FAIT Committee Meeting

STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Monday, February 16, 1998

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[English]

The Vice-Chairman (Mr. Bob Mills (Red Deer, Ref.)): I call our session to order.

I'd like to introduce Mr. Enrique Iglesias. I think you all know his position. I might ask him to introduce the people he has with him. Because he has to pack and he needs time, we'll have to call this meeting at 4.15 p.m. I would ask everybody to make their questions very to the point and we'll cover as many as we can.

If you'd like to say a few opening words, then we'll fire away.

Mr. Enrique Iglesias (President, Inter-American Development Bank): I am accompanied by your director in the bank, Mr. Lavigeur, our chief of staff, Mr. Euric Bobb, and of course friends from your administration. You know them.

It's a pleasure to be here and to make ourselves available to say a few words about the region and the bank and of course to be at your disposal to see whether we can answer your questions.

I have a few words about Latin America. I think we are living a very interesting moment in our region. I will call it a silent revolution because there are so many times of difficulty in our economy, instability and debt problems and many other issues, including the political ones. We are in a region that is living democratically and with respect for human rights. It's not perfect, but we are going in in the right direction.

The economy grew by more than 5.5% last year. Inflation is down to 10%. Investment is growing. Capital flows are coming in at something like 5% of our GNP, $80 billion last year. Economically, we are doing pretty well and still we should grow more; 5% is not enough to face the—

Socially there is an issue that is still pending. Poverty still exists for one-third of the population and the distribution of income is very bad. In the last year, we have had the feeling of having some tendency towards a decline in the poverty level of the people, but still this is a major area in which we have to continue working.

These changes, both at the world level and in the region, are also pushing the bank to think of its priorities. We continue to be strongly concentrating on the social issues, which are very important not only for ethical problems but also because social issues are important for the change in our patterns of growth and the possibility of getting in a better position to compete in the world.

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We have concentrated on structural reforms. Now we are working a lot in the reform of the state, the local governments, municipalities, the judicial system. We're trying also to become very active in the internationalization of Latin America. We have a very strong commitment.

We are called a bank of integration. We are working very strongly with MERCOSUR and other regional groupings. We are working in hemispheric relations. We are strong believers in both regional and hemispheric integration. We think that in the long run this is going to be a major opportunity for the Americas, north and south. In that sense, your country is very important to us. It is playing an important role. We need your presence in these efforts. In the end, everybody will benefit from that, yourselves and ourselves. Everybody will be harvesting a good result from this.

So this is more or less what I want to say as a way of introduction. As I said, I would be very happy to start the questions, Mr. Chairman.

The Vice-Chairman (Mr. Bob Mills): Perhaps I could start with Mr. Grewal, please.

Mr. Gurmant Grewal (Surrey Central, Ref.): Welcome, Mr. President, to our committee meeting. In a nutshell, you have given us a clear picture about Latin America. I appreciate that. It was so brief and to the point.

Coming back to business, we see that your bank has 46 members in Latin America, the Caribbean, and the OECD countries. My question relates to the relationship Canada enjoys in Latin America.

Let me particularly focus on our relationship with Brazil. Recently our international trade minister, Sergio Marchi, led a delegation of Team Canada to Brazil. If you will recall, we had a deal with Bombardier that went sour, and that gave us a cool reception when the Team Canada delegation went to Brazil. Is it going to have a major impact on our relationship in the future?

The second question deals with the IMF and the World Bank. Canada has been a major contributor to the IMF and the World Bank, but in the last few years our contribution has been decreasing. It led to the importance of Canada in the IMF and the World Bank probably diminishing from what it was before. So what kind of influence do you think we will have in the IMF and the World Bank, and what kind of a relationship will we enjoy in the future? How is it going to make any impact on our trade relations in Latin America, Brazil, and the rest of world through the IMF and the World Bank?

Mr. Enrique Iglesias: In connection with the first question, yes, I heard in the media that there were some little problems in relation to the agreement that was supposed to be signed with MERCOSUR.

I cannot enter into the issue as such. The only thing I can tell you is that my impression is that this is only an anecdote and it will not imply a change in the relations either for Brazil and Canada or MERCOSUR and Canada.

