[Recorded by Electronic Apparatus]
Friday, October 4, 1996
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[English]
The Acting Chair (Ms Torsney): Good morning to everyone.
I am very happy that we're here today to welcome Mr. Omar Kabbaj, president of the African Development Bank, to our committee on international financial institutions.
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Mr. Kabbaj, why don't you introduce the colleagues you brought with you?
[Translation]
You may do so in English or French.
[English]
Mr. Omar Kabbaj (President, African Development Bank Group): As you like. I'll use both.
Let me introduce my colleagues. Thank you, first of all, for organizing this meeting. We are grateful for you giving us part of your precious time.
I am accompanied here by Mrs. Scrimshaw, the Canadian executive director on our board of directors. Mr. Rwegasira is my special adviser. Mr. H'Midouche is in charge of the corporation's department in Canada.
Mr. Jim C. Carruthers (Director General, International Financial Institutions, Multilateral Programs Branch, Canadian International Development Agency): I'm Jim Carruthers from CIDA, international financial institutions.
Mr. Peter Mousley (Director, Multilateral Development Banks, International Financial Institutions, Multilateral Programs Branch, Canadian International Development Agency): My name is Peter Mousley. I work in the same division at CIDA.
The Acting Chair (Ms Torsney): Terrific. Welcome to all of you.
Would you like to make some opening remarks, maybe for five or ten minutes? Then we'll open it up to questions from my colleagues. Then we'll get you on your way to your next meeting.
Mr. Kabbaj: Thank you very much. I would perhaps like to address two items.
First, I would like to say a few words on the situation in the African continent, because it has a bearing on our activities. Second, I'll say a few words, of course, on the bank and what it's doing now.
The Acting Chair (Ms Torsney): I just remind you that there is translation simultaneously, so feel free to speak in whichever language is comfortable.
Mr. Kabbaj: Thank you. As for the African continent, I think there is a big change going on. During the beginning of the 1990s growth was at a low level, no more than 1%. Inflation was high, and other problems were setting in.
Since 1994, 1995 and 1996, we have noticed a pick-up in growth. Last year, growth, on average, was 3%. In 1996 it's 5%. All international organizations, including the ADB, expect this level of 5% to continue at least until the end of the century, provided of course the countries continue to implement so-called good policies. We are confident that this is going to be so, because the majority of countries now in Africa are implementing programs, adjustment and growth programs, with the IMF and World Bank support. This probably will ensure that these conditions will continue to prevail.
I should mention also that these rates of growth could be higher were it not for some major countries not participating in these moves. Those are namely principally Zaire and Sudan, for example, which are huge and have a very big potential. So this gives you an idea of what this kind of growth could be if those same countries resume the path of growth. I'm sure that if they did, growth could be at the level of 7%, perhaps 8%, and be sustainable, which would show that Africa is potentially able to have Asian-type rates of growth.
In Africa inflation rates have gone down. There is a big move now toward more liberalization, more opening. Privatization in some countries is picking up. So I think the conditions give a lot of hope for the African continent.
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We hope we will be able to show, perhaps after two or three years, that this skepticism and so-called Afro-pessimism was perhaps justified a few years ago, but will not be justified in the near future and in the future.
Because we don't have a lot of time, on ADB, as I'm sure you know, apart from the problems that are common to all MDBs, ADB had a period of specific problems, which started around 1992 or 1993 and lasted until last year, and we're mirrored by some problems of quality portfolio, of problems in the management of the bank, and problems of governance that created some rifts between partners in the bank.
In that event, our governors decided last year for a change of leadership in the bank. For one year now we have been implementing a very strong program of reforms in the bank, encompassing all sectors of activity of the bank and all its departments. We have restructured the bank in terms of staffing by reducing staff and by appointing new managers: 70% of the managers are new, 30% of the managerial positions were eliminated, and 20% of total staffing was reduced.
