CANADA ECONOMICS

INTERNATIONAL TRADE

TCS. 2017-06-09. Canada and Chile:  A Great Deal to Celebrate

Canada and Chile have much to celebrate this year as July 2017 will mark the 20th anniversary of the historic Canada-Chile Free Trade Agreement (CCFTA)—a deal that has seen two-way merchandise trade between the two countries more than triple since it came into force.

During a state visit to Canada by Chilean President Michelle Bachelet earlier this week, International Trade Minister Francois‑Philippe Champagne announced the addition of a chapter on trade and gender, the first of its kind for any G20 country. Champagne and Chilean Foreign Affairs Minister Heraldo Muñoz signed several amendments to modernize the deal including the gender chapter and new elements in the investment chapter, new chapters on sanitary and phytosanitary measures and technical barriers to trade and technical amendments to the existing government procurement chapter.


The trade and gender chapter acknowledges the importance of applying gender perspective to economic and trade issues to ensure that economic growth benefits everyone. It confirms the intention of both parties to enforce their respective international agreements on gender from a rights perspective and provides a framework for Canada and Chile to cooperate on issues related to trade and gender, including women’s entrepreneurship and the development of gender-focused indicators.

The CCFTA came into force July 5, 1997, making it one of Canada’s oldest trade deals, and the first with a South American nation. It was Chile’s first comprehensive trade agreement with another country. Bilateral trade reached $2.4 billion in 2016.

“The Agreement has been extremely beneficial for both Canada and Chile. It is the cornerstone of our bilateral commercial relationship,” says Geoff White, senior trade commissioner with the Canadian Trade Commissioner Service (TCS) in Santiago, Chile. “From a trade commissioner perspective, we are working in an environment where we are privileged to have the profile and the positive relationship that we have here.”

Modernizing the Agreement will make what has been an effective and mutually-beneficial trade tool even better, says White, adding the new chapter on trade and gender and the updates to the investment chapter are a reflection of the progressive approach to trade adopted by both countries.

“The Agreement has opened trade between Canada and Chile in all sectors—tariffs on virtually all bilateral trade in goods were eliminated,” says White.

“Absolutely, it has paid off. The Agreement has been important for trade, and it’s also been very significant for investment,” adds White. Canada is now the fourth largest investor in Chile (after the United States, Spain and the Netherlands) and the top foreign investor in Chile’s mining sector.

Foreign direct investment (FDI) into Chile stood at $16.5 billion in 2016, making it Canada’s top investment destination in South America and 11th worldwide. FDI in Canada from Chile amounted to $767 million in 2016. A 2013 study conducted by Global Affairs Canada’s Office of the Chief Economist on the Economic Impact of the Canada-Chile Free Trade Agreement concluded that Canada’s overall economic welfare gains from this Agreement were approximately $250 million annually.

Canada’s top imports from Chile are precious stones and metals—mostly gold and silver to be refined in Canada; copper—Chile is the world’s largest copper producer; fruits; beverages—mainly wine; and, fish and seafood. Canada’s top exports to Chile include machinery; mineral fuels and oils—principally coal; pharmaceutical products; cereals; and, meats. Machinery and pharmaceuticals especially are considered “high value-added” exports that support highly skilled jobs and technological innovation in Canada, says White.

Chile provides an ideal environment for Canadians doing business abroad, says White. An agreement between Canada and Chile to avoid double taxation works in tandem with the FTA to foster good business conditions, he adds.

“When it comes to trade we are like-minded nations and we do have a lot in common,” says White, citing similarities in resource-based trade such as mining as an example. “It’s a safe business environment with a strong adherence to the rule of law and where Canadian companies are well-established.”

Canada and Chile’s trade relationship has flourished under the CCFTA, and modernizing the Agreement will help ensure its continued success, says White.

CANADIAN INFRASTRUCTURE BANK

Canada Infrastructure Bank

As part of the Government of Canada's historic Investing in Canada plan, the Canada Infrastructure Bank is a new tool that our partners could use to build more infrastructure in communities across Canada.

The additional projects the bank invests in would contribute to our long-term economic growth and support the creation of good, well-paying jobs for the middle class. These investments would also help us achieve our goals of lowering GHG emissions and building communities that are socially inclusive.