In the trade areas, promises continue to be made every day. I would look to Europe and see how difficult it is to move in these grounds. But you must be sure of something. Canada is a very welcome country in Latin America. It's not to flatter you— this is not my role here —but this is true. The people feel very comfortable with you. The business community feels very comfortable with you. Look at the way you are doing business in the region with the big companies, and now with the small and medium-sized companies.

So in this interplay between the big nations and the small nations we have in the region, you can play a very important role. I don't see this as an indication of a trend. I see this as an anecdote, and not as history. And I stop there.

In relation to the second question, on the IMF and the World Bank, I would like to see a very active role from your country— in fact you are in an active role —and particularly now that the IMF is expanding its resources.

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I am a strong believer in the IMF in the sense that they are playing a very important role in the world. After all, in the post-war era, we have avoided a major crisis, and I think a lot has to do with these international Bretton Woods institutions. Sometimes one loses a little bit of perspective on this issue, but the IMF is making a major contribution in that sense.

If you look now at what has happened in Latin America, we must acknowledge that the crisis we had on the debt issues of the 1980s was a serious problem. Bretton Woods played a very key role in helping us to restore confidence, and now Latin America is what it is, a promising area. It's the same with the crisis in Mexico in 1995, the tequila problem.

These institutions play a crucial role in keeping in place and in good shape the international system. If this is the case, everybody benefits, including the industrial countries. We need an organized world functioning properly.

What I can tell you is that apart from that, the IMF is not costing the taxpayers. This is what Mr. Camdessus said last week in the United States Congress; he said the foundation didn't cost a single penny to the taxpayers. Instead this mechanism is very good security for the strong functioning of it.

Apart from that, we have seen recently the very good agreement you had with the Toronto International Leadership Centre for Financial Sector Supervision. This creation between the World Bank and you is a very important initiative. We are also working along the same lines, and this is the type of thing Canada can do for the benefit of a system on which everybody depends. They play an active role in that sense.

Mr. Gurmant Grewal: I have another quick question, Mr. Chairman, if I may ask it. This morning in the House we were debating the small business legislative act, which is Bill C-21. My party is for small business—

Mr. Sarkis Assadourian (Brampton Centre, Lib.): Following us.

Mr. Gurmant Grewal: Not necessarily. If your party would follow us, then small businesses would be thriving, because they are the ones who are creating 98% of the jobs and business in the country.

The major, big banks are making huge profits. American banks that are financing the banking operations and credit union operations particularly, such as ABN AMRO Bank and so on, are extending financing with respect to their pockets and with respect to their needs, not with respect to the needs of the small businesses in Canada.

So my question is, what is the role of your bank in the promotion of small businesses around the world, particularly in the American hemisphere? And what kinds of efforts do you think Canada needs to take so that small business has easy access to financing?

Mr. Enrique Iglesias: Very concrete. We are the first institution of our nature, the first multilateral financial institution dealing with small business. Since 1967 we have reached a few hundred thousand. In the last four or five years, I think we have reached at least 600,000 micro-entrepreneurs.

I am a very strong believer, at least as much as you are, because we have 50 million units of micro and small business in Inter-American— 50 million —of which maybe only 5% have access to credit of any kind.

So what you have really is a sleeping giant that could be stimulated with support, not only money, but also technical cooperation. The experience we are having now is the promotion of financial intermediaries with the participation of the private banks, but those who really feel this is something to be done, and they make money. For those small units to pay the interest rates that the banking system charges is an awfully big business. Normally they depend on the speculators, who really charge them any amount. So this is a very important issue.

We are working on the regulatory system of the countries. We have created a lot of intermediary banks supporting them. Nowadays we are trying to put together a group of private banks— we have the crédit agricole of France, we have the San Paolo di Torino of Italy, and we are inviting banks in Canada —to see whether we can work together with them in supporting institutions in the regions that deal with small and micro-enterprises.

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The bank is fully committed. We've made $500 million in the last quinquennium, and we intend to go much further in the years to come. This is a very important issue to us.

Mr. Gurmant Grewal: Thank you.

