement of state parties.
The problem is that that cycle is over, and now we have the region in general, Argentina in particular, experiencing strong fiscal restraint. The size of the fiscal gap in Argentina is 7 per cent of GDP. As you know, that is not sustainable. So this new administration is forced to implement very difficult and politically costly adjustment policies to shrink the budget gap and to fight inflation.
Inflation is about 30 per cent a year and is very high. Of course, we have problems in getting access to international financing because of the default on the debt at the beginning of the century and the litigation that is going on in international courts, particularly in New York.
The new president is trying to solve all these problems at the same time, which is very difficult: shrinking the fiscal gap and curbing inflation, while putting Argentina on the map again in order to get access to international financing.
We see important changes in foreign policy. Already we have a new approach with the idea of developing a more stable and rational relationship with the region and Western powers in general and the economic policy being implemented.
The good news is we have a great team in terms of the quality of the officials. World-class economists are in charge of designing and implementing economic policy. But the agenda is very difficult, and it's going to take a lot of political capital for the president to be able to implement his policies.
In the slide deck I sent you, you have a bunch of information with data comparing Argentina to other countries in the region and the globe. I'm very happy to answer any questions you may have, both now and in the future, regarding the information that I provided.
Thank you very much for your attention.
The Chair: Thank you very much, Mr. Berensztein.
The new president is in place, but as I recall, the win was a narrow victory. The opposition will have a significant role.
The question that has been put to me time and again in the last couple of weeks is this: What signals in Argentina give you assurance that the changes will be continued and take hold? Or will there be a slipping back to populism/ nationalism because of the pressure within Argentina, despite some pretty positive support outside the country? In other words, will the political dynamics inside Argentina allow the president to maintain and embark fruitfully on the direction that he wishes?
Mr. Berensztein: Your question is very good, and it points to a very important fact, which is that the main problem in Argentina is governance and the capacity to create consensus within the political system and sustainability in policies.
When you look at the history of the country and the democratic situation from 1883 to the present, you have this pendulum behaviour from left to right. You have administrations open the economy and then a few years later you have the opposite, which is the consequence of this lack of consensus.
Your question points to the fact that indeed this president won by a margin of three points. In Congress he's facing strong opposition both in the House and especially in the Senate. However, Cristina Fernández de Kirchner, even though she was very indeed popular, she didn't represent the core of her party, the Peronist party. The Peronist party was traditionally very moderate, quite conservative, while Cristina Fernández de Kirchner was quite radical. As a matter of fact, her policies further radicalized in the last term from 2011 to 2015.
What is important now is that when you look at the strength of these populist politicians, since Cristina Fernández de Kirchner has been gone, the Peronist party is moving back towards the centre, getting a more moderate agenda. There is already an interesting signal within Congress and in society in general. Even today we have a split in the Peronist bloc in Congress. The new modern Peronists are already sending signals to the president that they're willing to compromise. The same is going on in the Senate.
There is a fiscal way to understand this, which is that the president controls a lot of resources, while governors are also in need of fiscal resources. They need to compromise with the president. In the short run, we will see governance. The big question is whether we will have long-term stability in policies.
I'm afraid I cannot assure you that that's going to be the case. It's going to be related to what's going on in the international business cycle, particularly in terms of commodity prices. It's also going to be related to the success of this administration in implementing its policies plus, in the future, structural reform. But, clearly, President Macri is going to have the ability to get things done, even though his victory was not a landslide; rather, it was a close call.
Senator Johnson: Good afternoon and thank you for joining us today.
You obviously have your finger on the pulse of Argentinian society. How deep is the desire for structural change across Argentinian society? Do the vast majority of citizens see the value in building independent institutions and transparent governance?
Mr. Berensztein: The three main candidates that competed in last year's election — President Mauricio Macri; Daniel Scioli, the former governor of the province of Buenos Aires; and Sergio Massa — are very moderate. Cristina Fernández de Kirchner failed to amend the constitution to be able to run again, and she was also unable to appoint someone close to her ideas and ideologies to be a presidential candidate.
So what you see already in the election last year is a move towards moderation in civil society. In other words, the average voter, because of the consequences of populist policies — i.e., high inflation, low employment, lack of international finance, et cetera — moved from these more radical policies to a more moderate set of ideas. The three candidates that competed last year are an expression of this move in civil society's values. Therefore, what you see, I think, is an opportunity now to transform this mandate for change into policies.