[Translation]
We have also looked at our operations, the quality of the portfolio, the supervision of projects, and post-assessment. We have also tightened up our appropriation policy by granting non-concessional funding to a limited number of countries that are able to meet payments as they fall due. We have set up units for the supply of goods and services under programs funded by the Bank, which is independent and supervises the operations, because there were problems there as well.
We have set up a risk management unit, and we have stimulated private sector development. We had our board of directors approve a private sector strategy that is similar to that of other development institutions and that included a number of aspects that will help countries create an environment conducive to development of the private sector, to funding projects through equity and by granting loans, with emphasis on the need for synergy between the foreign private sector and the local private sector.
We are going to participate in activities involving infrastructure financing, and transfers from the public to the private sector, more specifically in the energy and telecommunications sectors, which are important in terms of advantages compared with Canadian businesses.
We are going to participate in the privatization process which, as I mentioned earlier, is starting to develop in many countries throughout the continent. And finally, we are going to provide loans and financing to micro-enterprises through non-governmental organizations with which we are in the process of developing ongoing relations.
We have organized a meeting that will take place at the beginning of December in Abidjan, with NGOs representing the entire African continent as well as non-regional NGOs, including two from Canada. We are also working on financial and governmental aspects. I do not think we have enough time now to address that. I will however leave you copies of the speech I made yesterday that provides more details on these topics.
As regards the Bank's strategy, its focus is to eliminate poverty. That is the essence of our work. According to our constitution, our mission is to help member countries, to assist them in their economic and social development efforts.
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[English]
This is directly in line with our work. Sixty-five percent of our concessional resources are devoted to eliminating poverty: they are earmarked for agriculture, world development and social sectors like health and education, and also all themes surrounding sustainable development, including the environment, women and development and other issues in these areas.
We have also set up a special unit at the Bank which is responsible for these cross-cutting teams. So we are in the process of developing these activities.
Obviously, we are also involved in infrastructure. Roughly 65% is earmarked for social programs and 20% for infrastructure. The rest is set aside for funding our structural adjustment operations in these areas, particularly in the financial sector and for creating conditions conducive to private sector development.
Naturally, we cannot take care of social issues on our own. We are therefore putting in place mechanisms to stimulate growth. Along with other international organizations, we are using our advice and our participation in the structural adjustment loans to create conditions conducive to economic growth, because without growth, we can obviously not take care of social issues.
As you can see, this growth strategy places considerable importance on the private sector. Our objective for the next five years is to devote 25% of our bank's activities to private sector development.
I would like to conclude with a few comments on the Bank's relations with Canada. I think these relations are excellent. Canada has always been a strong supporter of Africa and the ADB. Canada is one of the most important non-regional members of our Bank. It holds 3% of the Bank's capital and provided 10% of the funding for our concessional DIF window up until its final reconstitution.
We have co-operation agreements that work well, under which Canada has provided us with technical assistance in the form of Canadian consultants, etc. Yesterday, I had the pleasure of signing a new agreement with the Honourable Mr. Pettigrew. In addition, Canadian businesses and consultants of course participate in projects funded by the Bank. We should congratulate ourselves for these exemplary relations that my visit here will certainly consolidate.
Starting in November, we are going to send more focused missions, after this mission to establish initial contact, to make the necessary contacts, particularly with the private sector, to develop its participation in the provision of goods and services for Bank operations and with respect to potential investments, because we feel that we will be called upon more and more to be a catalyst between local and non-regional investors.
Honourable representatives and members, that concludes my comments. My colleagues, particularly Ms Scrimshaw and I are now available to answer any questions you may have. Thank you very much.
The Acting Chair (Ms Torsney): I am joined by two colleagues, Philippe Paré, who is a member of the Bloc Québécois, and Herb Grubel, who is a member of the Reform Party and who is from British Columbia. Mr. Paré, do you have a question?
Mr. Paré (Louis-Hébert): I would like to join the chair in welcoming you and tell you how happy we are to meet with you. Unfortunately, there are few members present. It is always difficult on Fridays, and even more so today because there is a Romanian delegation that is meeting with some members.
