The Ottawa Citizen
March 21, 2000

Economist calls for royal commission
(Excerpt)

An esteemed Canadian economist has called for a royal commission to probe endemic secrecy within the taxpayer-backed Export Development Corp.

His comments follow revelations that the EDC is owed $22 billion from clients it will not publicly disclose, and has written off $2.8 billion as uncollectable.

The EDC keeps separate books from those of the federal government, and they are not subject to parliamentary approval or scrutiny.

The EDC’s capital base includes $1 billion in cumulative subsidies from federal taxpayers, and $13 billion it has borrowed against the “full faith and credit” of the federal government.

Kristian Palda, emeritus professor at the Queen’s University School of Business, told the Citizen:

“There should be a royal commission that would focus its attention on transparency and disclosure rules of Crown corporations engaged in risk taking on behalf of exporters.

“The remedy should be a royal commission, rather than a parliamentary commission, to investigate Canada’s federal export credit support.

“If it was just parliamentary, it would die on government-dominated committees.”

Mr. Palda, now retired, accused the Chretien government of “bottomless hypocrisy” for allowing the EDC to subvert international trade practices by secretly lending $1 billion to the U.S. government railroad Amtrak, which in turn selected Montreal-based Bombardier as its prime supplier of train equipment.

The most prominent project was Amtrak’s vaunted Boston-Washington bullet train, which is now nearing completion.

Meanwhile, funding for VIA Rail service was being slashed by the Chretien government. And at the World Trade Organization, Canada was formally accusing Brazil of subsidizing its state-owned regional jet producer — an arch rival of Bombardier’s aircraft division.

Last year, the WTO ruled that both Canada and Brazil were illegally subsidizing their domestic regional jet manufacturers. Brazil was ordered to end its subsidies; Canada was ordered to stop providing secret funds to Bombardier through an EDC-administered account.

“What the Canadian government accused the Brazilians of doing, the Canadian government, in its bottomless hypocrisy, is doing itself. So we need greater transparency in disclosures of government subsidization.”

The EDC counters that loans like those to Amtrak represent only a small part of its assistance. About $26 billion of its annual $40 billion in aid to private Canadian exporters involves short-term insurance to cover non-payment by foreign purchasers, or political risk insurance. The money is usually recovered within 90-days, then recycled.

“We continue to be quite comfortable with the performance of the corporation, as it relates to its loans and its insurance business,” says EDC executive Eric Siegel. “The corporation has been growing at an exceptional rate. (In) 1995, the corporation (lending) was some $17 billion overall; last year some $40 billion.

“So, in nominal terms, you are going to see claims go up, and you are going to see loan loss go up, just in respect of the fact that we are signing more and more loans and we have a much greater asset level. Our assets have doubled in the last four years or so.”

On the issue of secrecy, Mr. Siegel maintains that the EDC is essentially a commercial bank and cannot reveal confidential financial information which could impair an EDC client’s competitiveness.

Mr. Siegel says the EDC business plan calls for a doubling of its customer base from 5,000 to 10,000 customers, and a comparative increase in its $40 billion annual lending volume. The EDC declined to provide the Citizen with a complete copy of its business plan, which was approved by the Chretien cabinet in December.

He also pointed to independent surveys which confirm that the EDC’s smaller clients highly approve of the efficiency and level of its assistance.

Mr. Siegel staunchly rejects accusations that the EDC is being reckless with taxpayer funds.

“We have been three times awarded the Auditor-General award for the best and most transparent reporting of a crown corporation in its annual reporting process.”

However, he agreed that the Auditor General’s staff only conduct random samples of outstanding loans. The Auditor General does review the loan losses.

Mr. Palda, trained at Queen’s University and the University of Chicago, is a noted figure among economists opposing government subsidies and state intervention in international trade. Commenting on the fact that the EDC is not subject to federal access-to-information laws, he says the most ominous aspect of the EDC’s operations is the lack of scrutiny by Parliament.

“The Auditor General years ago deplored the EDC, and the (financial) guarantees that government gives, saying they don’t go through the budget, but nevertheless burden Canada’s taxpayers in a hard-to-calculate manner. That was a wise comment, but one that was clearly not followed.