Background

1. Prior to the fourteenth session of the Economic and Social Council,²³ Cabinet discussed the Canadian attitude towards the proposed International Finance Corporation (IFC), on which a report had been prepared by the International Bank for Reconstruction and Development. According to the plan suggested the corporation would be capitalized by government subscription and established as an affiliate of the International Bank for the purpose of helping to finance productive private enterprise in the under-developed areas through equity investment and through loans without government guarantees.

2. It was considered that a corporation of the kind suggested would fill an important gap in the existing machinery for financing economic development and that if the project were successful it would generate a flow of international private capital in excess of the modest contribution of its own resources. In addition it was thought that in the long run the corporation would contribute to the improvement of the general climate for private international investment both in the creditor and debtor countries.

3. In the light of the above considerations Cabinet authorized the Canadian Delegation to the fourteenth session of ECOSOC to support the proposal for IFC, provided it was regarded favourably by other countries including the United States and United Kingdom. Canadian support was made subject to the following conditions:

1) The corporation would be an affiliate of the International Bank with substantially the same membership and voting powers as obtained in the Bank.

2) The corporation would not establish new international machinery of an elaborate and costly kind but would draw on the technical and administrative staff of the Bank.

3) The total capitalization of the corporation would be limited to the equivalent of $400 million US, to be subscribed by the members in proportion to their subscriptions to the stock of the Bank. The Canadian capital subscription should not exceed $15 million with initial paid-in capital not to exceed $5 million.

4. In the event, the more advanced countries, with the exception of Belgium, were not prepared when ECOSOC met to give immediate support to the proposal for an IFC. The United Kingdom and France had a number of reservations about the practicability and desirability of a corporation of the kind proposed and emphasized that, whatever the merits of the scheme, their Governments, because of general financial stringency, were unable to make a contribution. With the United States, the difficulty arose out of a conflict of views within the United States Government and a section of the US investment community about the usefulness of the corporation. The Council eventually agreed on a resolution requesting the International Bank to examine the project further, to consult with investment communities and member governments and to report back to the Council. In the debate on this resolution, of the developed countries, Canada and Belgium indicated the most favourable reaction to the proposal, and the Belgian and Canadian representatives, while not committing their Governments maintained that the scheme offered considerable hope and should be pursued.

5. The IBRD submitted a further report on the question of creating an IFC to the sixteenth session of ECOSOC. This report summarized views which had been expressed by competent authorities about the practicability of the project which varied from. warm support in the under-developed countries to scepticism and hostility from business and financial representatives in some of the industrialized countries. The report underlined the significant fact that "while maintaining their interest in the proposal countries on whom the corporation would necessarily have to depend for the greater part of its funds have not yet indicated that they are ready to commit themselves to subscribe to its capital". In these circumstances the Bank did not believe that any point would be served by "greater formalization of the project at this time". It was indicated however that the Management would continue to explore the matter and would present concrete proposals when there appeared to be a reasonable prospect that sufficient financial participation would be forthcoming.

6. Having considered the Bank's report the Economic and Social Council passed a resolution inviting the Bank to carry out further studies on the proposal for the purpose of clarifying and analyzing the different points which had been raised about its merits and the basic purposes and functions of the proposed institution, and to report to the Council at its seventeenth session.

Policy Guidance

7. In view of the action taken by ECOSOC in calling for a further report by the International Bank it would appear unlikely that there will be substantial discussion on IFC at the eighth session of the General Assembly. If the issue does arise the Delegation should be guided by the instructions approved by Cabinet prior to the fourteenth session of the Council. These instructions are available in the files of the Permanent Delegation. However, since neither the United States nor the United Kingdom is yet prepared to support the establishment of the Corporation the Delegation should not go beyond indicating our positive interest in the possibility of the eventual establishment of the corporation, provided that further examination of the proposal indicates that it is practicable and that there is sufficient support to warrant its establishment.