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Last year, the Standing Committee on Foreign Affairs and International Trade undertook an in-depth analysis of international financial institutions. It was the subject of a report that you undoubtedly already have, so these themes have been reflected on at great length.
When we conducted that study and when we undertook our foreign policy review in 1994-95, we heard from many witnesses who addressed different issues, including international co-operation, official development assistance, poverty and sustainable development. At that time, a number of the witnesses called into question the structural adjustment programs set up by international financial institutions. These programs did not always reach their objective, on the contrary, if their objective was to eliminate poverty.
In your presentation, Mr. President, in talking about the growth rate in Africa, you drew a sort of comparison between this growth rate and the implementation of structural adjustment programs and growth programs. Of course I have some reservations regarding structural adjustment, but I would like to hear your assessment, because you said that the Bank's main strategy was to eliminate poverty.
I'd like you to give me some reassurance. Have structural adjustment programs in Africa been a means of eliminating poverty or have they not, on the contrary, created poverty? You talked about economic growth, and you were right to do so. However, economic growth is one thing, and sustainable economic development is another. Perhaps they go together, but I would like you to give me some reassurance in these areas.
M. Kabbaj: Thank you very much. That is a very important question. I think that the time allowed me was perhaps too short to go into detail, and I perhaps gave you the impression I was equating growth and development and linking them too closely to the adjustment programs.
I do however have experience on both sides of the table, because I was both a representative of the institutions and a representative of the countries on the other side of the table. So I had to defend your point of view, while taking into account the other side's point of view.
Obviously, the world is not simple. These institutions have constraints. The countries often face constraints and problems. In Africa, the problems are generally complex. When a country goes to the IMF and the World Bank, and this is what has happened in the past, its situation has deteriorated to such a degree that it has become practically unmanageable. It is like a patient who goes to the doctor after having neglected his illness for years. Obviously, more medication and longer treatment is necessary in that case than if the patient had come in at the right time.
Unfortunately, in our countries, when there are very sharp drops in raw materials, politicians always tend to think that it is temporary and that everything will work out.
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That is what happened in Africa. The Ivory Coast is an example of a country that fell apart that way. Mr. Houphouët-Boigny saw the price of cocoa drop, but he did not understand that it was a permanent drop. So he let his country destroy its macroeconomic balances over five or ten years. Obviously, when you go to the IMF in that state, radical steps must be taken.
Whether it is necessary or not is obviously a political issue. I think that in financial terms, you cannot have growth without having, if not a perfect balance, at least a better macroeconomic balance. You must have a sustainable budget because it is tied to the debt. This is true for large countries and small countries alike. When you have a very high level of debt, you cannot afford to run a deficit. The same is true externally, because the current account deficit is tied. If you can't finance it, if your financial backers can't finance it, you're stuck. So you can no longer pay your debt. At one point, some African countries didn't even pay their public servants for months.
So regardless of the countries involved, there are realities that leave them no choice but to implement adjustment programs to bring their deficits down to reasonable levels. The private sector would never invest in a country that cannot manage its debt or that cannot pay its officials.
But this does not mean that all we need is a financial adjustment. That is where we come in. Development institutions step in by creating what we call structural adjustment loans that allow countries to temporarily support these measures and pave the way for sustainable growth.
These funds cover administrative reform, reforms to the financial sector to mobilize savings, to create stock markets in these countries, to improve their legal systems, etc. All of these conditions are necessary for growth and development.
Now, I may perhaps seem a little bit more provocative by saying that very often, multilateral institutions are not solely responsible for the situation in which these countries find themselves. Beyond the advanced state of decline in which these countries often undertake reforms, there are also domestic budget choices they have to make that are not always well made.
If many of these countries neglect the social aspect, it is often because not enough cuts are being made in non-productive expenditures, particularly military expenditures. International organizations are trying to do something about this, but often politics wins out in these countries. It is too easy to say that this is the fault of the IMF or the World Bank. And this applies right across the continent.
However, things are starting to change. At one point we had to deal with lobby groups, because the problem of income disparities resulted in the ruling classes or wealthy classes being able to preserve their standard of living and privileges to the detriment of the poor who did not have the same political power.