The Bank would be an additional tool to build new infrastructure by attracting private sector and institutional investors to support the transformational infrastructure that Canadian communities need.

From green energy transmission to trade and transportation and beyond, the Bank would help public dollars go further by enabling us to invest in projects that deliver a return. This would keep our grant dollars for those projects, like affordable housing and community centres that require public dollars.

If approved by Parliament, the Bank would invest $35 billion from the federal government into transformative infrastructure projects.  $15 billion would be sourced from the over $180 billion Investing in Canada infrastructure plan, including:

• $5 billion for public transit systems;
• $5 billion for trade and transportation corridors; and,
• $5 billion for green infrastructure projects, including those that reduce greenhouse gas emissions, deliver clean air and safe water systems, and promote renewable power.

Specifically, the Bank would:

• Invest in infrastructure projects that have revenue-generating potential and are in the public interest;
• Attract private sector and institutional investors to projects so that more infrastructure can be built in Canada;
• Serve as a centre of expertise on infrastructure projects in which private sector or institutional investors are making a significant investment;
• Foster evidence-based decision making and advise all orders of government on the design of revenue-generating projects; and
• Collect and share data to help governments make better decisions about infrastructure investments.

The Bank would be accountable to Parliament through its responsible Minister.  Specific accountability measures would include:

• Requiring the Bank to seek the Government's approval of its Corporate Plan annually, and tabling the summary of the plan as well as its annual report in Parliament;
• Audits by the Auditor General as well as a private sector auditor appointed annually by the Government, which is the highest standard of accountability required of Crown corporations; and,

A review of the operation of the Bank by the responsible Minister and Parliament every five years.
As an arm's length Crown Corporation, the Bank would be led by a Chief Executive Officer and governed by a Chairperson and Board of Directors.


On May 8, 2017, the Government of Canada launched open, transparent and merit-based selection processes to identify the Bank’s senior leadership with the goal of having the Canada Infrastructure Bank operational in late 2017, subject to Parliamentary approval.

DOCUMENTO: http://www.infrastructure.gc.ca/CIB-BIC/index-eng.html

The Globe and Mail. June 12, 2017. Infrastructure bank proposal faces test. Finance Minister makes case for why budget bill, which includes provisions for $35-billion institution, should pass Senate intact