However, creating new institutions takes a long while. It will be a process of change focused first on the more urgent issues, i.e., curbing inflation, shrinking the deficit, putting Argentina back on the map to be able to grow again. Eventually you will also see tensions regarding corruption, strengthening of the judiciary and a better set of institutions to strengthen the federal system.
I think this is the beginning of change. It's too soon to say — less than 55 days in office — whether the president will be successful, but the agenda is very ambitious. Indeed, this agenda includes institutional policies, including fighting corruption. The president has a personal commitment to fighting corruption. There is an old agency being revamped with a very strong leader, and I think the commitment expresses the consensus of civil society to create a more transparent political system.
Senator Johnson: Does the new Macri government have a strong mandate to expand free trade?
Mr. Berensztein: That's a very important question. I would say this: Macri personally is about free trade. He believes in free trade. He believes in the market. However, the previous administration implemented a lot of populist policies, including protectionist policies, across the board, without any sort of strategic planning. That created a lot of jobs in sectors that we all know are not sustainable over time. However, moving from that protectionist set of policies to a more open economy could create the loss of these jobs, and that's politically very costly. So I see this administration implementing a gradual approach towards a more market-oriented set of policies.
To give you an example, President Macri said that he would love to be part of the TPP. He would love to be part of this effort to open our markets and integrate them into Asia. We may do that through Chile and other countries in the region, probably not directly. That was an indication of his personal vision.
When you talk to top-level officials, they recognize that it's not feasible politically to do this in the foreseeable future. It's an understandable goal, but in practice you're going to see President Macri having a prudent, gradual approach toward free trade.
Senator Johnson: Sir, with the slow progress of Mercosur, should Canada engage in bilateral free trade agreement discussions with Argentina rather than go through Mercosur?
Mr. Berensztein: I would definitely explore that opportunity, especially because both countries are relatively similar in terms of their potential: a strong agriculture and energy sector, a lot of mining potential and a relatively strong auto industry, as well as professional services. I think both economies could definitely win. It would be a win-win approach. I think it's an interesting area to explore, absolutely.
Senator Housakos: Thank you to our guest for an informative presentation.
My question is more specific from an economic perspective. I look at it from the north, where we are, of course, going south. Many years ago, Canada and the United States engaged in a free trade agreement that brought us great benefits. We engaged in the North American Free Trade Agreement with Mexico as well in order to expand our trade. Canada, of course, is a trading nation.
We haven't quite seen the positive effects of our North American Free Trade Agreement with Mexico, our neighbour down south. The Americans have benefited a lot more. They've had a lot more effective benefit out of that agreement than we have.
Now, as we go further south to Central America and South America, particularly Argentina — and correct me if I'm wrong — it seems that the Americans continuously outperform us in terms of expanding markets and building economic relationships down there.
From your perspective, what would be some of the fundamental reasons why the Americans have been more successful in economically engaging in Latin America than Canada, and what can Canada do in order to overcome the challenges we are facing?
Mr. Berensztein: That is a very interesting question. I have a limited background, so I'd like to be cautious here.
I think that the U.S. has been more aggressive and persuasive in getting things done quickly. Beyond free trade and the formal part of the agreement, you need business to do the job. You need corporations to do it. You need access to financing. You need good managers with international exposure and the willingness to get things done. I think the U.S. had a head start in that sense, because even before free trade they had a presence in the region. The most important multinational corporations in the area were indeed American. I think that explains part of the outcome.
The impression I have, however, is that it is a long process. You may see different eras in this process of integration. It is changing so quickly. Technology makes a difference. Once these countries are accustomed to free trade, there is no ceiling to that. It's a matter of getting involved and finding opportunities.
Looking at Argentina, I see very important and successful Canadian companies making a difference, particularly in the mining sector and also in energy. We have a lot of potential in terms of non-conventional energy in the country, and so those areas are very interesting to explore.
The Americans have an advantage in bringing talent into the country and educating the elites. It used to be Europe, many decades ago. In the last few years, the Americans have been bringing a good part of the elite into the U.S. I, myself, went to North Carolina to get my PhD. Sometimes soft politics or soft power is the answer to these challenges. It is not about trade; it is about other things you do to bring people together and get different cultures to understand each other.