The Vice-Chairman (Mr. Bob Mills): Mr. Sauvageau.

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): Mr. Iglesias, welcome to our committee. I, together with my colleagues, greatly appreciated your presentation.

I'd like to ask you three short questions. Please excuse me if the answer to my first question seems obvious to you, but it is not obvious to me. I would be grateful if you could explain to me the links between the Inter-American Bank and the IMF, and I would appreciate it if you could give me a concrete example of a specific country.

Second, when the House resumes in early March, our committee will focus on a somewhat sensitive subject, namely international trade, human rights and respect for democracy. We could quote a country as an example, although I realize it is preferable not to do so. However, I will give you the example of the President of the Export Development Corporation, who discussed the case of Columbia when he appeared before us. I would like you to explain to us why it is stated:

The IDB is important for Canada. It helps us to achieve our goals of peace, security and prosperity in the world, as well as our development goals.

How, through international trade, can Canada ensure respect for human and democratic rights? I believe there is a direct link between trade and rights.

You have already briefly dealt with my third question, which deals with a free trade zone in the Americas, for the medium and long term. We have seen the problem of MERCOSUR and Canada's membership, and I would like you to tell me what are the major obstacles you fear in the immediate future. What should we be working on initially to move forward negotiations on this free trade area?

Thank you.

Mr. Enrique Iglesias: Please make sure that I clearly understood your second question.

Your first question deals with the relationship between the IMF and the Inter-American Bank. We are in very close contact and consultation with the IMF, because the bottom line is that we also depend on a healthy macroeconomic situation.

The International Monetary Fund works primarily at restoring conditions to achieve price stability and a healthy economy to operate smoothly. Therefore, it's very important for us to work together. Consultation is generally ongoing. As a result, whenever we or the International Monetary Fund agree to issue loans, we hold consultations, sometimes jointly. In some cases the issues are tied up together, and the abilities of both institutions are used so as to cover some subjects.

I work very closely with Mr. Camdessus and, I should say, the World Bank. Since I've been at the Inter-American Bank, I think that essentially we are working with the same countries and dealing with the same problems. We are all motivated by the same goal, that is to help countries to develop. We have to work together and maintain ongoing consultations.

I must also say that geography helps us, since our offices are three blocks from each other. However, they were three blocks from each other 30 years ago, but co-operation did not exist at the time. Now it does. I believe strongly in it and I think that the countries affected are also happy about it.

Your second question dealt with the relationship between human rights and trade, didn't it?

Mr. Benoît Sauvageau: That's right.

Mr. Enrique Iglesias: We are not directly involved in this area as such. In our Bank, we do not have the democratic clause. However, I did apply that clause in two specific situations. For example, during the political crisis in Haiti we stopped various co-operation programs, except essential basic technical co- operation. I was the one who took that decision following the invasion by the OAS. Our organization does take decisions, for example to impose sanctions. The Bank belongs to the system and we must comply with it. We did the same thing when faced with a very sensitive situation in Peru.

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In fact, there is an explicit democratic clause only in the most recently created regional bank, the European Investment Bank. This bank has an explicit democratic clause. Our bank goes back to 1959 and things were very different then. I myself decided to risk, as president and not on behalf of the board, ceasing operations with certain countries when the political body covering the region, that is the OAS, makes such decisions. We will do the same thing in the future. Although I hope that will not happen, if a country were to suspend the democratic process and be the subject of a sanction by the OAS, I would automatically stop the issuing of loans.

Mr. Benoît Sauvageau: You have answered my question. Thank you.

Mr. Enrique Iglesias: Your question dealt with NAFTA and MERCOSUR. We are strongly in favour of using integration. I have worked all my life in this area and am a strong believer in it. I believe in MERCOSUR, I believe in an Andean Group, I believe in the Caribbean countries, and I believe in Central America. I also believe that our destiny should be to eventually develop a major regional unit. That would help everyone.

At the same time, I believe in hemispheric integration. There is not necessarily any contradiction here, but achieving this requires planning. The position taken now by regional systems such as MERCOSUR is that we should move forward, examining issues more deeply and begin the necessary negotiations to eventually create a free trade zone for the Americas.