Finance Minister Bill Morneau’s plan to transform the way big infrastructure projects are funded in Canada is facing a major test this week, as a skeptical and increasingly independent Senate weighs whether to tear his budget bill apart.
In an interview with The Globe and Mail, Mr. Morneau outlined his rationale for why critics should set their concerns aside and allow Ottawa to move ahead with a $35-billion Canada Infrastructure Bank.
Canada has a long and mostly uncontroversial history with public-private partnerships in which governments at various levels contract out the work of building and operating infrastructure such as hospitals and transit systems. These deals usually include performance bonuses or penalties based on whether or not projects are completed on time and on budget.
For the most part, these projects are ultimately paid for by governments. The proposed infrastructure bank would be different in that most of the funding for a project would come from private investors, particularly pension funds. The government would be a minority contributor. The rationale is that while many public infrastructure projects are not profitable on their own, private funds could be convinced to get involved if the government promised a negotiated rate of return that would make their investment worthwhile.
According to the Finance Minister, pension funds would get a reliable long-term investment, governments would avoid adding on additional debt and the public would benefit from infrastructure projects that would not have been built otherwise.
“From my perspective, it is a win for Canadians. It’s a win for the Canadian government in terms of risk and it’s a win for Canadian and other pension investors with long-term assets that match their liabilities,” said Mr. Morneau during an interview at his Parliament Hill office.
The bank would be a source of funding and loan guarantees for these types of large projects, but it would also be a centre of expertise that would advise governments on the best way to structure the deals with private investors.
Legislation to create the Canada Infrastructure Bank is included as part of Bill C-44, Mr. Morneau’s more than 300-page omnibus budget bill. Independent Senator André Pratte is preparing to move a motion Tuesday that would split the bill, removing the provisions related to the bank so that they can receive more detailed study in the fall.
It would be highly unusual for the Senate to hold up a budget bill, but these are unusual times in the Senate. Prime Minister Justin Trudeau has only appointed senators who sit as independents, and all senators who previously sat as Liberals are no longer part of the Liberal caucus. As a result, it is unclear whether Mr. Morneau will have enough support in the Senate to get his budget bill approved intact before Parliament rises for the summer.
Criticism of the bank has come from many directions. Some argue projects will end up costing taxpayers more in the long run than if they had been funded entirely through government debt at current low interest rates. Others have questioned whether the government is surrendering too much control over public infrastructure to private interests. Another line of criticism has focused on the bank’s governance. Unlike executives of the Canada Pension Plan Investment Board (CPPIB), the CEO and its directors can be fired by cabinet at any time. In contrast, directors at the CPPIB and the Business Development Bank of Canada can only be fired for cause, which provides an extra degree of independence.
Finn Poschmann, a long-time observer of federal economic policy in a previous role with the C.D. Howe Institute who is now president and CEO of the Atlantic Provinces Economic Council, said the “boring governance stuff” related to the bank is vitally important. He is urging the Senate to make amendments.
“They have a wonderful model to work with, which is the enabling legislation for the Canada Pension Plan Investment Board. You could cut and paste,” he said.
“You do these things exactly to take decisions out of the hands of cabinet. The cabinet’s role is to set up a framework so that you hire the right people to do the job and you hand off the decision-making to them. And if they do a good job, then the government and cabinet will get the credit,” he said.
“If you want to see how badly it can go wrong, look at Ontario’s electricity generation. They have years and years of cabinet – and quite specifically, cabinet through ministerial directives – overriding independent boards and agencies because they are able to do so … because of the political goals of some cabinet ministers.”
Federal officials say the governance structure is appropriate because the government will need to have more of a role in its work than an entity like the CPPIB. Specifically, the infrastructure bank must have a municipal, provincial or federal government partner involved in a project in order to certify that it is in the public interest.
Mr. Morneau said it is appropriate for government to have a say in the initial stages of a project in order to signal approval.

“We want to do that as early as possible,” he said. “We expect it to be quite independent of government.”

The Globe and Mail. Jun. 12, 2017. Special. Proposed infrastructure bank legislation strikes the right balance
JIM LEECH, special adviser to the Prime Minister on the Canada Infrastructure Bank and former president and CEO of the Ontario Teachers’ Pension Plan.

The current debate over the establishment of the Canada Infrastructure Bank seems to be more about politics and ideology than about securing Canada’s economic future through renewed infrastructure. Infrastructure is the foundation of a strong economy. It is an axiom that sounds trite, but things such as efficient trade and transit routes, safe water and waste-water treatment facilities, and reliable energy transmission are what allow economies to prosper. Without them, economic growth is stunted by lost productivity and people cannot fully engage in either their economy or their society.

In Canada, we are lucky to live in a safe country where most of us take for granted certain basic infrastructure that those in many parts of the world cannot. And yet, we can do much better than the status quo. Our country’s infrastructure has suffered from underfunding for decades, leaving an infrastructure deficit that hinders our potential. The government recognizes this, having committed to invest more than $180-billion in green and social infrastructure, public transit, trade and transportation corridors and in rural and Northern communities. To augment these wholly taxpayer-funded investments, they have also proposed the creation of the Canada Infrastructure Bank (CIB).

The CIB would engage private capital to build more infrastructure across Canada. The benefit of doing so is twofold: First, tax dollars are made more productive by leveraging private investors to partner with the CIB on projects and thereby allowing more needed infrastructure to be built. Second, by using a minimum amount of taxpayer funding necessary to make a project viable alongside a private partner, more traditional grant funding is freed up to fund the kinds of non-revenue generating projects that the private sector is not interested in but are important to our country’s prosperity.

The CIB is being proposed as an arm’s-length Crown corporation with the necessary independence to structure market-based deals for projects while being accountable to Parliament for the public funds it will invest.

As someone who spent a large part of my career at an independent yet accountable institution, I have pushed hard to get this governance balance right. The fact is, at Teachers and other world-leading Canadian pension funds, the “shareholders” appoint and can remove the board if they wish. No one raises questions about independence or political interference when it comes to the management of these pension plans. Well, that is the same independent model proposed for the Canada Infrastructure Bank. On the other hand, we must remember that the bank would also be responsible for prudently investing $35-billion of taxpayer money for which it must be accountable to Parliament and the government. The proposed legislation has found that appropriate balance between independence and accountability.

