'What does Canada get in exchange for this lost credibility?'

Scott Clark dissects the Harper government’s loud refusal to be part of an IMF initiative to backstop Europe.

By refusing to join the G-20 initiative to augment IMF resources, Canada’s credibility in the G-20 will be seriously diminished. Canada has been able to “punch above its economic weight” in international organizations and institutions because of the quality of its advice and the seriousness of it commitments to international institutions. Other members of the G-20 will see Canada’s refusal to participate as a weakening in its commitment to the G-20 and the IMF.

Another reason given for not contributing to the G-20 Fund is that this would require the use of taxpayers’ money. Presumably what the government is saying is that at a time when government spending is being cut it would be inappropriate to “give” taxpayers money to the IMF to help wealthy European countries. This is completely misleading. Funds are not given to the IMF; funds are lent to the IMF. More importantly the funds that would be lent to the IMF would not come from Canadian taxpayers. The funds would come from foreign exchange reserves held at the Bank of Canada. As of May 23, 2012 Canada had foreign exchange reserves of $68.7 billion … Were Canada to contribute to the G-20 fund the “contribution” would involve a transfer of SDRs from the exchange reserves to the IMF in exchange for a commitment that the funds would be repaid. There would be no use of taxpayers’ money and there would be no budgetary impact.

In April, Mark Carney appeared before the House finance committee and Peggy Nash asked the bank governor about Europe and the potential impact on Canada. She then asked Mr. Carney for the pros and cons of contributing to the IMF firewall.

Peggy Nash: I have one quick supplementary question on the IMF European firewall. Canada has so far declined to provide any money to that firewall. Can you briefly describe the pros and cons of Canada deciding to add to that firewall?

Mark Carney: This is a decision of the Government of Canada, not the Bank of Canada, as you can appreciate. One of the major issues was highlighted by the previous question, and that is the structure of conditionality—the way money has been dispersed and potentially will be dispersed in future programs. We’re concerned about getting the governance right and having the governance of potential future programs be more consistent with previous lending. That’s the first point.

The second point is on having a firewall developed out of Europe, where they have immense resources, or developed in conjunction with the IMF or others. The value of this is that the process of adjustment in a number of European economies to solve the underlying balance of payments and fiscal and banking issues will take some time. It will be measured in years, not weeks, weekends, or months. Over the course of that time it is possible that access to markets will not be there, or won’t be there on sustainable terms, and there will be a need to draw on these resources. So having sufficient resources to address that possibility is advisable. That’s the main argument in favour.

The argument against is partially around governance and resources provided from Europe. Ultimately it’s a Government of Canada decision.

The last point is that this all has to be looked at in the context of current resources of the IMF. Are they adequate for potential eventualities? Judgments can be made around that as well.

See previously: Stephen Harper, Thomas Mulcair and Europe