Financial Post
October 21, 2002

Recent articles ignore EDC’s financial performance, ability to manage
risks, fact that EDC is fully accountable to Parliament, EDC’s track
record of consistent profitability, and contribution to Canada’s
economy, writes EDC CEO Ian Gillespie.

Letter to the Editor
by Ian Gillespie, president and CEO of EDC

Several articles published in the Oct. 18 National Post suggest that
Canadian taxpayers are at risk of losing billions of dollars because of
EDC’s lending, particularly in respect of the aerospace and
telecommunications sectors. This is a grievous distortion of the facts.

The articles pose exaggerated and hypothetical risks. They ignore EDC’s
financial performance; they ignore EDC’s ability to manage risks; they
ignore the fact that EDC is fully accountable to Parliament, and they
certainly ignore EDC’s track record since 1944 of consistent
profitability and contribution to Canada’s economy through the growth
of Canadian exports.

EDC’s mandate is to support Canadian exports and investments around the
world. Accordingly, EDC is in the risk business and risk management is
at the heart of what we do. We reflect the activities of Canadian
exporters and their success. It should come as no surprise that EDC
would be instrumental in supporting key sectors that drive so much of
Canada’s exports. It should also be no surprise that EDC would be
supporting sales of exports that otherwise would not occur since that
is exactly our public policy role.

EDC is Canada’s largest single source of trade finance expertise. In
nearly 60 years of operation, EDC has consistently generated profits,
in good times and bad, without annual Parliamentary appropriations. The
investment of nearly $1-billion in share capital by the government
since inception has been leveraged to support in excess of $338-billion
in export and investment activities by thousands of Canadian companies
in global markets. Last year alone EDC supported $45-billion in exports
and investments by Canadian companies. This generated nearly
$30-billion in GDP for Canada and more than 450,000 person-years of
employment.

EDC’s retained earnings have added more than $1-billion to its capital
base. This is after setting aside, out of income, more than $4-billion
of prudential provisions against potential loan losses and insurance
claims. In addition, total paid-in capital and retained earnings are
$2-billion.

EDC’s governance structure provides for thorough reporting to its board
of directors on its risk management, and its loan portfolio. The
government of Canada is also represented on EDC’s board of directors by
senior officials of the departments of Finance and International Trade.

The articles allege that EDC exposure in the aerospace and
telecommunications sectors is unbalanced and risky. On the contrary,
EDC’s exposure in those sectors is within the parameters established by
its risk management framework and endorsed by its board of directors.
This framework was developed with the assistance of leading
international risk management consultants.

EDC’s risk management processes are elaborate, encompassing economic,
political and country risk assessment, industry and commercial risk
assessment, conventional financial analysis, loan asset management,
buyer credit analysis and surveillance as well as legal services and
technical and environmental advisory services.

EDC’s auditor is the Auditor-General of Canada. In addition to regular
audits, special examinations are conducted on EDC’s policies,
procedures, and their implementation, including EDC’s risk management
framework. In fact, EDC’s annual report and corporate plan have been
recognized by the Auditor-General for excellence in financial reporting
in four of the last eight years.

Having the financial capacity and risk tolerance to step up to the
plate when capital markets are inefficient or when there is inadequate
capacity in the private sector to support Canadian companies is
precisely why EDC’s role is so vital. EDC does not turn its back on
Canadian exporters in periods of uncertainty. During the Asia crisis a
few years ago EDC stayed in the game, helping companies continue doing
business in a market that will likely lead the world in economic growth
next year, to the benefit of persistent Canadian exporters.

Let’s not forget that Canadian jobs and prosperity are more dependent
on trade than those of any other G7 nation. That is one very good
reason EDC’s mandate of supporting Canadian companies in a fiscally
prudent manner is so critical, especially in today’s volatile
environment.

A. Ian Gillespie is president and CEO of Export Development Canada.