The critical piece right now is to get the leadership in place to flesh out the detailed processes that will ensure the bank’s success. This means getting highly skilled, independent and respected individuals that are representative of Canada’s talent and diversity on the board and in management to build a world-class institution that will be able to negotiate good deals for the people of Canada.

The CIB has the potential to be an important piece of the plan to build the additional infrastructure that Canada needs to succeed. The governance of such an institution is critical to its success and having found the right balance between independence and accountability, the government will be well served by this institution should Parliament approve its creation.

The Globe and Mail. Jun. 11, 2017. Too many unanswered questions about the Canada Infrastructure Bank
KEVIN PAGE, AZFAR ALI KHAN AND RANDALL BARTLETT

The House of Commons is about to pass the 2017 budget implementation bill, which contains the government’s proposal for the new Canada Infrastructure Bank (CIB). However, some fundamental questions about the CIB remain unanswered.

First, what is Canada’s infrastructure vision and plan?

The Finance Ministers’ Advisory Council on Economic Growth and Prosperity recommended the development of a focused federal infrastructure strategy. This point was reiterated last February by the Standing Senate Committee on National Finance, noting the need for “clear priorities, concrete objectives and specific performance measures,” and again by the Institute of Fiscal Studies and Democracy (IFSD) in May, 2017.

This strategy would require a future-needs analysis and an assessment of our current infrastructure stock to produce a data-driven evaluation of our infrastructure gap. We currently lack this basic information in Canada. Britain is taking 18 to 24 months to perform a National Infrastructure Assessment to address decades of poor strategic decision-making. Canada should follow a similar path.

Second, what is the purpose of the CIB?

On the face of it, the intention to attract private investment toward projects that have an attached revenue stream seems a reasonable value proposition. But a credible business case has yet to be made. Indeed, what financing gap is the CIB looking to fill? Certainly not one at the federal level, as the Government of Canada has a triple-A bond rating and the lowest net debt-to-GDP ratio in the G7. Could it be to support lower levels of government in bridging financing gaps? Maybe in the case of municipalities, but provinces can similarly access debt markets at historically low interest rates. Further, other instruments exist that can achieve the same ends.

Third, how will risk and pricing be managed?

In a recent interview with The Canadian Press, Finance Minister Bill Morneau said the intent of the CIB is to attract additional infrastructure investment while “de-risking infrastructure projects.” However, documents obtained by CP suggest that Mr. Morneau was told the CIB could take on a “significant” portion of the risk to help projects come to fruition and that the bank’s “return on investment will only materialize if defined institutional investor revenue thresholds are met.” This means the returns to taxpayers will be subject to higher risk than will those of their private-sector investment partners.

On pricing, the minimum return threshold of pension funds in Canada is generally set at around 6 per cent, and they will rightly look to earn more than that on most of their investments. This amount is in addition to the return needed to recover the costs of the investments, and is at the bottom end of the range of infrastructure return expectations estimated by JP Morgan Asset Management. Further, the business case for these projects will be predicated on the willingness of Canadians to pay new user fees (i.e., taxes) for infrastructure. Changing culture in this respect may prove challenging and yet largely underpins the success of private investment.

Put this all together and Canadians will be carrying more revenue risk than their private-investment partners while paying more to use the infrastructure funded through the CIB.

Fourth, why has the governance and operating model of the proposed CIB shifted from an arm’s-length-bank concept to a granting-agency concept that is more or less controlled by the federal government?

Is this a self-sustaining Crown corporation like the Business Development Bank of Canada, or a granting agency like the Atlantic Canada Opportunity Agency? And how will this evolving governance structure impact the due diligence and transparency of investments undertaken through the CIB?

Fundamental questions remain unanswered in the House of Commons review, notwithstanding the significant taxpayer money ($35-billion) at play. Responsibilities for scrutiny will now shift to the Senate and there is talk of wanting more time to review the legislation.

