Canada's position on Third World debt - September 2003

La position du Canada sur l’endettement du Tiers-Monde Le Canada endosse complètement l’annulation de la dette des pays du Tiers-Monde, incluant la dette commerciale des pays « éligibles les plus pauvres ». Afin d’éviter des crises futures, le gouvernement recommande que les prêts soient octroyés avec davantage de transparence et d’équité . Le gouvernement du Canada appuie le programme pour les Pays Pauvres Très Endettés (PPTE), coordonné par la Banque Mondiale et le FMI.Canada’s position on Third World debt

The government of Canada supports 100 percent cancellation of sovereign debt, including commercial sovereign debt, for the “poorest eligible countries.” To prevent future crisis, the government supports greater transparency in lending and fair lending practices.

The government of Canada supports the Heavily Indebted Poor Country (HIPC) Initiative program, coordinated by the World Bank and IMF, and has pushed for faster and deeper debt relief, and debt relief for a larger number of countries.

Bilateral debt (country-to-country) The government of Canada policy is to cancel debts arising from official development assistance and commercial loans to eligible HIPCs, and to provide future development assistance on purely a grant basis. Canada placed a moratorium on debt payments from select HIPC countries in January 2001, and has asked other bilateral creditors to follow suit and stop collecting on eligible debts.

Multilateral debt (debt to international financial institutions, like the World Bank, other development banks, and the IMF) The government supports the reduction of multilateral debt through the HIPC Initiative process, and has been a contributor to the HIPC Trust Fund, which assumes the cost of debt reductions. Canada has not asked for full multilateral debt cancellation (as it has for bilateral debt) and has not asked the financial institutions to cover costs of debt reduction through use of their own resources.

On March 11, 2003 the Minister of Finance reconfirmed that Canada is opposed to total multilateral debt cancellation, stating that this would, “imperil financial health of lending institutions and unfairly benefit a small number of countries.”

Canadian Recommendations to the Global Community

  • The adoption of collective action clauses to promote the resolution of financial crisis and coordinate a country’s commitment to pay with its ability to pay.
  • The standstill clause or breathing space, which would allow the debtor to implement policy changes to correct payment problems. The debtor is expected to negotiate in good faith with the creditor on a sustainable debt-servicing plan.
  • Limits on official financing and greater transparency within the financing process. Canada has not pushed for a modification of the Enhanced HIPC Initiative, but in April 2002 asked that creditors:

1. Review debt sustainability under HIPC to firstly, gain a greater understanding of why debts levels in some HIPC’s are not sustainable and secondly, to realistically assess all associated costs.

2. Provide greater technical assistance for debt management to HIPCs.

3. Make more effort towards bringing non-Paris club bilateral creditors and commercial creditors into the Initiative. The main question being, is moral persuasion working?

4. Make all new lending information to HIPCs public and respect proposed limits on additional commercial borrowing.

5. Follow up after countries are through the HIPC process to help sustainability.

*A statement to the IMF Financial Committee on April 20, 2002 from the Minister of Finance Financing.

 On April 12, 2000 Canada agreed to contribute US$77 million (C$109) to the HIPC Trust Fund (an instrument which allows bilateral creditors to contribute financing to help cover the costs of multilateral organization under the HIPC Initiative).

By December 2000, it had agreed to contribute C$215 million to the trust fund at the IMF (C $65 million) and World Bank (C $150 million).

At Kananaskis, in June 2002, Canada and G-7 leaders committed to fund their share of financial shortfall related to under-financing of the HIPC Initiative- up to US $1 billion. This was to allow for the possibility of debt reduction for countries seriously affected by severe economic shocks. Leaders agreed to secure the participation of all creditors in the HIPC Initiative.

Canada’s current financial commitment to Third World debt was outlined in the 2003 budget. Commitment to international assistance was increased by 8% this fiscal year and in the next two fiscal years; the increase includes the contribution of an additional C$75 million to the HIPC trust fund.

Canada’s Contribution to HIPC Debt Relief:


In the G-7 for the Enhanced HIPC Debt Initiative, Canada joined other countries in agreeing to increase debt relief available to an estimated US $28.6 billion.

  • In a proposal later endorsed by Commonwealth finance ministers, G7 countries agreed to create a committee comprising HIPCs to allow for the concerns of the poorest countries related to the HIPC Initiative to be heard.
  • “Calling for flexibility in linking HIPC debt relief to the PRSP process to avoid delaying debt relief to deserving countries


  • Cancelled $1.3 billion in ODA debt to 46 developing countries since 1978.
  • Development assistance on a grant basis from 1986.

Canadian Debt Relief to the HIPC countries

 On December 19, 2000 Finance Canada announced that 11 of the 17 HIPCs owing Canada about C$1.1 billion would have their debts officially written off as they completed the HIPC process, namely: Benin, Bolivia, Cameroon, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Senegal, Tanzania and Zambia. As of January 1, 2001 Canada applied a moratorium on these countries, effectively a de facto cancellation on debt repayments owed by HIPCs.

inance Canada stated that the other six countries would be considered once they showed that they were seriously committed to the principles of good governance, peaceful development and the protection of human rights: Congo, Cote d’Ivoire, Democratic Republic of Congo, Liberia, Rwanda and Sudan. Reforming HIPCs must be developing Poverty Reduction Strategy Papers (PRSPs) to qualify.

When the qualifying countries reach their completion points under the HIPC Debt Initiative their debts will be removed from Canada’s books. In 1999 Bangladesh’s debt in the amount of $600,000 was cancelled. Although it was not considered HIPC under the IMF and WB, it was included in the Canadian initiative because it was an impoverished country with a good record of economic reform, which had succeeded in reducing poverty, but had suffered a series of serious floods. Egypt debts have been cancelled in recent years, as the payments come due.

Export Development Canada (EDC)

In the Government Response to the Standing Committee On Foreign Affairs and International Trade-1999-Reviewing the Export Development Act, the government indicated it would move to ensure greater accountability of EDC for its lending practices and the consequences that arise from them.

The government made a commitment to review its policy on debt reduction so that EDC would share the cost of official debt rescheduling and write-offs negotiated by the government to lessen the debt burden of HIPCs. Currently, EDC writes off the debts of HIPC countries as they “implement the measures required to qualify for debt reduction.” The government reimburses the EDC the amount equivalent to the debt relief that the government has agreed to grant to the country.

The policy of reimbursing EDC in full was adapted for loans made after April 1, 2001, with the government no longer committed to full reimbursement and EDC having to accept a share in the cost of write-downs. In 2002 EDC received 402 million dollars Canadian (up from 13 million in 2001) from the government of Canada debt relief program; this amount included debts by Yugoslavia ($155 million), Cameroon ($119 million), Ivory Coast ($115 million), Bolivia ($10 million) and other countries ($3 million).

Of the total, 96 million was registered by EDC as debt relief income. In 2003, EDC indicated that eight countries had “met the criteria and have had their external debt reduced and/or forgiven” (Bolivia, Cameroon, Cote d’Ivoire, Guyana, Honduras, Kenya, Madagascar, Tanzania) and so had relevant debts written off by Canada. The agency has begun to lend to HIPCs that have completed the debt program. For example, since Bolivia completed the process in 2001, EDC is lending to Bolivia with the assumption that it will not be subject to restructuring or cancellation. The same seems to be the case for Guyana; although it has not completed the Enhanced HIPC process.

Prepared by the Social Justice Committee