Standing Senate Committee on National Finance
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THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE

EVIDENCE


OTTAWA, Wednesday, December 6, 2017

The Standing Senate Committee on National Finance, to which was referred Bill C-63, A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, met this day at 2:15 p.m. to give consideration to the bill.

Senator André Pratte (Deputy Chair) in the chair.

[English]

The Deputy Chair: My name is Andre Pratte. I’m a senator from Quebec and briefly replacing our chair, Senator Mockler, who has to be in the chamber for a few minutes.

We’re ready to continue our study of Bill C-63, the “Budget Implementation Act, 2017, No. 2,” with witnesses from the Department of Finance.

[Translation]

Let us start with the study of Part 4, Section 1.

[English]

Our witnesses, from the Department of Finance are Antoine Brunelle-Côté, Director General; and Mathew Sajkunovic, Director, International Monetary and Financial Policy, International Trade and Finance Branch, Finance Canada. I understand you will go through Part 5, Division 1 rapidly and then we will go to questions. Is that correct?

Antoine Brunelle-Côté, Director, International Policy and Analysis Division, International Trade and Finance Branch, Department of Finance Canada: That’s correct. Thank you very much.

[Translation]

We are here to talk about amendments to the Bretton Woods and Related Agreements Act. This is the act that governs Canada’s commitment to the International Monetary Fund and to the World Bank Group. The act provides the Minister of Finance with powers that correspond to Canada’s financial relationship with those institutions. The objective of the proposed changes is to make sure that the Bretton Woods and Related Agreements Act continues to reflect the modern realities of Canada's relationship with the Bretton Woods institutions and to reaffirm the act as the principal legislation governing our relationship with those institutions.

[English]

Aside from a few small tweaks over the years, the Bretton Woods Act has remained largely unchanged since it came into force in 1985. As you might imagine, a lot has changed since 1985 regarding how we engage financially with the Bretton Woods Institutions.

For example, in addition to contributing permanent shared capital, the IMF members can also make temporary lines of credit available to the IMF in times of crisis. As another example, we now channel grants and loans to the World Bank through trusts and no longer directly to the institutions. Of course, none of these ways of interacting with the Bretton Woods institutions were future relationships 30 years ago.

[Translation]

As aresult, you may ask how it came to be that we could enter into a financial relationship with those institutions without authority. Simply put, interpretations and powers established in other legislation, such as the Financial Administration Act and the Currency Act, were used. All we are trying to do at the moment is to consolidate those powers found in other acts into the main act, the Bretton Woods Act.

[English]

The proposed changes do not grant any additional power to the department or to the Minister of Finance. There are no new spending or fiscal implications. Basically, it’s just good governance. We’re taking parts of the other legislation and incorporating it into the main body of the Bretton Woods Act to reflect modern realities.

Let me stop here and take questions.

The Deputy Chair: I should have asked the senators to introduce themselves, beginning on my left.

Senator Black: Doug Black from Alberta.

Senator Andreychuk: Raynell Andreychuk from Saskatchewan.

Senator Marshall: Elizabeth Marshall from Newfoundland and Labrador.

[Translation]

Senator Forest: Éric Forest from the Gulf region of Quebec.

[English]

The Deputy Chair: We will begin with questions now.

Senator Andreychuk: Your last statement was that there are no financial implications in the amendments you’re proposing. Why are they in a budget bill,then? Why would you not highlight these in an act where those people who work in financial institutions would understand the governance issues that you are dealing with here and they are under a financial bill?

Mr. Brunelle-Côté: It’s a good question. The answer is that like we could have taken the legislative road. It would have been much more complicated and a longer process. We would have had to write a memorandum to cabinet to do this. Given that it doesn’t create any additional power and doesn’t really change the policies, we thought that we would make better use of the time of legislators than to do this through the legislative process.

Senator Andreychuk: However, that does not give us the same opportunity to look at these so-called legislative changes that you say are minor to determine how minor they really are and to weigh whether this is the most appropriate governance model.

As you are aware, Bretton Woods has been in place for a long time, and there has been a lot of change by policies inside the institutions and a lot of criticism of the institutions. Legislators would have had a better opportunity to make some assessments as to how our money is spent on these institutions.

It’s not very convincing to me to hear that it’s not a good use of our time. I would suggest that if there aren’t financial implications, I can’t see why it should be under Bill C-63. I would hope you would take that back to the powers that be, as we say.

Mr. Brunelle-Côté: It’s a fair point. We will take this point back, of course. We will reflect on this for future changes to the legislation.

Senator Andreychuk: We are often told they are housekeeping issues and it’s more efficient this way, but when we dig deeper, often they are not just housekeeping. They have fundamental issues that we have to deal with.

With respect to Bretton Woods and Related Agreements, they were the only big institutions we dealt with on an international basis. We have now joined the Asian Infrastructure Investment Bank. Is there some policy of how we are going to apportion our financial commitments through both of these? As we know, China developed the infrastructure bank almost in reaction to the American influence in Bretton Woods, which was the subject of many conversations about the governance within Bretton Woods, that it was too heavily American, too heavily European, and others wanted in. There have been adjustments to allow receiving countries to be part of the process. Now with the Asian Infrastructure Investment Bank, and we will have minimal influence there.

How were these choices made as to where our money goes? Is there some document we can see?

Mr. Brunelle-Côté: For questions related to the Asian Infrastructure Investment Bank, I will let my colleagues who follow me answer these questions because they are the real experts on this issue.

Senator Andreychuk: It isn’t just Asia; it’s the two together and weighing which is most important. How do we apportion our money, our time and our governance because they could be, in the future, in competition as well as complementary. I think those questions are still up in the air to be answered.

Mr. Brunelle-Côté: One thing for sure is we see the two main Bretton Woods institutions as the main bodies for engagement internationally. They remain very important organizations for the IMF. We have over $45 billion of commitment with the IMF. We see it as a critical institution to maintain international stability of the financial system. The World Bank is also a key partner in terms of development aid.

Senator Andreychuk: I would like to know how we’re balancing the two, because down the road it will be significant. Right now, Bretton Woods may be more important to us, but we don’t know how the Asiam Infrastructure Investment Bank is going to develop, and we need to know that. So I wanted that on the table from both a policy point of view but also a financial management point of view. Thank you.

Senator Eaton: Yesterday the minister confirmed that Canada will have less than 1 per cent in the infrastructure bank, China will have 30 per cent, and that we have no engagement in our values of labour or environment, which we have made a big fuss with with other trade agreements or investments we have made abroad.

Proposed section 7 of Division 2 authorizes the Minister of Finance to make payments of up to US$375 million or in any greater amount that is specified in an appropriation act. But Minister Morneau was quite clear yesterday that the only available share today is US$199 million. He made that statement more than once. If that is the only available share, why does the bill authorize a much greater amount?

Mr. Brunelle-Côté: This is also a question for my colleagues that will follow me, because I’m only here to answer questions about the first one.

Senator Eaton: But this is the part of the bill you are here to discuss.

The Deputy Chair: If I may, we’ll have the officials for Part 5, Division 2, which is on the Asian Infrastructure Investment Bank, next.

Senator Eaton: I’ll wait until the next one, then.

The Deputy Chair: Thank you.

Senator Marshall: My question is specific to the Bretton Woods and Related Agreements Act, and it’s under the section entitled “Financial assistance.”

Is that an entirely new section? What is in there, I would have thought, would ordinarily have been the types of financial assistance provided. What is new there?