A lack of oversight and financial due diligence at the front end rarely ends well. A long list of failures, such as the gun registry in the nineties to current problems related to pay systems, shared service and military equipment, show up in the newspapers on a daily basis.

Let us develop the strategy first. Launching the CIB subsequently would ensure its role, governance and operating model are aligned to these national and sectoral plans, and that projects are selected based on their merit.

The Senate has the parliamentary responsibility to get the answers to these basic questions. Failure to move forward without these answers will end undoubtedly in failure.

Kevin Page is president and CEO, Azfar Ali Khan is director, performance, and Randall Bartlett is chief economist at the Institute of Fiscal Studies and Democracy at the University of Ottawa.

The Globe and Mail. Jun. 09, 2017. Many things will have to click for Canada Infrastructure Bank to work
BARRIE MCKENNA

OTTAWA — As Ottawa plows ahead with plans for the Canada Infrastructure Bank, Finance Minister Bill Morneau must surely be telling himself: “If you build it, he will come.”

But like Kevin Costner’s character in the 1989 fantasy baseball movie, Field of Dreams, Mr. Morneau is taking a leap of faith that it will all work out.

Here’s the idea: Sink $35-billion into a newly created federal agency charged with building major public infrastructure projects. Identify projects that have potential to generate revenue, such as highways, water systems and high-speed rail lines. And then make the pot of cash multiply three or four times by persuading pension funds and other large private investors to pony up.

The point of it all is to get more and better infrastructure from limited federal dollars.

It’s not uncharted territory. Australia has a similar national infrastructure agency mandated with the task of marrying public and private funds to build nationally important projects.

But it’s a complicated model that requires a host of elements to come together – money, expertise, worthy projects and freedom from political interference.

It’s not at all clear Mr. Morneau has all the details right as he rushes to get the bank up and running by the end of this year. The implementing legislation has been crammed into a 300-page budget bill and the government is giving scant opportunity to review the plan – just a couple of hours of review by a House of Commons committee.

The potential pitfalls are many. Ottawa has a poor track record of keeping its fingers out of these sorts of things, particularly when billions of dollars are on the line. The bank will be a federal Crown corporation, with a chairman and board of directors appointed by the government, as well as a chief executive, initially appointed by the government. Mr. Morneau has also said Ottawa will have a hand in approving individual projects.

The vast majority of worthy projects belong to provinces and municipalities. And they may balk at entrusting their pet projects to an agency that is mainly beholden to the federal government. The Quebec government has already served notice that it wants the legislation rewritten to make the bank subject to provincial law.

On the other hand, retain too little government control and investors could wind up with too much sway over public assets.

It’s a fine balance. And in a report released this week, the Senate banking committee says it isn’t convinced the legislation, as drafted, has it right.

Then there is the question of generating sufficient returns to attract private capital. The larger the return, the more interest there will be from investors. But revenue-generating projects are rare. And generating big returns could inflate overall project costs, or put a greater financial burden on users – rail passengers, motorists and taxpayers. It’s not clear if the bank or investors will take the hit if revenues fall short of projections.

There is no point creating the bank if there is insufficient investor interest. Ottawa could continue funding infrastructure the way it always has – by giving the money to lower levels of government.

Mr. Morneau has strayed in some important ways from the plan laid out by his Advisory Council on Economic Growth, headed by public-policy guru and McKinsey & Co. managing partner Dominic Barton. As Mr. Barton put it, attracting institutional capital and project expertise hinges on creating a truly independent governance structure, where management and decision-making remain above the political fray. Among his recommendations: creating a long-term roster of worthy projects, looking out a decade or more. Governments could review the list every three years or so.

Another key element of Mr. Barton’s vision for the bank would be to create a “flywheel of reinvestment” – so-called asset recycling. That would involve selling existing government assets, such as airports, and using the proceeds to pay for new infrastructure. That part of the federal plan has run into resistance from local airport authorities, and many Canadians, who are skeptical of privatizing government assets.

Unless Mr. Morneau gets the structure right, the Canada Infrastructure Bank could become another expensive and bureaucratic way to dole out scarce funds.

The Globe and Mail. Jun. 12, 2017. Morneau defends infrastructure bank independence as his plan faces a rough ride in the Senate
BILL CURRY

OTTAWA —  Finance Minister Bill Morneau’s plan to transform the way big infrastructure projects are funded in Canada is facing a major test this week, as a skeptical and increasingly independent Senate weighs whether to tear his budget bill apart.