We are trying to rectify this. We are trying to fight against poverty by working in the rural areas, because, in Africa, more than 80% of the people live in the country. By focussing on agriculture, on rural development and on the integrated social projects now underway, which have become one of our important products, namely by dealing at the same time with irrigation, health, education, small roadways, drinking water if possible, and communications, we are helping these countries. But our means are limited because official development aid is diminishing. Concessional resources are becoming increasingly rare and we cannot claim that we are going to resolve the problem.
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We are trying to do what we can with the means available to us and we are trying to put them in common with the other institutions. The World Bank and all of the UN institutions are working with us in this sector, the UNDP, the FAO, UNESCO and others. If this policy continues and if this growth keeps improving, I believe that things will get better.
We have already seen a noticeable impact in some countries, but these countries are also experiencing uncontrollable population growth problems. In Africa, the average is greater than three, and for most countries, particularly for South Africa and the Sahara, the figures are sitting at around 4.8%. Therefore, regardless of what you may be doing for growth or for the social aspect, you are dealing with a situation where large sectors of the population are left in poverty.
I think we have to be realistic about this as well. These countries have to assume part of the responsibility. We are taking action on this, but attitudes change very slowly. These are my comments, Mr. Paré.
Mr. Paré: Would it be possible to establish what percentage of the funding provided by your Bank goes directly to reducing poverty? I don't think that this is easy to do, but I would be grateful if you could answer my question.
Mr. Kabbaj: We do have this percentage for concessional resources, and it represents 65% of the resources. We now have a pool of 3 billion dollars over two and a half years. We now earmark, on average, about 1.2 billion dollars for this and that represents 65% of our concessional resources. We also do this using non-concessional means for countries that are a bit more developed, because the criterion is the per capita income. The overall average is perhaps a bit lower because, in these countries, we do a lot more economic projects than adjustment loans and lines of credits for investments.
Thirty nine of the poorest countries in Africa receive these concessional resources, and as far as certain other countries in the world are concerned, there is no percentage but a directive stipulating that 65% must be in this field.
The Acting Chair (Ms Torsney): Thank you very much, Mr. Paré.
Mr. Grubel, do you have a question?
[English]
Mr. Grubel (Capilano - Howe Sound): Thank you, Madam Chair.
First, I have a couple of personal comments, if I may. I told you that I have Africa in my blood, as a result of a number of visits, and I know a lot about your institution. Even my family has Africa in its blood. My daughter, in her early twenties, tramped around East Africa and took a canoe down the upper reaches of the Congo River. So I am very glad to meet you, personally, and also through a student of mine who was a director of the African Development Bank. I see him periodically because his parents live in Vancouver and he has kept me informed.
I'm very pleased to know that under your strong hand and leadership the internal problems of the bank have been resolved and that you have shrunk the staff and increased the efficiency. This is very encouraging. I also was very pleased to learn from you the latest on the economic performance of the African countries. In contrast with my colleague here, I am very much in favour of IMF-induced changes towards market economies and I was also very pleased to learn that your bank has put a lot of emphasis on privatization, because we know from around the world that it simply works better than bureaucratically run institutions.
This is all very, very encouraging and I'm pleased to know about this, but now I'd like to talk about a few tough questions, if you don't mind. I'd like to ask three and if you keep your answers short then we can get to all of them.
The first one: what percentage of your portfolio is either non-performing or in default?
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Mr. Kabbaj: On this one, the arrears situation we have now represents 10% of our outstanding loans. That's a very high percentage.
Mr. Grubel: Those are defaults, 10%.
Mr. Kabbaj: Yes, defaulting, 10%.
This is due, of course, to the lending policies that were in place before, lending non-concessional resources to some countries which could not bear the service of the debt. We have been taking strong measures to address that and we have now flattened the curve of increase of these arrears. We're working closely with the IMF and the World Bank to put these non-performing loans in the performance criteria of these programs. We have noticed an improvement, but unfortunately we also have a number of countries in chronic arrears, and those are the same ones I was talking about, which are not participating in growth. At present in Africa it's principally Zaire and others that are in civil strife, Liberia, Somalia, Sudan. Those represent more than 80% of this 10%.