Mathew Sajkunovic, Director, International Monetary and Financial Policy, International Trade and Finance Branch, Department of Finance Canada: Thank you. Just to clarify, are you referring to clause 172?

Senator Marshall: Yes, clause 172, and then where it says “Subsection 8(1) of the Bretton Woods and Related Agreements Act is replaced by the following.” Then there is the title “Financial assistance.”

Mr. Sajkunovic: The change here, as my colleague was mentioning, is just to reflect the realities of how we engage with this institution. The change here is to specify that direct payments include providing grants and loans. There was some ambiguity in terms of what a direct payment means.

The other change here is to specify that in addition to historically providing funds directly to the World Bank Group, now sometimes the group establishes specific trusts on climate change, on natural disaster assistance, that type of thing. It clarifies that the minister has the authority to provide grants, loans and other contributions to these trusts that are part of the World Bank Group.

Senator Marshall: The issuance of guarantees, is that new or was that always there?

Mr. Sajkunovic: The issuance of guarantees was not there.

Senator Marshall: That’s new?

Mr. Sajkunovic: That’s new, yes. It is not new that the government has provided guarantees, but it was done under an interpretation of the act that direct payments included the ability to guarantee. Now we’re just trying, for clarity and good governance, to specify exactly the types of transactions that the government undertakes.

Senator Marshall: The tabling of the communiqués, what are the communiqués? I’m thinking of this in the context of accountability and what the Minister of Finance is going to be providing to Parliament as a means of accountability. What exactly is that?

Mr. Sajkunovic: Twice a year, the members of the IMF and World Bank Group meet for the annual and the spring meetings. There are two groups of advisory councils for the IMF and the World Bank, the IMFC and the Development Committee.

At the conclusion of their meetings, they issue a communiqué that sets guidance for these institutions. These are made public by the IMF and the World Bank, and we publish them as part of our annual report to both houses of Parliament. Once a year we do a Bretton Woods and Related Agreements report that covers the activities of the government over the course of the last year and our priorities going forward.

Senator Marshall: Going back to the financial assistance, the grants, the loans, the guarantees and the purchase of shares, does that show up in the public accounts of the government?

Mr. Sajkunovic: It does, yes.

Senator Marshall: The guarantees also?

Mr. Sajkunovic: The guarantees show up as well, yes.

Senator Marshall: Thank you, Mr. Chair.

[Translation]

Senator Forest: I would like to know what circumstance motivated the fact that the minister’s authority to make transactions to an organization constituted by the IMF has almost doubled… because the amount of the Special Drawing Right (SDR) has gone from $550 million to $1 billion. Have there been any circumstances in which the payment has been limited? What motivated this change, which is a major one, given that it is more than a 42-per-cent increase in the loan?

Mr. Brunelle-Côté: Yes, the minister authorized that increase with the Governor-in-Council. The $1 billion figure reflects the amount that the minister has authorized.

Senator Forest: I understand that the minister could well have authorized $4 billion dollars. But what motivated that decision? Did the minister find his investments restricted? Historically, have there been any investments in a trust or an organization set up by the IMF where Canadian participation may not have been satisfactory?

[English]

Mr. Sajkunovic: This number refers to loans the government makes to the IMF Poverty Reduction and Government Growth Trust. That is a trust fund that supports lending to low-income countries experiencing balance of payment difficulties.

As my colleague said, this was the original level set in the legislation. Over the course of the last 30 years, the actual level is cumulative. So every time you provide a new loan, you add to that total.

The total right now, if you look into the record, is $1.5 billion. We have actually reduced it to reflect the actual commitment. Right now we have two $500 million SDR loan commitments to the IMF. One was agreed back in 2012. Again, it is to fund loans to low-income countries.

A new one was agreed to in 2016. The motivation for this is the way that the IMF structures this type of lending. When it does concessional lending, it needs countries to define the loan capital, and then the interest rate is bought down with grant contributions. The motivation is to reflect the actual commitment that Canadians have made. The motivation was a multilateral fundraising exercise to make sure the fund is in a position to support the poorest members and the most vulnerable.

[Translation]

Senator Forest: So I am assuming that the credit situation of some countries is more and more vulnerable, given these previous interventions.

Mr. Brunelle-Côté: Certainly, the International Monetary Fund indeed has greater needs as it increases its assistance for countries through the Poverty Reduction and Growth Facility. The answer is yes, more and more countries are in vulnerable situations.

Senator Forest: What is the equivalent in Canadian dollars of the $1-billion Special Drawing Right?

Mr. Brunelle-Côté: About $1.8 billion Canadian.

Senator Forest: $1.8 billion. That is based on…

Mr. Brunelle-Côté: A basket of currencies. It is the value of a basket of currencies that includes the Chinese renminbi, the American dollar, the yen, the British pound, and the euro.

Senator Forest: $1.8 billion. Thank you.

The Deputy Chair: If I understand correctly, in Canadian dollars… From now on, the calculation is in SDR. In Canadian dollars, the authorization goes from $550 million to $1.8 million.

Mr. Brunelle-Côté: In Canadian dollars, yes.

The Deputy Chair: If I am reading the bill correctly — I don’t know whether this is new, because I do not have the old act at hand — it says: “at no time exceeding one billion Special Drawing Rights, or any other amount that may be fixed by the Governor-in-Council”.

[English]

Or any other amount that may be fixed by the Governor-in-Council.

[Translation]

So that means that the cabinet could decide that the $1 billion becomes $2 billion?

Mr. Brunelle-Côté: Exactly.

[English]

The Deputy Chair: That is new? It wasn’t there before? If the government wanted the amount increased, it just decided to go through legislation?

Mr. Sajkunovic: No, this is the exact same process. The only clarification here in the legislation is to have the number reflect the current status of loans and to shift it. As I mentioned before, it has always been cumulative. While it says $550 million, the number lent over time is actually $1.5 billion SDRs. Those were set by the Governor-in-Council over the last few decades.

So the change here reflects the current status and take that ambiguity out to make it easier to understand so that it’s not cumulative. It sets the upper cap. If the government were to decide to lend more, there would be a need to have a new order-in-council to, one, agree on the terms of the new loan, and, two, if there was an increase in the level, to set that new increase.

The Deputy Chair: I want to clearly understand it. The power of the Governor-in-Council to decide to increase that amount, is that new?

Mr. Sajkunovic: No, that’s existing.

The Deputy Chair: That’s existing.

Are there any other questions?

Senator Andreychuk: We don’t have that act in front of us.

Was “any other manner that the Minister considers appropriate” in the previous act? In our notes, it says the amendments would enable the minister to provide assistance through the issuance of guarantees and any other manner that the minister considers appropriate. Did that exist before?

Mr. Sajkunovic: No, that is a different subsection. We were talking about clause 173. That is new. Yes, senator, that is new.

Senator Andreychuk: The one I referred to is new?

Mr. Sajkunovic: That’s right.

Senator Andreychuk: What, then, is the reason for putting in “and any other manner that the Minister considers appropriate”? It seems to give the minister carte blanche.

Mr. Sajkunovic: The rationale is when this was agreed to 30 years ago, it was not envisaged there would be grants or loans or guarantees. The idea is we are not yet sure what new financing instruments there may be in the future. To have some resilience, the idea here is to include this, senator.

Senator Andreychuk: Clause 173, it’s talking about the caps and increase?

Mr. Sajkunovic: That’s right.