There is a target, the year 2005. I hope that we will meet that target. We know that there will be problems. Some countries are not ready to join. This is very clear in the case of Argentina and Brazil. We have to plan and prepare. Reaching an agreement with a country like the United States is a serious matter. There are major risks involved, and you have to be... Well I am sure that you are fully aware of this.

For us it's even more complicated. I believe that planning and preparation is needed. I believe that regional integration is one way of preparing. I am very happy to see that the United States are now negotiating with these countries as a group. This is quite new, something which wasn't done previously. I've never seen that. This is the first time that there have been discussions between the MERCOSUR group and the United States. That is very promising for the future. There will no doubt be significant problems. Clearly, agriculture will be one, and there are others also. Therefore, what is the solution here? It is to open the way to a series of negotiations.

I was the president of the Uruguay Round. How did we try to address these difficult issues? We had a number of groups and we tried to see if we could negotiate with them. Therefore, there are compensations; everyone ends up as both a loser and winner. That's how you can resolve these issues, as was done in the case of the Uruguay Round. There will certainly be major problems, but we have to get started.

I hope that the meeting to be held next April will lead to regular negotiations, but not at the cost of slowing down our own integration or hemispheric negotiations. Both have to be able to move forward together. Then we will be able to see what the situation is and reach an acceptable agreement.

Mr. Benoît Sauvageau: Thank you. Do I have any time left?

[English]

The Vice-Chairman (Mr. Bob Mills): Make it really short, please.

[Translation]

M. Benoît Sauvageau: Two short questions. Your C.V. states that you were involved in a number of these negotiations. First, what do you think the role for parliamentarians should be with respect to the free trade zone for the Americas? Should we see the files only after negotiations? Second, what is your view on the Multilateral Agreement on Investment, specifically as regards your region?

Mr. Enrique Iglesias: What was the first question?

Mr. Benoît Sauvageau: The role of parliamentarians in multinational negotiations.

Mr. Enrique Iglesias: We have a Latin-American Parliament. You are in contact with that Parliament in Sao Paolo, aren't you? You first need consultative participation, and I think that will come. Parliamentarians have taken part in these ongoing discussions to create the free trade area, but I hope that there will be more official discussions. I can't tell you exactly how they should proceed, but I hope that at that time there will be such participation.

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You also referred to the Multilateral Agreement on Investment. I believe it is very important for us, and for America, to be part of this because we need high levels of investment. Therefore, in this international agreement there are provisions to encourage the inflow of investments.

Mr. Benoît Sauvageau: Thank you.

The Chairman: Mr. Bachand.

Mr. André Bachand (Richmond—Arthabaska, PC): Welcome, Mr. Iglesias.

Mr. Iglesias, I'm not really familiar with the Bank of which you are president and I'd be grateful if you could enlighten me. You said earlier that one of the things your Bank did was to work with small businesses and micro businesses, helping to establish a partnership with more traditional banks. But it seems to me that as a bank your role is more closely related to governments and large organizations rather than to businesses. What exactly is your role? I must say that I am not really familiar with the way you operate.

Mr. Enrique Iglesias: First, what we have traditionally done is to make loans on very liberal terms, for a maximum amount of $500,000, to small units which were primarily businesses operated by women and co-operatives. This goes back all the way to 1967, and we have a lot of experience in this area. We have been able to learn a lot.

Money is important, if not everything. What is more important than money is technical co-operation. That's why we have invested in all these businesses, while always providing them with support in the form of technical co-operation which could be used to train their staff, improve their administrative skills, etc. Therefore, there is a direct link between the Bank and small units in every region.

Second, we provide direct loans to public or private banks, which are guaranteed by the state. The money is then loaned again to small units. There is a two-tier approach. For example, we made a 100-million dollar loan to Argentina. The loan was made to the government for an institution which will in turn lend money to small financial units.

Third, we are now trying to mobilize private banks to help us to attract private capital to invest in small and medium-sized businesses. That is the third thing we do.