The Acting Chair (Ms Torsney): I'm very sorry, I have to catch a plane. My colleague,Mr. Loney, is going to replace me. It was lovely to meet you. Thanks a lot, and good luck with your work.
Mr. Kabbaj: Thank you. It was nice to have met you.
Mr. Grubel: How will all this change as a result of the debt relief plan just agreed on at the meetings in Washington?
Mr. Kabbaj: We have participated in that for a year now. We have been discussing part of the scheme, and it was approved on Monday by the development committee. We were there as observers and were invited to participate.
This initiative is very important because it addresses, in my view, the question of the debt sustainability of these countries, because there is an agreement now among all interested partners that the objective is not debt alleviation but reaching debt sustainability over time. Hopefully this will solve part of our problem of defaulting countries, because 33 out of 41 countries that are eligible, theoretically, are in Africa.
Mr. Grubel: I know.
Mr. Kabbaj: This is a big problem; and we represent almost 40% of the exposure to these countries in the framework of the whole initiative.
Mr. Grubel: So you hope that 10% will shrink as a result of this.
Mr. Kabbaj: Yes, but of course over a number of years, because the initiative is for countries to implement strong adjustment programs over three to six years.
Some of them are going to benefit immediately. Uganda is the first candidate, because it has been implementing these policies for a number of years and the creditors feel it is in a position to benefit from it.
What was agreed was that the Paris Club will go beyond the 67% terms. The limit now is 80% instead of 67%. If this is not enough to ensure sustainability, then the development institutions, including ADB, will have to put some money forward to contribute toward reaching the objectives.
Mr. Grubel: I have this instinctive reaction. Knowing lots of Ugandans and so on, I'm so happy for Uganda, and maybe even Tanzania and Kenya. But somehow....
Among your problem countries, you mentioned only Sudan and Zaire. What about Nigeria?
Mr. Kabbaj: Nigeria, as far as we are concerned, is current, because it has a policy of not paying the commercial banks and other creditors. However, they have been very keen and insistent on servicing their debts to multilateral financial institutions, including the World Bank and us. So we don't have that problem with them.
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Mr. Grubel: Could I turn to another question? Both academic literature and a lot of people in the private sector are questioning the role of both the World Bank and the regional development banks in light of the fact that the resources available to them have now become such a tiny fraction of the total resources flowing to these areas. The question is whether or not there is really any useful function left for them, given the high administrative costs and so on.
I'm throwing you a soft thing because I know what the answer is. Nevertheless, I would like to hear your version.
It concerns me that, in a way, there is further coordination needed between the private sector, the public sector, all that comes along with this, and so on. Of course it also then leads to the question that typically the loans are made only to those the private sector doesn't want to touch because they're too risky or whatever.
Mr. Kabbaj: This is a question I get everywhere in the world, including in Africa. I think it is a good question, but in my view we need the conjunction of all of them precisely because of the scarcity of resources that all these institutions now have at their disposal.
Let me say that we are not alone in working on these countries. The spectrum is not limited to the World Bank and us, or to the World Bank and the Inter-American Development Bank, or to the World Bank and the European Bank for Reconstruction and Development or Asian Development Bank. You obviously have the bilateral donors who are very active through their direct financings or through bilateral or multilateral institutions like the European Investment Bank, or the working agencies in Europe and Japan, like DEG, CDC, CFD France and so on. You have all the UN institutions - UNDP, FAO, UNESCO -
Mr. Grubel: All of which are being criticized for exactly the same reason.
Mr. Kabbaj: Yes, of course, but each one of them brings something to the table first, and to the thinking and to the design of this program, and so on. So it is obvious that one cannot envisage having one institution doing all these things, even if it is the World Bank.