[Translation]

Senator Forest: It occurs to me that going from $550 million to $1.8 billion in Special Drawing Rights is an increase of 327 per cent. That is quite the increase in manoeuvring room. That is a comment. When I read it, I did not realize the gap between the two figures.

[English]

Senator Marshall: Just to pick up on what Senator Andreychuk was asking. When she asked about “any other manner that the Minister considers appropriate,” you referenced grants and loans. But that’s already there specifically. Can you give me an example of “any other manner that the Minister considers appropriate”?

Mr. Sajkunovic: The grants and loans were added in this legislative change. Previously, it was just direct payments.

Senator Marshall: So why do we need “any other manner that the Minister considers appropriate”?

Mr. Sajkunovic: To give resilience for the future. There may be new financing instruments. There are no purchases or other things that are not envisaged at this time.

Senator Marshall: Can you think of an example right now, or is this something you think is going to develop in the future?

Mr. Sajkunovic: It could be something that develops in the future. That’s right.

Senator Marshall: It’s open-ended.

Mr. Sajkunovic: If I may, I was just conferring with my colleagues that are more familiar with this. There could be an issue where there may be derivatives or other things like that in some of the private sector lending windows of these institutions. That would be something that could come up in the future.

Senator Marshall: So this clause would expand the powers of the minister?

Mr. Sajkunovic: I think the sense is that the minister has that authority in the interpretation of the act. This is clarifying --

Senator Marshall: This makes sure that he does.

Mr. Sajkunovic: Yes.

The Deputy Chair: Are there any other questions?

[Translation]

My thanks to the witnesses for coming.

[English]

Now we will move to Part 5, Division 2, on the Asian Infrastructure Investment Bank.

Senator Percy Mockler (Chair) in the chair.

The Chair: Honourable senators, thank you very much.

I had some responsibilities in the chamber. Thank you, Senator Pratte, for your role as deputy chair.

This is Division 2. This will be tab 2 in your binder. I will now introduce the officials. From the Department of Finance Canada we have Neil Saravanamuttoo, Director, Multilateral Institutions, International Finance and Development Division, International Finance Branch; Nicole Giles, Director General, International Finance and Development Division, International Trade and Finance Branch; and Anchela Nadarajah, Economist, Multilateral Institutions, International Finance and Development Division, International Trade and Finance Branch.

I have been informed by the clerk that you will make your presentation on Division 2, to be followed by questions from the senators.

Nicole Giles, Director General, International Finance and Development Division, International Trade and Finance Branch, Department of Finance Canada: I will be introducing the AIIB. My colleagues and I are very happy to be here to speak with you today.

By way of some very brief context, as many senators know, international financial institutions including the multilateral development banks are a key part of the international order and are very important mechanisms for international development.

Launched in 2016, the Asian Infrastructure Investment Bank — if I may, we’ll refer to it as AIIB for the rest of the session — is the newest financial institution. It is focused on economic development by addressing the very significant infrastructure gap and financing gap for infrastructure in Asia.

The AIIB has 57 founding members, which include Australia, China, France, Germany, Italy, South Korea and the United Kingdom amongst others. There are currently 80 current or prospective members, such as Canada, seeking authorization to join the bank.

I thought it would be useful to provide a basic timeline for how we’ve come to be in front of you today. In December 2015, cabinet approved Canada’s strategy to join the AIIB, with the Minister of Finance as Canada’s governor. In August 2016, the Government of Canada publicly announced its decision to apply for membership to the AIIB, and our membership was accepted in principle by the board of governors in March 2017. Budget 2017 allocated funding for the purchase of Canada’s initial shareholding and announced Canada’s strategy for joining the bank.

The AIIB Articles of Agreement, along with an explanatory memorandum, were tabled in Parliament for 21 sitting days between May 3 and June 8 of this year. As a Budget 2017 measure, the corresponding legislation is being proposed as part of BIA2.

In terms of operations, it’s important to note that we think the AIIB is working very closely with other international financial institutions in order to maximize the impact of their investments. For example, the AIIB and the World Bank signed a memorandum of understanding in April 2017 for cooperation in common areas of interest, which include development financing, staff exchanges, analytical and sector work. So very close cooperation is taking place with the other multilateral development banks.

Another example is that the AIIB has adopted best practices from other international financial institutions and MDBs, which include their operational policies on corruption, sanctions, and social, environmental and labour safeguards. We’ll be happy to talk about those in more detail.

I would like to highlight some of the benefits to Canadians that could potentially accrue from Canada’s membership to the AIIB. First of all, by addressing Asia’s significant infrastructure gap, the AIIB could help to enhance crucial trade links that create jobs in Canada and help to bring goods and services to market. By supporting sustainable economic growth and economic development in Asia, this represents potential private sector opportunities for Canadian companies. Canadian membership would give Canada an opportunity to sit at the board table and to influence governance and sound policy-making in line with Canada’s priorities; and to provide Canadian visibility into the AIIB’s project pipeline, which could be used to support Canadian commercial interests, in addition to our international development interests.

Second, as the minister spoke to you yesterday, it is an opportunity to reaffirm Canada’s renewed commitment to multilateralism. Canada is committed to economic development globally. We invest time and resources in economic development based on the belief that Canadians are more prosperous when the world is growing and stable.

Lastly, it’s also an opportunity to reinforce this government’s commitment to strengthen relations in the Asia-Pacific region.

We’d be happy to take any questions.

Senator Marshall: Could you explain to us the reason for the increase in the funds? Initially it was C$256 million. Now it’s US$375 million, which is almost half a billion dollars. Then there’s also provision for any greater amount that’s specified in an appropriation act. Can you tell us why it keeps going up?

Ms. Giles: That’s an excellent question. Because Canada was not a founding member of the AIIB, there has been some uncertainty surrounding our shareholding. When the government made the decision to join AIIB, it envisaged Canada purchasing up to US$375 million in shares depending upon availability. That figure is based upon the maximum possible allocation of shares to Canada using the AIIB’s formula, which is based on Canada’s global economic weight relative to that of other shareholders.

However, as Canada is a late joiner, not all of those shares are available for purchase. Currently, only US$199 million are available, which is about C$256 million, as you noted. That’s all that’s available for purchase currently. The delta — the difference — is about US$176 million between our maximum possible shareholding and what’s available right now.

Putting our maximum possible shareholding into the legislation would allow Canada to purchase additional shares up to that maximum should those become available. That would allow us to increase our shareholding.

In that case, however, even if the legislation provides the coverage up to our possible maximum shareholding amount, before any appropriation would be made it would have to come back to Parliament through the usual estimates and appropriation process.

Senator Marshall: Based on that explanation, I’m left with the understanding that the max will be US$375 million, but it could be greater than that. Are you saying there would be a greater investment and more shares than initially thought?

Ms. Giles: The maximum possible allocation would be up to US$375 million. All that’s currently available is US$199 million. The addition would be up to US$375 million.

Senator Marshall: I appreciate what you’re saying about the US$375 million — that’s spelled out in the legislation — but why is there a phrase right after that stating, “or any greater amount that is specified”? There’s a likelihood that the country could invest more than what was initially anticipated right now, isn’t there?

Ms. Giles: I’ll have Neil speak to the details of that.

Neil Saravanamuttoo, Director, Multilateral Institutions, International Finance and Development Division, International Trade and Finance Branch, Department of Finance Canada: Sure. The legislation was written to provide for the coverage of all possible outcomes.