Mr. André Bachand: Therefore, you are not at all involved with the government as regards a country's financial help. You always work with businesses and private units. You are really a bank, as we understand the meaning of the term here. You do not lend money to a government to help it resolve its financial problems; you work directly at the level of job creation and economic development.

Mr. Enrique Iglesias: In both ways. That means that we deal directly with businesses and units, as I indicated, and we make small loans of up to $500,000 to them. This has enabled us to do and learn a lot. I would emphasize that over 55% of these businesses are run by women. We have a direct relationship with non-government institutions and small businesses, primarily co- operatives. That is one approach.

The other approach is through the banks, with a state guarantee. These banks want to try to support these small units with our money and the state guarantee.

Mr. André Bachand: I see. As I understand it then, you are really working with the business sector.

Mr. Enrique Iglesias: Yes, yes.

Mr. André Bachand: You don't intervene if there is a monetary crisis in a country, you don't intervene with the government itself.

Mr. Enrique Iglesias: No. First, I should point out that a country's concerns are in no way remiss in meeting their obligations. We have never had any problems, even when we had a difficult period during the 1980s. That was really quite a crisis.

I am very pleased to tell you that at the present time, all the governments concerned have met their commitments to our bank, except for two or three where there have been political problems, such as the invasion of Panama and the war in Nicaragua. There has always been a great deal of respect for the Bank. In the case of our governments, we have never lost anything at all, not one cent.

Mr. André Bachand: In conclusion, could you tell me what is the interest rate you apply? Although all the countries concerned contribute, interest still has to be paid on those loans.

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Mr. Enrique Iglesias: Ah, yes.

Mr. André Bachand: What is the rate?

Mr. Enrique Iglesias: We normally apply the same interest rate as we do for everyone else. That means that we do not subsidize the small businesses by offering lower interest rates. We prefer to give them money through technical co-operation. We want them to repay the money loaned at the normal business rate.

The assistance we provide to them is primarily in the form of technical co-operation. As much as one-third of the loan is allocated for support, training, etc. It is preferable to give this type of assistance in kind, rather than offering them lower interest rates. We do not believe there is any point in doing that, because in fact obtaining interest at the current market rate is in itself an example of significant co-operation. As I indicated earlier, the businesses concerned are usually subject to speculators, and to horrible treatment by the underground market with which they deal.

Mr. André Bachand: Thank you very much.

[English]

The Vice-Chairman (Mr. Bob Mills): Mr. Assadourian.

Mr. Sarkis Assadourian: Thank you, Mr. Chair.

It mentions here in a brief note that you have 46 members, including most Latin countries and the Caribbean and the U.S. Can you tell me if Cuba is a member of your organization?

Mr. Enrique Iglesias: No. Cuba joined the bank— We were born in the same year of the Cuban revolution, so Cuba—

Mr. Sarkis Assadourian: With Castro.

Mr. Enrique Iglesias: Yes. Cuba was the first of January, 1959, and the bank was February or March, something like that. The president of the central bank did sign, so in the charter of the bank Cuba is a member.

Mr. Sarkis Assadourian: Why are they not now?

Mr. Enrique Iglesias: They never ratified.

Mr. Sarkis Assadourian: Oh, okay.

My second question is what impact did the Helms-Burton Act have on your bank to do business in Latin America with the U.S.? Can you tell us a bit more about the financial position of your bank, your assets, how much money you make, what happens to profit? If you can do that briefly I would appreciate it.

Mr. Enrique Iglesias: Helms-Burton so far has had no impact on us. The only thing that has some impact is the certification law. In Colombia we have some problems. The United States votes against the lending to Colombia. But since the U.S. has only 30% of the capital, normally this does not stop any lending to Colombia. So far we have no repercussions in that sense that we know of.

Your last question is on—

Mr. Sarkis Assadourian: The financial position of the bank.

Mr. Enrique Iglesias: Yes.

The bank, as you know, has an authorized capital of $100 billion. The paid-in capital is $5 billion, more or less, so far. We have a total lending of $6.5 billion or $7 billion in the last two years, around that figure. We are making good benefit from our lending, maybe $350 million or $400 million. Most of this goes to reserves, basically. Also, now we are going to do some debt reduction to highly indebted countries. Basically, Bolivia and Guyana will be funded with this sort of money.