Of course we have some specificities when compared to the World Bank. We are closer to the continent. We have financed almost every sector of activity, be it economic or social. In Africa, we have a lot of built-in expertise. And in order to respond to the requests of donors to save the intermediation expenditure, we are now collaborating more closely in terms of having joint missions to the countries when for example we negotiate ESAF agreements with the IMF and the World Bank.
We are now part of that, and it is very important because it allows us to define the strategy for projects and programs together, and to divide the work between ourselves. To not duplicate the efforts, we decide at the initial stage that we will do such and such a project and that they will do such and such a project, which is good for the country in question. Or if we cannot do it alone, we do it together, and perhaps with others.
We are also now developing joint appraisal missions. We are developing joint CSPs - country strategy papers. We are in fact going to start an experiment on that score on Côte d'Ivoire next week. We will have supervision missions by one institution on behalf of both when projects are co-financed in the future. So we are working on that. We have developed cooperation among all MDBs, both at the level of heads of institutions and at the level of different departments. The evaluation department heads are meeting twice a year now, and the treasurers are meeting, the secretaries are meeting. I think it is important that we coalesce to give the best advice and services to our countries.
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Another argument is that financially you have to have a division of risks. If you put all your eggs in the same basket, you could end up with a bad prescription generalized through the whole continent.
Mr. Grubel: I appreciate that there will be a continued useful role for regional development banks and even the World Bank in a world in which private capital by far outruns it, namely gathering of reliable information, distribution and two-way flow of information. It is a very useful role. I hope that it can be run efficiently and that the donors will be happy to continue to work with you. Therefore it's good news on what's happened internally.
I have one last question.
The Acting Chairman (Mr. Loney): Mr. Grubel, I must return to Mr. Paré. In whatever time we have left, I'll return to you, if you don't mind.
[Translation]
Mr. Paré: I have a few questions. I would like to address the issue of indebtedness. You talked about the Paris Club's decision to change the percentage of debt eligible for alleviation. I would like to clarify one thing: you talked about the proposal to go from 67 to 80%; does this apply to previous debts or does this new percentage apply to new requests for debt alleviation?
Mr. Kabbaj: The question is an important one, it has not been completely resolved because what exactly is covered is not clear. But I can answer your question which is quite clear. We are not talking about new debts since the Paris Club has a very specific rule, the so-called butoir rule setting the date when new loans cannot be rescheduled. This is the very strict principle that the Paris Club has never been willing to change.
The principle comes into effect on the first day of an application for rescheduling. In other words, a country applying for rescheduling in 1984 will be able to have only those debts contracted before 1984 rescheduled. In order to obtain rescheduling, the country must start making a more serious effort. If we were to agree to change the date all the time, some countries might think that they can always apply to reschedule their debts without any problem. So this is a sacrosaint rule for creditors. It is clearly understood that the rescheduling applies only to debts contracted before the first date of the application to reschedule, even if it goes back 10 years.
Now, within these amounts, creditors have agreed to reschedule debts that were already rescheduled, and I think they will continue to do so. These are debts that were already rescheduled within the time frame before the deadline and they may undergo as many as three or four reschedulings. They also have some flexibility in rescheduling the interest and the principal. Sometimes they apply only to the principal and sometimes they go farther. Depending on requirements, there is a large degree of latitude authorized by the Paris Club and I am sure that they will continue to show that flexibility as required so that the 80% can apply to the debts. Of course the Paris Club does attempt to limit such practices as much as possible but from my experience the Paris Club has always been understanding in covering what could be covered.
Mr. Paré: Still on the matter of debt, I'd like you to tell us about the new fund. Is it true that in order to be eligible, countries will have to prove that they have applied structural adjustment programs for a minimum period of time, between three and six years? And do the years during which structural adjustment was applied but preceding the adjustment application count?
Mr. Kabbaj: Yes. At the beginning, last October, the first proposal on this initiative was very harsh, requiring, even in places where adjustment had been carried out previously, to reinforce structural adjustment programs, that is for six years. It was only in the seventh year that the countries could start benefitting from the investment.