Senator Marshall: Would that be for flexibility?

Mr. Saravanamuttoo: For flexibility based upon what happens in terms of the shareholding process at the bank.

As my colleague has outlined, according to the formula and having been an initial joiner of the bank, we would have expected a shareholding of US$375 million that we would be entitled to take up.

Other countries around the table would also be entitled to take up a certain level of shareholding, but some will choose not to. The shares not taken up by those countries will be returned to a common pool and then made available to other members who may wish to take up the unsubscribed shares. That’s why there’s that extra provision in that line that potentially deals with that amount.

Senator Marshall: Is it anticipated that this section of the budget bill will come into force with the rest of the budget bill? In the past we have seen the bill split so that certain sections come into force at one time and other sections at other times, and in some cases, some sections never come into force. Is it anticipated that this will come into force with the rest of the bill, or not necessarily?

Ms. Giles: It will come into force with Royal Assent of BIA2, Bill C-63.

Senator Marshall: Under proposed section 6, “Depository,” it says, “The Bank of Canada is the depository in Canada for the assets of the bank.” What does that mean?

Mr. Saravanamuttoo: When the Bank of Canada makes international payments to other international organizations, the conduit through which those payments are made is the Bank of Canada. That’s simply what this clause is saying.

Senator Marshall: For the presentation in the public accounts, will this show up as an investment or as an expense? Is it budgetary or non-budgetary?

Mr. Saravanamuttoo: It shows up as an asset, so it’s non-budgetary.

Senator Marshall: It’s non-budgetary?

Mr. Saravanamuttoo: It shows up as an investment.

Now, the accounting treatment of how this is managed through the estimates process actually recognizes that there is a fiscal charge to this, and that fully accounts for the cost of the subscription.

Senator Marshall: I had understood from somebody it was going to be budgetary, but you’re saying it’s non-budgetary.

Mr. Saravanamuttoo: Well, no. We’re saying that in the public accounts it’s recorded as an investment. However, through the budgetary process, we fully provision for that investment; we realize the full budget cost of the investment. So in that sense it is budgetary.

Senator Marshall: Thank you.

Senator Eaton: As I said to Minister Morneau yesterday, it’s nice to see you’re all so optimistic about this bank. As he said in response to my question yesterday, we have less than 1 per cent. We will not have a directorship. We’ll be governors but not have a directorship. China will have 30 per cent. Xi Jinping has made it very clear he’s running China, no holds barred. It’s his fiefdom. Japan and the U.S. chose not to join the bank.

When you spoke, Ms. Giles, of strengthening our multilateral relationships in Asia, we don’t seem to be working very hard on the TPP, which is probably a very obvious relationship for us. There doesn’t seem to be the enthusiasm there was once for the TPP.

What actual benefits will Canada’s private sector have? I’m hoping we’ll be able to bid on projects that the infrastructure bank is going to fund. Is that true? Do you see actual benefits to Canada other than we have bought a membership into a club in which we have very little or no say?

Ms. Giles: It’s important to emphasize the multilateral nature —

Senator Eaton: That’s a lovely abstract thought, but what actual benefits are we getting for a half a billion dollars?

Ms. Giles: In terms of the possible concrete benefits to Canada’s private sector, they would have the opportunity to bid for projects within the bank, most certainly. If Canada is a member of the bank, we will have early eyes into that pipeline of projects and we will, of course, be able to influence those projects in terms of ensuring the safeguards and standards that are important to Canadians are reflected in those projects as well.

By expanding the trade networks and building the infrastructure in Asia, we also envisage that could help Canadian companies get their goods to market by having that infrastructure built out for what, as you rightly note, is an important trading region for Canada.

It’s also important to flag that many of the members of the TPP, with Japan being a very obvious and important exception, are members of the AIIB as well. So it is also an investment in those regional relationships.

While Canada has, as you rightly note, the 1 per cent share, there is the opportunity and, indeed, almost a likelihood that for the constituency we would be part of, Canada would be the largest member of that constituency. We would likely hold the directorship.

Senator Eaton: Is that the bottom tier of the constituency? There's A, B, C, D and E, and we’re E, are we?

Ms. Giles: There are 12 directorships or constituencies and 9 of them are regional. Of the other constituencies — and we’re happy to walk you through them — you’re right that the one Canada belongs to is a bit of a mixed bag. It’s for the non-regional countries that aren’t European: There are Latin American countries in there, as well as Egypt.

Of that constituency, Canada would be by far the largest shareholder. While we’re not yet members of the bank and haven’t negotiated the constituency agreements with the other constituency members, traditionally the largest member does take that directorship, on an alternating basis at a minimum. We expect that Canadians, if not permanently, will be regularly holding that directorship, so we’ll be one of the 12 director voices at that table.

Senator Eaton: Thank you very much for those answers. I hope we see you again in a year so we can see how we’re doing.

Senator Black: Thank you for being here.

My view is slightly different than Senator Eaton’s. I was disappointed that Canada wasn’t one of the original signatories of the AIIB, but so be it. I’m glad we’re there now. I’m very happy to hear about the governance that we just discussed.

I want to go one step further, because I do want to understand the governance of the bank as it affects the country. You’ve been very helpful in respect of a potential board position, so I understand that. Can you talk to us about the rights we would have as a shareholder, particularly to information?

Ms. Giles: In terms of our shareholder rights to information, there are certainly more we would have as a shareholder than as not, and broad information-sharing takes place. There is the general information that is shared with all members, and then there is always some information shared with the board about upcoming projects.

We have found in our early dealings with the bank that there is a strong propensity and interest in sharing more information than less, so this is not an area where we anticipate any difficulties. By having a seat at the board, if we do take the directorship, at least on a regular basis as anticipated, we would have access to pretty much all the information we would be looking for.

We have found the AIIB, as we do for all of the multilateral banks we deal with, to be very responsive to questions the Government of Canada has. We haven’t experienced any difficulties.

It’s also worth pointing out that one of the safeguards, as we see it, within the bank is that there is a very robust compliance, effectiveness and integrity unit that oversees the project effectiveness and reports directly to the board of governors of the AIIB rather than to the president or through the governance structure. The head of that independent unit is a joint national for the U.K. and Pakistan, so we have a high level of confidence in the role that integrity unit will play in terms of ensuring that all the information shareholders and the Government of Canada would require would be provided and met.

Senator Pratte: China has 30 per cent of the shares. Many people are wondering what influence that provides China and whether there are any mechanisms that prevent China from totally dominating the bank in its decisions and so on.

Ms. Giles: That’s an excellent question. There are a couple of ways to approach that.

First, there is the regular process that happens with most of the multilateral banks whereby decisions are brought to the board for a vote and discussion. There are various points along the process of whatever decision is being brought to the board where shareholders and board members are able to exert influence and have an impact upon the projects being developed and the policies being brought forth.

In other multilateral development banks, we find that the Canadian executive directors have a very strong record of working very closely with other board members and shareholders to be able to influence policy. For most of the multilateral development banks, because of the proportion of Canada’s share of the world economy, our percentages and shareholdings are relatively small. For example, with the IBRD, one of the key World Bank Group institutions, our shareholding is only 2.7 per cent.

This is a space the Government of Canada is used to dealing with. We don’t dominate any of the multilateral development banks. It’s the nature of how these work.