As you know, the countries in the bank do not put cash, they put collateral guarantees. So the benefits go to increasing reserves. This is one of the major source of income for the bank.

Mr. Sarkis Assadourian: Under the third paragraph it says Canada and the U.S. are the only non-borrowing members. What happens with profit— we don't get any—

Mr. Enrique Iglesias: No, no. That is regional. We also have Europe and Japan.

Mr. Sarkis Assadourian: Oh, oh.

Mr. Enrique Iglesias: We have 26 countries from Latin America. Then we have the U.S. and Canada in their region, and then we have 18 other countries— all the European Union with the exception of Ireland, Luxembourg, and Greece, and also Israel and Japan.

The structure of the capital is that 30% is U.S., 5% Japan, 4% Canada, and 11% Europe; 50% is the non-borrowing members and 50% is Latin America.

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Mr. Sarkis Assadourian: Thank you.

The Vice-Chairman (Mr. Bob Mills): Ms. Augustine.

Ms. Jean Augustine (Etobicoke—Lakeshore, Lib.): Again, welcome to our committee, Mr. Iglesias. It's good to see you.

I want to ask about foreign policy objectives with respect to having that 4% in the bank. Maybe you could spend a few minutes talking to us about how those objectives are met in relation to the issues of education, training, empowerment of women, and micro-credit. Could you tell us about any special demonstration projects the bank sustains, maintains or initiates in order to ensure that the objectives we set out for ourselves as Canadians are met?

Mr. Enrique Iglesias: Well, traditionally the bank has always been very much linked to social sectors. This is an old objective, and it was established when the bank was born in 1959. The first president wanted to create some identity to compare it with the World Bank.

We placed a lot of emphasis on social...particularly areas like water, sanitation, and the development of cities. At that time this was basically something completely unheard of in the multilateral World Bank.

Since then, we always follow a social commitment. Nowadays, 40% of our lending must go to the social sectors. Last year we did 43%. And 50% of the number of loans should go to social objectives. This year we went beyond the 50%.

So I think we are more or less moving into the patterns that were fixed, and even beyond that. And we will continue doing that.

Among these areas are education, health, water, and sanitation. And women is a very important area. In order to facilitate the presence of women's issues in all our projects, we have a committee of advisers presided, as you know, by Mrs. Miller. She is the deputy prime minister of Barbados. They are advising us permanently, watching what we are doing, trying very much to keep the issue of gender part of our lending process.

But we are not only restricting ourselves to lending in those areas. More and more we are trying to introduce activities that are very close to your interest in Canada.

For instance, there is the issue of street children. We have a large problem of street children, and more than 30 cities in Latin America are benefiting from our cooperation. We're using most of the NGO family.

We are now working on crime in the cities. We are going to approve the first loans to Colombia and Uruguay to address crime in the cities. Violence is a very serious problem in our region. We are also working with domestic violence.

We have a specific project targeted to indigenous groups, which are very important to your country. In particular, we did a very important project in the case of Guatemala, after the peace process. We tried to reach the areas that were affected by the war. This was a project involving very concessional terms. The government took it from us and passed it to the Indian communities to be executed and selected by them.

An example is the establishment of bilingual teaching in Bolivia or Peru. We also promoted the creation of an indigenous fund with voluntary contributions. So far it has something like $40 million to $50 million. This is to establish a centre in Bolivia to produce projects with the participation of the Indian communities.

So, you see, the social side is very crucial for us for the reason we mentioned before. We are a very unequal region, and with a large amount of poor people around.

Of all the subjects, the one we now really think has a very urgent demand is education. There is nothing we can really prioritize more than education.

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All these things are very much in line with your own priorities.

Ms. Jean Augustine: Thank you.

The Vice-Chairman (Mr. Bob Mills): We're just about out of time. Can I just put a question on the table, and then maybe get one of our people to answer this?

Our notes say that Canada has not yet joined the Inter-American Investment Corporation because of its lack of development focus, and so on. I wonder if down the road we might get an answer to that as a committee.

