People walk past the International Monetary Fund (IMF) headquarters in Washington, Thursday, Oct. 9, 2014. The IMF, World Bank, finance ministers and central bank presidents of the Group of 20 nations will hold discussions on Oct. 10.Jose Luis Magana/The Associated Press
Canadian International Development Minister Christian Paradis said that he is considering ways to coax the private sector into helping him meet the government's global anti-poverty goals, opening the door to federal backing for pension funds and other investors willing to seek profit in the world's riskier corners.
Mr. Paradis' comments came Thursday in Washington, where economic officials from around the world gathered for the annual meetings of the International Monetary Fund and World Bank. Finance Minister Joe Oliver arrived a day earlier, and was set to meet his counterparts among the Group of 20 economic powers, amid worries about the global economy's inability to gain momentum.
"There needs to be a bit of flexibility for some countries that have the fiscal room to take some steps" to boost economic growth, Mr. Oliver said during a briefing.
The remarks will feed the debate at the G20 and the IMF about the role governments should play in using spending measures to spark demand. Suddenly volatile financial markets created a sense of urgency about the talks. Equity markets in New York and Toronto fell sharply Thursday, accelerating a plunge that began earlier this week when the IMF cuts its economic outlook. Canada's dollar slid below 90 U.S. cents and oil prices dropped by about 2 per cent.
Mr. Oliver reiterated that he anticipates the federal government will have a sizeable budget surplus, one that he intends to use to cut taxes and increase spending. He said the G20's approach to economic stimulus shouldn't be "ideological," yet he emphasized national stimulus initiatives should be done in a "fiscally responsible way." On Tuesday, U.S. Treasury Secretary Jacob Lew said too many big economies were doing too little to support economic growth. The IMF, in its outlook, called on Germany to boost spending. Germany's reaction to such prodding has lately been to assert that the world would be better served if more countries stuck to their promises to reduce debt.
Among the policy experts that gather around the IMF meetings, the most popular approach to boosting economic growth is a greater commitment to building roads, power plants, airports and other infrastructure. The IMF published a report that argues arguing that borrowing at a time of elevated unemployment is a more effective way to boost hiring than narrowing deficits or raising taxes. The fund advocated infrastructure projects, saying the longer term benefits would outweigh the cost of financing the plans in the present. Lawrence Summers, the Harvard economists and former U.S. treasury secretary, endorsed the proposals.
Any attempt by Mr. Paradis to leverage more Canadian money for development would focus on infrastructure.
Speaking at a conference in Washington Wednesday, Mr. Paradis acknowledged that Canada is the only member of the Group of Seven rich countries that lacks an agency devoted to partnering with private companies on making investments in poorer countries. Mr. Paradis told an audience assembled by the Center for Strategic and International Studies that Canadian companies don't participate in development to the extent that they could, and that one of the reasons is the federal government hasn't established a way to help mitigate the risks.
Countries such as the United States and Britain have quasi-independent agencies that often guarantee at least some of the loans that private investors use put up to finance projects in Africa, Eastern Europe and other underdeveloped regions. Mr. Paradis played down the possibility that his study would result in a new Crown Corporation. He said new "tools" or "mechanisms" for working with the private sector would be more realistic. The minister also shied away from committing to a deadline, although he indicted the effort was a priority. "We're highly engaged," he said in an interview. "We want to capture more money."
Cash-strapped governments and institutions such as the World Bank increasingly are turning to pension funds, insurance companies and other investors who are less dependent on short-term profits to help pay for their development aspirations. It's proven difficult to round up enough private money to make an impact on poverty. Of the roughly $1-trillion (U.S.) spent on infrastructure in emerging markets, however, less than $200-billion of that comes from non-public sources, according to the World Bank.
The way forward may be holding the private sector's hand in the way that Mr. Paradis is contemplating . The World Bank on Thursday launched the Global Infrastructure Facility, a joint effort with financial institutions and individual governments to match private money with the poorer countries that need it. Officials describe the initiative as less about old-style development aid and more about designing projects that private investors feel comfortable financing.
The federal government and the Caisse de dépôt et placement du Québec are among the initial backers of the infrastructure facility. Others include the governments of Australia and Japan and financial institutions such as insurer Swiss Re Ltd. and HSBC Bank Plc.