That being said, it is important to flag that there are certain things that could be brought to the board where China’s voting power would permit it to potentially veto major decisions, such as the Articles of Agreement or increasing the bank’s capital. That is not unlike the World Bank where the U.S. has a strong shareholding and can influence changes in the Articles of Agreement.

But the vast majority of the operating issues for the bank and the projects are things all shareholders are able to work together to influence. It’s an unlikely scenario where we would see something being brought forward by one shareholder that the rest of the shareholders didn’t agree with.

Senator Pratte: This is a regional bank. As you said, nine of the constituencies represent the region, where China has a vast influence. Isn’t there a risk there that China has an oversized influence on the choice of projects?

Ms. Giles: It might be useful here to describe the project process for the bank and how project decisions take place. It is important to understanding how the bank operates.

The projects and the project selection from the bank, as with most multilateral to banks, are generally demand-driven. That means they will provide financing according to the demand and the assessment of quality projects as they are brought forward.

The AIIB does have a rigorous selection process in place that reflects the best practices of other multilateral development banks. In the early years of the AIIB, at this point, about 75 per cent of the projects they have done have been joint with other multilateral development banks, such as the World Bank or the European Bank for Reconstruction and Development. What we saw in the early years was a very integrated, collaborative approach to addressing these large infrastructure gaps. It also speaks to the nature of infrastructure gaps, which is that they are very large and often require quite a bit of financing.

When a sovereign country or a company presents or submits a proposal, AIIB staff will work with them to bring the project to bankability. That includes social and environmental assessments. In this process and with other multilateral development banks, we’ve found that sometimes technical assistance needs to take place with a sovereign country in terms of developing that project pipeline, how to prepare a project to be bankable and to become feasible projects.

Once the project is ready, it’s sent to the board of directors to vote upon. That’s where those 12 seats become quite important. Then, once Canada is a member of the bank, the Department of Finance, with colleagues from Global Affairs or other expertise across the Government of Canada, would conduct an assessment of the project. Then we would recommend whether or not the project would be supported.

What traditionally happens, though, at MDBs is that as those projects are being developed, we do have early eyes into that project pipeline, so we’re able to influence quite heavily along the way. That’s quite important as well when it comes to the safeguards and standards for Canadian values we’re expecting to see represented in these institutions.

I hope that answers your question, but I’m happy to take another stab if it doesn’t.

Senator Pratte: Thank you.

I have one last point on the possible positive impact for Canadian companies in having possible advanced information on projects selected by the bank. Let’s take a Canadian engineering firm and a U.S. engineering firm. Even though the United States is not part of the bank, I suppose that the U.S. engineering firm can still participate in the tendering process; right? They are still allowed to participate in projects.

Ms. Giles: It’s an open tendering process, keeping in line with the standards of other multilateral development banks.

Senator Pratte: That’s good.

So what possible advantage can Canadian companies have if Canada becomes a member of the bank? What advantage do Canadian companies have because Canada would be part of the bank?

Ms. Giles: The Government of Canada does have early insight into some of the projects that are being developed. We’re able to work with our other partners across the Government of Canada, including Global Affairs, to be alert to whether there could be potential possibilities for Canadian companies who may otherwise not be aware of some of the projects that might be under development. While there is the open procurement process, some of those linkages are able to be drawn because of Canada’s involvement in the bank.

Now, of course, Canada is very careful to adhere to and continue to promote open procurement. That is best value for money. That’s an incredibly important principle for us.

But when Canada has a seat at the table, we’re able to identify opportunities and to ensure that our companies are aware of those opportunities as they are going forward to procurement.

[Translation]

Senator Forest: First of all, thank you for joining us and for the information you are providing. When I look at the bank’s objectives, the primary mission, I see that it invests in sustainable infrastructure and creates wealth. I am fine with that. However, I do not understand the sentence that talks about improving the connectivity of infrastructure in Asia by investing in infrastructure and other productive sectors. By improving the connectivity, do you mean that you are going to be rolling out fiber-optic cable between the infrastructures? What does that mean?

[English]

Ms. Giles: That’s a great question. The connectivity can mean a couple of things; indeed, it could mean fibre optics and the more virtual connectivity as well.

To give you concrete examples would probably be most useful. For example, some projects are related to railway systems or port development. There has also been a project related to solar energy projects and having the connectivity there to the electricity as well as some of the hydropower and flood prevention.

We would envisage fibre optic connectivity being an important part of any infrastructure and build-out.

Neil, would you have any additional details?

Mr. Saravanamuttoo: Another important objective of connectivity is recognizing that much of the infrastructure requirements are multinational by definition. They cross borders, whether it’s a bridge, a rail line, or whether it’s fibre-optic cables that move across multiple countries. Part of the challenge that the Asian Infrastructure Investment Bank has identified is that sometimes that connectivity is not as fluid and as easy as it needs to be. Being able to take a multilateral approach that can work in multiple countries on regional projects, that’s one of the objectives it hopes to make some gains on.

[Translation]

Senator Forest: Well, when a neophyte like me reads about the objective of the bank, let us say that it may be good in terms of connectivity but it is not good in terms of clarity. Trying to understand what is meant by “connectivity” gets pretty ambiguous.

So, to follow on from Senator Pratte’s question, we can say that it is indeed good to be a member of the bank. It is often said that knowledge is power. Being a member of the bank brings interesting opportunities, especially for Canadian individuals and companies, whether in terms of consulting, or construction, or anything else. Has a plan been put in place to maximize this ability to obtain information and use it to its greatest extent? Basically, we will be participating in international tendering. Knowing in advance the projects that could be considered or funded could be an advantage. Are people at the department that has the mandate for global affairs or international economic development thinking of establishing a concrete strategy so that Canadian business people can use that information to their advantage and grasp the opportunities a little earlier than the international competition?

[English]

Ms. Giles: That’s an excellent question. It is something that has been a consideration and focus for us. We have been working closely with the Trade Commissioner Service, which is run by Global Affairs Canada, to ensure that we’ll be able to use that network and their client network of Canadian companies to be able to disseminate information.

[Translation]

Senator Forest: Has your work led to a specific action plan, or simply to an undertaking to grasp the opportunities? Has a specific action plan come from your work with the delegations, Canadian consuls or embassies?

[English]

Ms. Giles: There is not yet such a strategy in place as we’re not members of the bank, and we want to ensure that we’re not being presumptive regarding the decision that Parliament will make regarding us joining the bank. But we have been working throughout all these steps, and in the consideration in working towards Canada joining the bank, with the Trade Commissioner Service to ensure that we’ll be able to move quite quickly to ensure that information flows to Canadian companies.

[Translation]

Senator Forest: We do not want to put the cart before the horse, but I think that it is helpful to have a good action plan. I hope that, when we see each other again in a year, there will be something concrete along those lines. These are major investments and there are opportunities to grasp. But you have to have the appropriate structure and organization.

Quickly, there are opportunities, but there is also performance. What performance are you expecting from the investments made by the Asian Infrastructure Investment Bank? What will be the financial performance?

[English]

Ms. Giles: Do you mean the returns on investment, concretely?

Senator Forest: Yes.

Ms. Giles: The bank is self-sustaining and operates like a normal bank in terms of the returns on the investment go back into the capital of the bank and then are recycled for further investment. We’ll be very happy to describe to you that process in detail if that’s useful for you. But the general concept is that any gains from the investments, any funds received would be rolled back into the general capital and then would again be leveraged out for additional projects.

[Translation]

Senator Forest: So it is even more important to have an action plan, so that you can seize the business opportunities for Canadian companies.