We'll go to Mr. Turp very briefly. Mr. Iglesias has to catch a plane, so we should keep it very brief.

[Translation]

Mr. Daniel Turp (Beauharnois—Salaberry, BQ): That is in fact one of my questions. I would have liked to hear Mr. Iglesias' views on the Inter-American Investment Corporation, to know whether Canada's reticence is shared by other countries and whether the Bank is working to remove grounds for such reticence. That was my first question.

I have a second, quite short question. Are you feeling the impact of cuts to the level of development assistance funding being made by industrialized countries, particularly Canada? As we know very well having, heard about it in this committee, the Canadian government has reduced and is continuing to reduce its official development assistance. I would like to know whether your Bank is affected and whether it appreciates these less generous policies by industrialized countries in the area of official development assistance.

Mr. Enrique Iglesias: Yes, I have just answered the first part of the question.

Mr. Guy Lavigueur (Director for Canada, Inter-American Development Bank): Mr. Chairman, as regards the Corporation, we were authorized, and I believe these documents have been signed by the Minister, to negotiate with the Bank on the question of shares. Does that answer your question satisfactorily?

Mr. Daniel Turp: Therefore, you will join the Corporation?

Mr. Guy Lavigueur: Yes.

Mr. Daniel Turp: Within what time frame?

Mr. Guy Lavigueur: I believe once the negotiations are concluded.

Mr. Enrique Iglesias: If I may, Mr. Chairman, I believe it is a good thing for Canada to belong to that corporation.

Mr. Daniel Turp: Why?

Mr. Enrique Iglesias: Because the IIC is not part of the World Bank. It is a corporation which focusses on medium-sized businesses, particularly in medium-sized countries. Major countries have 95% of the money which came into Latin America last year. They were established in six countries. They are major recipients of money. It is not easy for private capital to get into Central America. I believe we have to encourage investment in the private sector and medium-sized business in all those countries. The Corporation does that. They mobilize private capital, particularly in countries where the market is not normally able to attract direct investment by private capital. We want to encourage such investment.

I believe that Canada can help us by encouraging Canadian businesses to set up in these countries and by working with them. I was very pleased to see that the most recent government mission included about a hundred owners of small and medium-sized businesses. That is very encouraging and very positive. It is an excellent initiative because that is the type of investment we need. It creates jobs and business activity. It is a way of transferring technology and is very important.

It is in that context that we have to look at the Corporation. It is a way of helping small and medium-sized businesses, particularly in medium-sized countries. I believe that this kind of association is very important for everyone. I hope that Canada, which is a very good friend of the Latin American region, can become really involved. I am very pleased to see that it has expressed an intention to do so.

You asked how many countries are involved. Almost every country in the region. There are a few nordic countries which have not yet joined. We have Finland and we hope to have Sweden. There are five or six countries missing. I hope that Canada will join. It is very important that Canada be there.

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As you know, some Latin American countries are still very dependent on development systems, particularly countries in Central America.

I can give you a general answer. I myself would like to see very active international co-operation. Really only a small percentage of international investment is to the benefit of international co-operation. When you look at the figures, you see that it is a very small amount. However, this support is absolutely essential for some less developed countries.

Just take the case of Haiti, Honduras or Nicaragua. These countries need bilateral assistance. Therefore, if you're asking me what I want, I would tell you frankly that I want as much as possible, which would be good for all of us. As regards the rest, that is something which you and your government must decide on. It's not up to us to do so.

As a general objective, I would like to encourage you and your government to do everything needed to really support us. Canada has always been recognized and respected for the international support it has given to development. I believe that it's important, for the world as a whole and particularly for a region where your goal is to contribute to the development of the countries concerned. That is not just an economic goal. We will be very good partners, as we are already in the Americas. The goal is also to maintain social stability in a region which we all belong to. That is also a very important point which must be considered.

I believe it is a good economic and political investment. That is why I consider that it is very important to maintain a Canadian presence. In terms of international co-operation, your country has always been in the forefront. I hope that will continue in the future. I can understand that there are budget restrictions. But such co-operation has only a tiny impact on your national budget, whereas it could have a very large impact on the recipient countries.