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Developing countries made their position known and stated the problem as you have put it pointing out that it is not normal, in the case of countries that have already undergone six, seven or ten years of adjustment with good results, to make them wait another six years. This was taken into account in the formula finally adopted, opening the door to a country like Uganda, which I previously referred to, and which will benefit starting next February from the initiative since it is considered to have qualified and to be close to debt sustainability.
The extreme example may be Zaire, which has never done anything and which will perhaps require six years, but between the two, there will be cases requiring three years and others four. This is an assessment to be made by the Monetary Fund and the World Bank, on a case by case basis, to determine whether or not they have reached the required stage.
Mr. Paré: I gather the regional banks are also involved in the establishment of this fund. I suppose that the African Bank will also be called upon to contribute but in view of the large number of poor countries in Africa, would this not be making things more difficult for you and reducing the amount of money at your disposal?
Mr. Kabbaj: Absolutely, you are quite right, sir. Because of the large number of countries and the exposure we have as well as the total debt of these countries, we have a large amount of resources to bring into play. We intend to study a number of possible mechanisms to this end with our board of directors. But it is quite clear that we do not have enough resources to take full part in this initiative. That being said, we do not expect that all countries will be able to benefit because there is the adjustment condition that a number of countries may not fulfil. Hence, unfortunately or fortunately, the amounts will be reduced.
On the other hand, we expect to ask for bilateral contributions from a certain number of countries. Some are willing to make such contributions and they are already doing so with the World Bank, which also requires an additional amount in relation to its own resources. International meetings should soon be taking place in an attempt to generate resources for this initiative. Of course these resources will not be required immediately since the project will cover a period of six or seven years. In my opinion, this is something that will be quite manageable.
Mr. Paré: Wouldn't the International Monetary Fund be able to reduce the debt by taking money from its reserves? What could donor countries do to encourage the Fund to go along with this proposal rather than ask for new contributions? We know full well that there's been a drastic drop in official development aid from developed countries and we might wonder whether the Monetary Fund is not contradicting itself in its obstinate refusal to touch its reserves amounting to several billions.
Mr. Kabbaj: The Monetary Fund is setting two conditions for its participation in this debt. It wants the reinforced structural adjustment facility to become a permanent feature because since it was first created, it has already been renewed once. These are loans made by donor countries and that are to be paid back when countries are making payments. The Fund now says that the next renewal must consist of a capital fund to be used by the IMF as a revolving fund. I believe that the donors have now agreed to this. The fund amounts to approximately $3.5 billion.
The second condition set by the IMF management for its contribution to the pool for the debt reduction of these countries is the selling off of a part of its gold reserves to make use of the profit. It would not be giving up the gold, it's only the revenue from the investment resulting from the sale that would be used to finance its contribution to debt reduction, also taking into account its exposure. It would be proportional to the institutional exposure.
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On this point, the member countries of the Fund have almost reached a consensus. There is a very limited number of countries which do not agree, Germany, Italy and Switzerland in particular. There are four or five countries but I think that the Monetary Fund is quite optimistic about an eventual consensus. Here once again, since it's not something that will be used immediately, I think that the problem will be solved.
This is a very small amount, namely $2 billion, in relation to the Monetary Fund's gold pool. It's not something that will jeopardize the Fund since it's 5% of the total gold stock. It does not represent a danger for the financial integrity of the International Monetary Fund.
[English]
The Acting Chairman (Mr. Loney): Thank you very much.
Mr. Grubel, you'll have to excuse me, but I'm getting a signal here. Our people have to move on to their next meeting. So if you don't mind, we'll -
Mr. Grubel: I do, but I will.
The Acting Chairman (Mr. Loney): Thank you very much. You're a gentleman.
Mr. Kabbaj: Thank you very much. It was a pleasure to have this very challenging discussion with you.
The Acting Chairman (Mr. Loney): On behalf of the former chair and the committee, I thank you very much for being here with us this morning.
Mr. Kabbaj: Thank you. It was my pleasure.
The Acting Chairman (Mr. Loney): The meeting is adjourned.