[English]

Senator Marshall: I wanted to follow up on a question that Senator Black asked with regard to the information that would be provided to shareholders.

I just want to reference Article 34 of the Articles of Agreement, which talks about reports and information. It states that the bank is going to provide to its members an annual report containing an audited statement of its accounts, and they are going to publish such a report. They are also going to provide a quarterly financial statement. That’s all that is there.

I actually asked the minister a similar question yesterday, because if the government is putting almost half a billion dollars into an organization as an investment, I would expect that there would be some decision as to what type of reports or information would be available to the investor. The only conclusion I can come to is that the final part of the article states that the bank is going to establish a policy on the disclosure of information. I would think that if the Government of Canada is going to put half a billion dollars into an organization as an investment, they would have a copy of this policy before they actually paid out their money.

My question is: Has the government received a copy of that policy? I would like to know exactly what information the government is going to receive upon payment of funds for this investment.

Ms. Giles: That’s another excellent question, senator. As you rightly point out, there are requirements for reporting and information described in Article 34. That’s the basement; that’s the minimum requirement for the reporting. This reflects the practices of private institutions and banks. It also reflects the practices of other multilateral development banks, such as the EBRD, the World Bank, the African Development Bank. So that’s the minimum level of reporting that does take place.

The policy itself, we understand, is still under development. That’s an example where, if we had been a member of the bank, we would potentially have been able to be part of the group of people developing, writing and influencing that policy, but we do understand that that policy remains under development at this point.

Senator Marshall: Well, it’s the basement but it’s also the ceiling. That’s the only obligation there now that the bank has to provide to the Canadian government with regard to its half-a-billion-dollar investment. I had to question the wisdom of putting half a billion dollars into a bank with no commitment as to what types of information we’re going to get except an audited financial statement. That’s really not very much.

These funds are being provided through the Parliament of Canada. What sorts of information is the minister going to bring back to Parliament to indicate the wisdom of this investment? I would just like to make that point.

I would like for you to confirm, even if you do it at a later date, whether the government knows exactly what the policy is right now, or is the money going in just knowing all we are going to get is an audited set of financial statements?

Ms. Giles: I’ll ask Neil to describe this in some detail and where we’re at with the policy right now that remains under development. But, again, in addition to the annual report with the annual statement, there is also going to be, at a minimum, quarterly statements and summaries that are provided on the financial position. I think it’s also important to reflect upon the mirroring and the best practice that this is with the other multilateral development banks that Canada is also a member of, including the European Bank for Reconstruction and Development and the World Bank.

Perhaps, Mr. Saravanamuttoo, you could elaborate a little bit on the policy.

Mr. Saravanamuttoo: It’s important to remember that the Articles of Agreement were agreed to by the members as the bank was starting to become operational, so they define the expectations of the shareholders, but they define those minimum expectations. In this case, the minimum expectations are, as would be the case with any private corporation that is publicly listed, that an annual report would be provided with audited financial statements and quarterly reports on the financials.

Now that would be the minimum expectations of shareholders, but given that these Articles of Agreement may not be changed for a number of years, if not decades, the shareholders would be unlikely to want to specify exactly what would be required in terms of reporting on top of that to allow for flexibility and evolution over time.

What we can do is look at the practice of other multilateral development banks and see what they have done, because their articles of agreement would have similar requirements that they will provide an annual report and financial statements. What we have seen is that, over time, they have provided shareholders with corporate scorecards. They have provided shareholders with development impact results. So there are a number of different reporting instruments that we’ve received from these institutions that we would be able to draw on to provide further clarification.

Senator Marshall: I’ll make one final point in response to that. I have to disagree with you because, under these articles, it says:

The Bank shall establish a policy on the disclosure of information in order to promote transparency in its operations.

When I read that, I don’t think that this bank has any consideration of what other financial institutions do. They are going to establish their own policy. So I would like to see what that policy is. That is all that I’m requesting.

Ms. Giles: Certainly.

Senator Andreychuk: I would like to follow up on the governance of this bank. The World Bank, which we joined at some point, for the members at that time there was some optimism that we shared certain values; we had certain aspirations and goals. We were not a large player there either, compared to the other countries, but we had some optimism that we could influence the larger players.

So we’re going strategically into the Asian Infrastructure Investment Bank, I think, for a political reason. We want to be at the table. We want to see whether we can have some influence and be a player in Asia. But where does the optimism come that we can influence the people at the table when we see that 30 per cent is in the hands of China?

When we look at the “bilateral” with China, we are concerned about the issue of technologies and their transfer. We know that back in the World Bank days, it was very hard to have a level playing field. We fought hard to get all of these additional rules about corruption and tendering processes and accountability in the World Bank.

I’m reading what you’re saying as we have joined the table. It’s a bit of a gamble, and we think we might have some influence. We hope that the people at the table will be like-minded with us to influence the process so that it becomes more like a World Bank process, which we have struggled with. We haven’t been particularly helpful for businesses through the World Bank, until very recently. Even then, I would say we’re limited in tendering. We’re not that successful, but at least we have some sharing.

I’m going back to Senator Forest’s point. What is our strategic plan, politically as well as financially, to influence the players at the table? Because we’re not there yet fully, and we have a small share. So we should know what our limited outcome is now. Otherwise, we think we’re going to be there, we are going to be dynamic, and this is going to be a game changer for businesses and for the Canadian government. I think that’s over-optimistic. Maybe in the long run, but at the moment, politically and financially, we’re small players there. We should target what it is we think we can achieve, whether it is politically, at the table, to make the rules better, or whether we believe that we can look at the tenders and get some influence for Canadian companies. Most of those, as you said, are mergers anyway, so we should at least be facilitating the businesses to determine who they partner with to get the tender.

Unlike the African Development Bank. We knew we were going in there, but we wanted Africa to take ownership. We knew there was money and wealth in Africa, and we wanted to be at the table to encourage African players to start looking after their own countries. Strategically, we were there in a different manner. I think that I would like to know what our short- and long-term goals are in the Asian development bank. We didn’t know whether we should, so we didn’t have a clear objective. Then we joined later.

What is our strategic plan? I think that’s what we’re saying here. We need to justify to taxpayers the use of taxpayers’ money, and we need to know what the plan is. As this bank develops, what are the measurable milestones?

Ms. Giles: I would say the long-term strategic objective for Canada joining is to help to address the estimated annual $1.7 trillion a year financing gap for infrastructure in Asia. In doing so, a series of different benefits will accrue for Canadians and can be measured in a variety of different ways, some of which we’ve talked about here today. We do believe that sustainable growth economically in Asia will have significant benefits for Canada as a small, open trading economy.

I think at the same time it’s important to recall that a big part of our approach to joining the AIIB is that it is part of our official development assistance as well. Potential commercial benefits could accrue for Canadian companies directly in terms of procurement opportunities and indirectly in terms of the strength in infrastructure that will make it easier to trade and move goods to market. This is fundamentally part of our international assistance policy and our international assistance expenditures.

For instance, the OECD Development Assistance Committee sets the guidelines and rules over what can be counted as official development assistance and what can’t be counted as official development assistance. The OECD DAC indicated that 85 per cent of AIIB’s funding counts as official development assistance.

This is heavily an international development assistance focus and that’s a big part of why Canada is joining the bank, with the belief that when the world is more prosperous and stable, Canadians are better off and Canada can become more prosperous and stable.