Mr. Daniel Turp: We will quote you, Mr. Iglesias, when the Minister of Finance informs us of the government's plans in this area, because as you know there has been a very significant drop in Canada's level of development assistance in recent years. Canada is now under the 0.3% level, which doesn't reflect well on a country which, as you said, is very supportive of other nations on this continent.

[English]

The Vice-Chairman (Mr. Bob Mills): Mr. Iglesias, we have one more very short question. Do you have time?

Mr. Enrique Iglesias: Yes, I do.

The Vice-Chairman (Mr. Bob Mills): Could you make it very brief?

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): This will be very short. As you can see, in politics the opposition would always have us spend everything—

Voices: Oh, oh.

Mr. Bob Speller: —and we'd never get rid of our deficit.

Well, I'm just wondering now, what impact has the Asian financial crisis had in Latin America? Also, just following up Mr. Sauvageau, I've been hearing from some of our Caribbean countries that the NAFTA really has had an impact on some of their economies. You mentioned that it has had an impact.

Mr. Enrique Iglesias: Yes, I'm very happy to answer both questions. The Asian crisis has had, and will have, an impact in Latin America, but not as severe as one would have thought at the very beginning.

First, we have had an impact in terms of trade. The prices of some commodities— copper, oil, some metals, maybe also wool and meat —went down. So we have an impact in terms of trade.

Competition from Asian countries will be there too, because they are becoming cheaper, although our layer of competition with Asian countries is small, but something is still there.

Third, interest rates will go higher.

So altogether these will be reflected in our balance of payments. It will be reflected in some countries more than others, particularly those countries that have higher levels of trade with Asia.

There are not many. Chile's level is more than 30%, and they are feeling the impact. Peru has it to some extent— 20% —but Argentina and Brazil are at 10% or 15%. It's not very important to them as partners. But we will have an impact. We expect that the growth rate that was 5.5% last year will be 3% this year because of that. It is not dramatic, but it's something.

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We are better prepared. We learn from past crises. Our macro-economy is working; it is quite solid, particularly the fiscal deficit.

Second, our banking system is much better. It's still not there, but it is much better. That is very important in order not to reintroduce the crisis.

Third, the capacity of the reaction is very important. Latin America has learned to react quickly. Look at the last month: the Brazilian money was threatened by some sort of nervousness. The country put together a package of $20 billion and put in 40% to stop this now. No question, that is the price of growth. It would imply something unprecedented, but this is very important. It has to be done immediately.

Two weeks ago Mexico had a decline of $2 billion in their income from oil. There was an immediate cut in the budget, and it was announced publicly.

So the management of the crisis in Latin America is by far very sophisticated. Unfortunately, we paid a big price for that, a big price in many crises in the past. But we are better prepared than we used to be in the past.

What was the second question?

Mr. Bob Speller: It was with regard to NAFTA.

Mr. Enrique Iglesias: You are asking about the impact of NAFTA on Canada?

Mr. Bob Speller: No, the impact on the Caribbean.

Mr. Enrique Iglesias: Oh yes, it will have some, definitely. You see, this is why the Caribbean and Central American countries are so much interested in the concept of parity.

You see, they are starting to feel the deviation of investments. So has Mexico because of the conditions, although they have the Caribbean Basin Initiative.

When you add in a system of NAFTA, you have legal protection. It's quite natural that the investors would prefer to be under a legal framework and to go and invest.

So yes, we want to be careful about that, because these countries need to have it badly. So the whole idea of parity, which was in the U.S. Congress for a while— I don't know, but nothing happened. So it's a problem, it's a basic problem.

The Vice-Chairman (Mr. Bob Mills): Well, on behalf of the committee, I'd like to thank you very much.

Mr. Enrique Iglesias: Thank you.

The Vice-Chairman (Mr. Bob Mills): We have appreciated all your answers. If there are any others, I'm sure we can get a hold of you on them. Thank you very much.

Mr. Enrique Iglesias: Thank you very much.

Voices: Thank you.

The Vice-Chairman (Mr. Bob Mills): We are now adjourned.