December 20 2007

Mr. John Mihevc
Chair, Halifax Initiative Coalition
153 Chapel Street
Ottawa, ON KIN 1H5

Dear Mr. Mihevc:

Thank you for your correspondence of January 31, 2007 outlining recommendations for our Annual Report to Parliament on Bretton Woods Institutions. Your feedback helps maintain the Department of Finance’s high standard for accountability in managing Canada’s relationship with the International Monetary Fund and the World Bank.

On March 30, 2007, we tabled the 2006 Report on Operations Under the Bretton Woods and Related Agreements Act in Parliament. In response to feedback from fellow parliamentarians and civil society calling for the presentation of a clearer picture of Canada’s priorities and actions with respect to the World Bank and International Monetary Fund (IMF), the format for this year’s report has been substantially modified compared to previous years.

With respect to the potential issues you requested be covered in the report, you will find that we have addressed many of them, including governance and anticorruption, MDRI implementation, conditionality, quota reform, IMF finances, the IFC performance standards, and our position on making the appointment of the President of the World Bank and Managing Director of the Fund more transparent.

I would like to take this opportunity to address some of the specific concerns you raise in your letter.

1. A comprehensive, time-bound framework that guides Canadian engagement at the institutions should be provided as an integral part of the report, complete with goals, objectives and results-based indicators against which success is regularly measured and evaluated.
Overall, the report focuses more closely on major issues and developments at the Bretton Woods Institutions during the past year viewed through the lens of Canadian priorities. By more clearly linking Canada’s positions and objectives to issues and developments, the report is more results oriented and will more clearly enable an evaluation of the success of Canada’s involvement from year to year. As you know, Canada is one voice among many in most of these discussions, and so results do not always fully conform to Canadian views, but are rather the product of negotiation and compromise.

I would highlight as an example Canada’s leadership role in progress made in IMF reform over the past year and our call for significant progress on quota reform, basic votes and strengthened surveillance no later than the IMF/World Bank Annual Meetings in 2008. We have also highlighted more clearly areas where we feel the institutions need to make continued progress, including implementation of the World Bank’s governance and anti-corruption strategy, and IFC safeguards. I would also note that the Looking Ahead section highlights issues upon which we expect to see progress over the coming year. We plan to evaluate progress made in next year’s report.

2. Comparative analysis of year-to year changes in priorities, concerns and challenges is essential to ensure consistent reporting and clarity regarding variances. This extends to comparisons of financial commitments both year-to-year and over designated periods, as well as risk analysis.
The report’s new format sets the stage for a much stronger ability to evaluate how Canada’s priorities change over time. You will note that we have included expanded financial reporting (see Annex 5) as well as made greater use of charts and figures to better illustrate trends. We have included more detailed information on Canada’s contributions to the World Bank and IMF, including to World Bank administered trust funds. We have also expanded our section on Canadian procurement to include examples of Canadian companies that benefit from procurement.

3. Issues under consideration at the institutions during the year in review should be clearly characterized, contextualized and analyzed to inform Canadians both on the operations of the institutions during the period under review and Canada's perspectives on those operations. Particularly contentious issues require additional attention. For these, multiple views should be set out, as well as the outcomes of debates and discussions.
Again, I think you will find this report much improved over previous years. With respect to the specific areas you wanted to see addressed, I would note that we have been clear on Canadian views on key issues such as IMF quota reform, the IFC safeguards and conditionality. You will also note that throughout the report, we encourage readers to explore issues in more depth by including a web link where further information is available. As an example, to learn more about several controversial projects involving Canadian companies, we include a web link to the Compliance Advisor Ombudsman.

4. Policy positions taken by Canadian Executive Directors on broad-based World Bank and IMF policy initiatives should be reported in a clear and transparent manner as well as Board discussions and decisions.
As we do every year, we present a summary of policy and project proposals that the Executive Directors representing Canada, Ireland and the Commonwealth Caribbean did not support, along with a brief explanation. This year, we have also made more explicit how decisions are taken at the Executive Boards. Our positions on key policy issues are more clearly presented throughout the report.

With regards to the last point, I would like to emphasize that our legal obligations to the Bretton Woods Institutions preclude us from disclosing the details of Executive Board meetings. In this report, we have pushed the frontiers of disclosure to their limit while maintaining Canada’s requirement to respect the confidentiality policies of the Bretton Woods Institutions. While disclosing when the Executive Directors representing the Canadian-Irish-Caribbean constituency opposed or abstained on policy and project issues is appropriate and desirable for accountability, there are restrictions on discussing the views of other members and recounting deliberations at the institutions.

I look forward to your comments on this year’s report as they will be helpful in the Department of Finance’s endeavour to continue to provide Parliamentarians and Canadians a better understanding of the important role that Canada is playing in making the IMF and World Bank more effective and accountable institutions.

Sincerely,

James M. Flaherty