One of the challenges with measuring results for international assistance is those are long-term measures and indicators and are quite often indirect. But we do believe that by helping and supporting sustainable and inclusive economic growth in Asia, the economic growth in that region will help the poorest and most vulnerable and also have benefits for Canadians more directly.

It might be helpful to speak a bit about the safeguards and various policies the bank has in place for social, environmental and labour, if that might be helpful to the committee. A couple of questions have skirted around it.

The Chair: There’s no doubt that will bring clarity to some of the questions.

Ms. Giles: The AIIB reflects the operating and governance structures of existing international financial institutions. As I mentioned briefly, it has adopted the best practices of other multilateral development banks. More concretely, in March 2017, the AIIB adopted the list of sanctioned firms and individuals that have been debarred from other multilateral banks. That’s called the cross-debarment. So the AIIB has adopted that sanctions list.

The AIIB has also put in place a policy on prohibited practices which speaks to sanctions malpractice, which is obviously important to Canada. That covers coercive, collusive, corruption and fraudulent practices, misuse of resources, obstruction and theft. There is quite a robust policy there that again has drawn on the work of other international, financial institutions and MDBs, so there’s not a reinventing of the wheel or practices that are being developed independently by the AIIB. It’s drawing from all the work and quite often hard lessons learned that other multilateral development banks have experienced over the last 30 years or so.

The AIIB has also put in place social and environmental safeguards that parallel the existing MDB safeguards. They were formalized in spring 2016. What is interesting is that they were formalized following a robust round of public consultations in the fall of 2015. The safeguards include, for example, restrictions on child labour and require project conformity with the International Labour Organization’s Minimum Age Convention. There are also requirements in place around consideration for environmental damage, including pollution abatement practices, biodiversity considerations and sustainability of land and water use.

There are also considerations in place for the safeguards around involuntary resettlement, physical or economic displacement. Like the World Bank, the AIIB requires resettlement activities to be conceived and executed as sustainable development programs, providing sufficient resources to enable affected people to share in the program benefit.

AIIB also has an entire section devoted to managing relationships with indigenous peoples, which is also something important to the Government of Canada. It requires a client to design and implement projects in a way that fosters full respect of indigenous peoples’ identity, dignity, human rights, economies and cultures as defined by the indigenous peoples themselves, so that they receive culturally appropriate social and economic benefits and do not suffer adverse impacts and can actively participate in the projects.

AIIB also has in place practices to check the financial statements of projects and works with the recipients to make sure that the money is going to the intended destination. This is done by the independent Compliance, Effectiveness and Integrity Unit that, again, is headed by a dual national from the United Kingdom. So we have a relatively high level of confidence in that unit.

One of the benefits the AIIB has had, being one of the newer kids on the block, is they’re able to take the lessons learned from other multilateral development banks. Ms. Nadarajah has actually done a line-by-line comparison between AIIB’s policies, the World Bank’s policies and MDB policies. With very few exceptions, it’s almost a line-to-line comparison.

Part of that speaks to the fact that 75 per cent of the projects the bank has done in its first few years of operations have been joint with other multilateral development banks, so obviously, in the case of those joint practices, the AIIB is having to meet the standards of the other banks, whether it be the World Bank or the European Reconstruction and Development Bank.

In many ways, the AIIB is further and faster out of the gate on this than other MDBs were in the 1950s, 1960s and 1970s when they were launched and the thinking wasn’t quite as progressive and there wasn’t as much independence around those integrity units.

I’m sorry, that was quite long, but I hope it’s helpful to the committee.

Senator Andreychuk: One of the things we will have to track is the projects the bank undertakes and whether the standards are really the same as they are in other bank projects, and match it against the infrastructure projects which China bilaterally, using all methods of financing, internally and otherwise, is doing for infrastructure not only in Asia but elsewhere, and see whether those standards of implementation are the same. I won’t say anymore, but I think you know what I’m getting at.

That’s why the question of the influence of one partner compared to the rest is important. I would suggest that Canada, if it’s going to be at the table and be relevant at all, better start finding its “like-minded” at the table as a strategy and buffer for the larger contributor.

Ms. Giles: Certainly.

[Translation]

Senator Forest: Clearly, this investment is being made in the spirit of international solidarity, and I applaud that. As the finance committee, our responsibility, in my view, would be to verify that a favourable environment is established so that all the opportunities for Canadian companies and business people can be seized in the best and most effective way. All we have to do is put this in our minutes so that we can make sure that it has been done, when Canada has become a member and when another meeting is held.

[English]

The Chair: Before we move on to the next division, I would like to ask a few questions. If you can’t answer now, please send the information to the clerk.

Can Canada secure Canadian content, a percentage, in any contract?

Ms. Giles: No, because it’s an open procurement policy.

The Chair: Could the AIIB invest in defence infrastructure projects in the part of the world we’re looking at ?

Ms. Giles: We haven’t come across it yet, senator. This is not something we’ve seen in other multilateral development banks traditionally because sovereigns tend to guard those defence projects pretty carefully and jealously, but we will certainly go back and confirm. I want to make sure you have a full answer.

The Chair: Thank you.

Could the bank invest in other locations outside Asia, and could it be located elsewhere in the world?

Ms. Giles: Yes and no.

The Chair: Say yes where and no why.

Ms. Giles: I’ll ask Mr. Saravanamuttoo to explain the details.

Mr. Saravanamuttoo: Yes, the bank could have the opportunity to invest outside of the Asian region. That has been recognized by a number of Latin American and African countries that have chosen to join the bank. They recognize or see a potential source of finance here that they would consider for the future. It would require a decision of the board of directors, so it’s certainly possible.

With regard to the second question about location, it’s written into the Articles of Agreement that the bank will be situated in Beijing, China, so unless the Articles of Agreement were changed, that’s the location of the headquarters.

The Chair: Thank you.

We will now move to Division 3, and you’ll find this in tab 3 in the binder. There we will have Nicole Giles and Neil Saravanamuttoo continue.

Can you please identify yourself and inform the committee who will be leading with comments and a presentation?

Ms. Giles: I’m Nicole Giles, Director General for the International Finance and Development Division at the Department of Finance Canada, and I’ll be leading the introduction and the response to questions.

I’m joined by Neil Saravanamuttoo, the Director for Multilateral Institutions within the International Finance Development Division at the Department of Finance Canada.

The Chair: Please make your presentation on Division 3.

Ms. Giles: This item relates to the program transfer of the Global Agriculture and Food Security Program, or GAFSP, and the private sector window and Financial Mechanisms for Climate Change Facility, or FMCCF. This is largely an administrative transfer, but I would like to spend a bit of time outlining it to ensure senators are comfortable.

By way of context, for several years the Government of Canada has been exploring how to bring in and leverage private sector investment in financing for international development. This is part of the billions to trillions agenda that many of you may have heard described.

In 2010-11, the Government of Canada engaged with the World Bank’s private sector window, which is the International Finance Corporation, or IFC. Out of those discussions the result was three agreements that were focused on climate change and food security.

The first was Financial Mechanisms for Climate Change Facility -- Concessional Finance. The second was Financial Mechanisms for Climate Change Facility -- Technical Assistance agreement, including the catalyst fund. Third, the program transfer for the Global Agriculture and Food Security Program private sector window.

The Minister of Finance under the Bretton Woods and Related Agreements Act has the ability to make use of equity investments. The Department of Finance at the time had the necessary expertise on working within private sector financing windows. So the decision at the time was taken for those three agreements to be administered by the Department of Finance, although it was international assistance and development assistance.