Maybe you can explore those opportunities in terms of educating the business elite, the political elite, and using that as an opportunity also to breach the cultures in the regions and all of Argentina in particular.
The Chair: Spain has been significant in Argentina and Italy. I noted the president made a statement that he wants to explore Mercosur as a free trade vehicle with Europe. They seem to be proceeding. You were saying that's his long- term goal but not immediately. How productive is that free trade agreement going to be, or is it a signal politically that they want to reengage with Europe?
Mr. Berensztein: That's exactly the reason. Mercosur is not a success story. Mercosur was created to integrate Brazil and Argentina. In particular, it failed as a free trade agreement; it is actually a custom area. But it was a success politically.
The goal of the two presidents that created Mercosur — President Alfonsin of Argentina and President Tancredo Neves of Brazil, who died soon after winning the election — was not only to create an integrated area economically but particularly, and this is very important, to take the European experience into consideration to decrease the chances of Argentina and Brazil engaging in military conflict. Historically these two countries saw each other as enemies, and both militaries were thinking about a potential war. So by integrating the economies of those countries, these democratic leaders wanted to decrease the importance of the military — remember, we have this long history of military coups in the area — and also, truth be told, to decrease the defence budget. They succeeded in that particular goal.
I don't want to call Mercosur a failure; it is not a failure. But certainly economically it didn't help both countries modernize their economies, and it didn't help the countries create a common infrastructure to facilitate trade. It was rather a bigger protectionist area.
Now the relationship with Europe is historical, and you made the very important point that you had very close links with particularly Italy and Spain but also with other European countries. Negotiations between the EU and Mercosur are now 20 years long, and they failed again and again because of the reluctance of either Brazil or Argentina to open their markets.
Now we have a fresh start with Mauricio Macri, who really wants to make a difference. Remember that Brazil is experiencing a strong crisis both economically and politically. There's a vacuum of leadership in the region, and President Macri, in a humble fashion, is trying to step up and fill this gap.
As you suggested, their relationship with Europe is very important. It will take a long while to get things done, but in the meantime, he is showing his willingness to be part of the new international environment and taking the opportunity to use this leadership to influence Venezuela.
Let me make a small comment here: Mauricio Macri strongly believes that the situation in Venezuela is extremely complicated, that the country is going to experience a crisis both politically or economically in the foreseeable future, and that the region as a whole, Mercosur in particular, is going to be forced to help Venezuela in different venues. Remember that Venezuela is part of Mercosur. Venezuela joined Mercosur in the last three years.
He wants to have a strong voice here. I'm bringing this issue up because the fact that Venezuela belongs to Mercosur is creating obstacles for a free trade agreement with Europe for human rights reasons. This is an important issue that may be part of the agenda, further creating obstacles for any successful negotiation.
The Chair: Uruguay has made significant steps from its past history. Where Argentina and Brazil were dominant in Mercosur, Paraguay and Uruguay were not. We have engaged Uruguay on discussions and agreements and have looked for opportunities. They seem to be forward looking in many ways, both on social issues and trade and economic issues. Is there a good relationship with the new president and the president of Uruguay?
Mr. Berensztein: Yes. Ironically, President Macri is, let's say, a centre-right president and President Vázquez is from a leftist coalition. They know each other. They got together two weeks ago, and it was a very successful meeting. They're already solving problems that were created during the previous administration in Argentina. Ironically, Cristina Fernández de Kirchner was supposed to be close ideologically to Uruguay, and we have a very conflicted relationship. There are issues from the environment to many other political issues. Argentina and Uruguay were always very close culturally and geographically, and it was creating a gap that had no historical precedence whatsoever. Macri is now taking advantage of these previous conflicts to re-launch the relationship with Uruguay.
Uruguay became a source of stability and common sense in the region, and definitely is becoming very important. I think it is very good for the region that you are engaging with Uruguay because, again, it is a source of common sense, stability, and also I would say is very interesting in many policy areas. Because it is a small country, they have the capacity to really be part of the equation and they have a very strong influence in the region.
The Chair: Mr. Berensztein, we appreciate your input. Your on-the-ground-in-Argentina analysis has been extremely helpful. We may call on you again. If there's anything you want to add to your testimony, we would be delighted to have it.
We appreciate that you took time from another venture that you are on in Indiana to accept our invitation, and no doubt some of your comments will be echoed in our work and our report. Thank you.
(The committee adjourned.)