19. The Secretary of State for External Affairs said that, following the decision at the meeting of September 8th, 1954, the Canadian delegation now attending the Ninth Session of the General Assembly of the United Nations had been instructed to indicate that Canada had been willing to support an International Finance Corporation under the management of the International Bank for Reconstruction and Development. Since neither the United States nor the United Kingdom had been prepared to support the proposal at that time, Canada had not gone beyond indicating positive interest in it.

The U.S. had recently reconsidered its rather negative attitude and the U.S. Secretary of the Treasury had, on November 11th, announced that the Administration would seek Congressional approval for U.S. participation in the establishment of this Corporation. Although it had originally been suggested that the total capitalization of I.F.C. be the equivalent of $400 million, Mr. Humphrey had now suggested that the Corporation's authorized capital be $100 million and that the subscription of each member country should be in proportion to that member's stock in the International Bank.

The U.S. view was that the Corporation should not directly provide equity financing. It should, however, be empowered to hold securities bearing interest payable only if earned, as well as debentures convertible into stock when purchased from the Corporation by private investors. In that way, it would operate in the area of venture capital without holding equity right of control. It would not compete with either the International Bank itself or the Export-Import Bank.

Mr. Humphrey had emphasized that the operation of such a corporation would, of necessity, have to be experimental and subject to review from time to time. Its success would depend upon its effectiveness in stimulating an increased international movement of private funds.

The U.K. government had not yet commented on the new proposal and the U.K. delegation in New York had been asked to try to get further discussion postponed so that there might be time to give further thought to the matter. The Canadian High Commissioner in London had indicated, however, that the U.K. Treasury conceded that, if the idea of equity financing through the proposed corporation had been abandoned, the scheme might be "a little less unsound" than it was before. The U.K.'s lack of enthusiasm for the proposal stemmed, at least in part, from reluctance to draw further on the limited funds available for spending abroad. However, if enough countries were now in favour of the I.F.C. to ensure its creation, it might be difficult for the U.K. to stay out - both for political reasons and in order to protect or increase markets for U.K. capital goods abroad.

It was probable that the U.S. decision to support early establishment of the Corporation stemmed partly from the expectation that the U.S. would be under increased pressure for economic assistance to Latin American countries at the forthcoming conference of the Organization of American States in Rio de Janeiro. While this consideration did not affect Canada as directly as it affected the U.S., it would seem desirable to acquaint the Canadian observer at Rio with present Canadian views on the proposed Corporation before the Conference opened so that he might mention, informally, that Canada favoured the proposal. This would offset the negative attitude Canada would probably adopt toward many of the topics to be discussed at Rio.

The proposed Corporation was a more modest and immediately manageable project than the proposed Special United Nations Fund for Economic Development (S.U.N.F.E.D.). It would no doubt be expected to serve underdeveloped countries in many parts of the world, but some benefit would likely accrue to Asian countries which Canada was assisting under the Colombo Plan. India had established an Industrial Finance Corporation and Pakistan and Ceylon might follow suit. The activities of I.F.C. would usefully supplement the work of such corporations in stimulating and assisting private investment. There might be political, as well as economic advantages in supporting the proposal. While pressure for S.U.N.F.E.D. would no doubt continue even if the Corporation was established, Canadian opposition would be more readily understood by the underdeveloped countries than it would if Canada did not support I.F.C.

On the basis of a Corporation capitalized at $100 million and a Canadian contribution in the same ratio as the Canadian contribution to the International Bank, the cost to Canada would probably be between $3 million and $4 million. This money might not have to be found before the fiscal year 1956-57, but it might at least have to be pledged during the coming fiscal year.

In view of the recent change of heart on the part of the U.S. Administration and because of Canada's long standing support of this proposal, he now recommended that Canada participate in the proposed International Finance Corporation on the understanding that the Canadian commitment to subscribe to the capital of the corporation would not be significantly different, in proportion, from that applicable to the International Bank and would not, in any event, involve a subscription in excess of $5 million during 1955-56.

An explanatory memorandum had been circulated.

(Minister's memorandum, Nov. 17, 1954 - Cab. Doc. 246-54)?

20. The Cabinet,

(a) approved in principle Canadian participation in a proposed International Finance Corporation to be established, under the management of the International Bank for Reconstruction and Development, for the purpose of helping to finance productive private enterprise in underdeveloped areas through loans without government guarantees; and,

(b) approved Canada undertaking to subscribe to the capital of the Corporation, in a proportion not substantially different from Canada's share in the subscriptions to the International Bank, and in an amount not larger than $5 million.

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