So why are we reconsidering the administrative management of these agreements now? With the launch of Canada’s new Feminist International Assistance Policy in the spring, increased focus is being put on the need to develop and mainstream innovative financing mechanisms and approaches, including on loans and equity investments, so how to crowd in additional private sector funds for development impact. This requires the building of additional capacity and expertise.

At present, the Minister of Foreign Affairs does not have the necessary authorities to hold equity investments and therefore to administer these three programs in question. As a Budget 2017 measure, there are required legislative changes to the Minister of Foreign Affairs’ authorities for the administrative transfer of the programs being proposed as part of Bill C-63.

The scope of the proposed legislative changes to the authorities of the Minister of Foreign Affairs is limited exclusively to the transfer of these three programs. So the Department of Finance and Global Affairs Canada are considering options for how to expand the authorities beyond these programs in order to better facilitate innovative development finance, but the measures in this act are limited only to these three programs as a preliminary or first step.

So these legislative measures will not change the Government of Canada’s relationship with the World Bank or with the IFC in any way.

We’re very happy to answer any questions that senators may have.

Senator Eaton: Thank you, Ms. Giles.

The Finance Department is obviously very expert and rather large in its excellence. Why would you not have the expertise that Global Affairs has, for instance, in climate change facility? Wouldn’t that go to the environment ministry? The Global Agriculture and Food Security Program, why would that go to the ministry of agriculture? These are all people who are very specialized in those areas. Having sat on the ag committee for five years, I know how excellent the ag ministry is.

I find it stunning that you take these three important areas of aid and just give them to poor Madam Freeland who is also trying to do NAFTA, TPP and manage North Korea. It’s going to end up being the officials, obviously, in her department, so why are they more qualified than you or the ministry of finance or the ministry of environment or the ministry of agriculture?

Ms. Giles: That’s a really important consideration. I think part of the response goes back to how Canada delivers its international assistance and the bulk of its international assistance envelope.

The reason the authorities go to the Minister of Foreign Affairs is that under the DFATD Act — which is the legislation that governs Global Affairs Canada, so although the name has changed to Global Affairs Canada, the legislation is still the DFATD Act — those authorities are delegated to the Minister for International Development. That’s why it is the Minister of Foreign Affairs, and we expect the authorities to be delegated as they are in the other programs.

Part of it is that within the Department of Global Affairs, a series of terms and conditions is held by that department and given to that department by the Treasury Board to administer programs internationally.

That’s where the difference comes between the expertise of Global Affairs Canada in administering international development and international assistance programs and why Treasury Board has given them specific terms and conditions surrounding how to do that, such as how to write the contribution arrangements and how to do the granting authorities.

So while the domestic departments within the Government of Canada that hold the incredible expertise that you’ve pointed to, whether it’s agriculture or ECCC, the delivery of that international assistance is still largely done through Global Affairs because they have the terms and conditions that Treasury Board has given them.

Senator Eaton: I can see that Madam Freeland might decide that she wants Canada to help any given country in Africa or Asia in terms of agriculture or the environment, but surely the officials in those other two ministries, she would go to them and get some of their expertise. So often we’ve found out, sitting on Finance, that we tend to give money away but there’s no accountability for it because we just give it away. When you ask how the program is working, nobody can give us an answer.

That’s why I’m surprised that those three rather interesting programs are being given to Global Affairs where they don’t have the agriculture or the environment. They might know how to give money and do the contracts, but they don’t have the expertise to say, “No, that’s not what Sudan needs. There’s this new technology in water filtration. We should try and do it that way.” They are taking it on themselves. It’s rather a large move.

Ms. Giles: There’s a very strong group within Global Affairs Canada that focuses on the environment and climate change and does quite a bit of programming. While I would not want to speak for my colleagues in another department, I do understand that a lot of coordination takes place with ECCC and with Agriculture as well, so there are strong linkages.

I think what’s important to remember about these three programs as well is that they’re being implemented through the private sector window of the International Finance Corporation of the World Bank. While there’s certainly input into the project selection, this is also a bit of a learning opportunity for the Government of Canada in terms of how we engage with the private sector, how we do some of that private sector leveraging and how we engage with private sector financing for development to be able to pull in private sector money and to be able to amp up the grants or contribution money.

Senator Eaton: Private sector money in Canada or in the countries you want to help?

Ms. Giles: Internationally. The IFC, for example, would be implementing projects in Ethiopia or Colombia. Depending on the project, sometimes there are larger institutional investors located in other countries. Sometimes it’s the private sector within the host country itself for the project and sometimes it’s larger multilateral private sector corporations.

Senator Marshall: I’m looking at proposed subsection 178(2), “Share -- acquisition.” That subsection provides for the acquisition of shares. Is that a new section?

Mr. Saravanamuttoo: The entirety of 177 to 179 is all new.

Senator Marshall: Is there any funding budgeted for the acquisition of shares in a corporation? Is there any money budgeted in either the June budget or Bill C-63? Is there anything definitive? Is it just there in hopes something will come up or is there something specific in mind?

Ms. Giles: The funding associated with these three programs went out the door many years ago, I think most of it in 2010-11. There were a couple of more recent payments. There’s no additional funding anticipated to go into these programs at this point. It’s the administrative transfer of ongoing programs.

Senator Marshall: You said there’s something in 2010-11. What would it have been?

Mr. Saravanamuttoo: The agriculture and food security program, that was US$50 million. The climate change program was approximately $400 million.

Senator Marshall: Do they still show up as investments to the Government of Canada or have they been written down or written off?

Mr. Saravanamuttoo: These are what are known as concessional finance vehicles and they have been provisioned at a certain rate. Whereas our previous discussion about investments in the Asian Infrastructure Investment Bank, the current public sector accounting standards would dictate we write those down 100 per cent. These ones are not written down 100 per cent. There’s a return of capital up to a certain degree on both programs.

Senator Marshall: So if I look in the public accounts under investments, I will find some dollar amount for those?

Mr. Saravanamuttoo: Yes.

The Chair: The last question will go to Senator Maltais to complete Division 3. We need to vacate this room in the next three minutes.

[Translation]

Senator Maltais: I would like to know which agricultural program dealing with the carbon tax you have invested in.

Mr. Saravanamuttoo: I am sorry. Can you repeat the question?

Senator Maltais: I would like to know which program in the field of agriculture you have invested in to offset the carbon tax.

[English]

Mr. Saravanamuttoo: Neither of these programs are directly linked to a carbon tax. The climate change program is related to different actions that can be taken to reduce greenhouse gas emissions, and the agriculture program is more related to investments in agriculture generally that promote food security.

Ms. Giles: These programs predate the commitment that the current government made at COP 21 of the $2.65 billion towards those types of activities. These programs predate that.

[Translation]

Senator Maltais: Something is not working. I was Chair of the agriculture committee for years, and Canada has not invested a cent to fight greenhouse gas emissions or in the carbon tax in agriculture. There is a contradiction somewhere. This is coming from Department of Finance officials, not from me.

The Chair: Can you take that question under advisement and come back to us with an answer, please?

Ms. Giles: Of course.

[English]

The Chair: Honourable senators, this concludes Division 3.

At our next meeting, we will continue with officials from the Department of Finance on Bill C-63. The officials will resume where we just left off, and they will make their first presentation on Division 4 of Part 5.

(The committee adjourned)