In an interview with The Globe and Mail, Mr. Morneau outlined his rationale for why critics should set their concerns aside and allow Ottawa to move ahead with a $35-billion Canada Infrastructure Bank.

Canada has a long and mostly uncontroversial history with public-private partnerships in which governments at various levels contract out the work of building and operating infrastructure such as hospitals and transit systems. These deals usually include performance bonuses or penalties based on whether or not projects are completed on time and on budget.

For the most part, these projects are ultimately paid for by governments. The proposed infrastructure bank would be different in that most of the funding for a project would come from private investors, particularly pension funds. The government would be a minority contributor. The rationale is that while many public infrastructure projects are not profitable on their own, private funds could be convinced to get involved if the government promised a negotiated rate of return that would make their investment worthwhile.

According to the Finance Minister, pension funds would get a reliable long-term investment, governments would avoid adding on additional debt and the public would benefit from infrastructure projects that would not have been built otherwise.

“From my perspective, it is a win for Canadians. It’s a win for the Canadian government in terms of risk and it’s a win for Canadian and other pension investors with long-term assets that match their liabilities,” said Mr. Morneau during an interview at his Parliament Hill office.

The bank would be a source of funding and loan guarantees for these types of large projects, but it would also be a centre of expertise that would advise governments on the best way to structure the deals with private investors.

Legislation to create the Canada Infrastructure Bank is included as part of Bill C-44, Mr. Morneau’s more than 300-page omnibus budget bill. Independent Senator André Pratte is preparing to move a motion Tuesday that would split the bill, removing the provisions related to the bank so that they can receive more detailed study in the fall.

It would be highly unusual for the Senate to hold up a budget bill, but these are unusual times in the Senate. Prime Minister Justin Trudeau has only appointed senators who sit as independents, and all senators who previously sat as Liberals are no longer part of the Liberal caucus. As a result, it is unclear whether Mr. Morneau will have enough support in the Senate to get his budget bill approved intact before Parliament rises for the summer.

Criticism of the bank has come from many directions. Some argue projects will end up costing taxpayers more in the long run than if they had been funded entirely through government debt at current low interest rates. Others have questioned whether the government is surrendering too much control over public infrastructure to private interests. Another line of criticism has focused on the bank’s governance. Unlike executives of the Canada Pension Plan Investment Board (CPPIB), the CEO and its directors can be fired by cabinet at any time. In contrast, directors at the CPPIB and the president of the Business Development Bank of Canada can only be fired for cause, which provides an extra degree of independence.

Finn Poschmann, a long-time observer of federal economic policy in a previous role with the C.D. Howe Institute who is now president and CEO of the Atlantic Provinces Economic Council, said the “boring governance stuff” related to the bank is vitally important. He is urging the Senate to make amendments.

“They have a wonderful model to work with, which is the enabling legislation for the Canada Pension Plan Investment Board. You could cut and paste,” he said.

“You do these things exactly to take decisions out of the hands of cabinet. The cabinet’s role is to set up a framework so that you hire the right people to do the job and you hand off the decision-making to them. And if they do a good job, then the government and cabinet will get the credit,” he said.

“If you want to see how badly it can go wrong, look at Ontario’s electricity generation. They have years and years of cabinet – and quite specifically, cabinet through ministerial directives – overriding independent boards and agencies because they are able to do so … because of the political goals of some cabinet ministers.”

Federal officials say the governance structure is appropriate because the government will need to have more of a role in its work than an entity like the CPPIB. Specifically, the infrastructure bank must have a municipal, provincial or federal government partner involved in a project in order to certify that it is in the public interest.

Mr. Morneau said it is appropriate for government to have a say in the initial stages of a project in order to signal approval.

“We want to do that as early as possible,” he said. “We expect it to be quite independent of government.”

Editor's Note: An earlier version of this article stated incorrectly that directors of the Business Development Bank of Canada can only be fired for cause. In fact, BDC directors serve at the pleasure of the government. The president of the BDC can only be fired for cause.

IMF. May 31, 2017. Canada: Staff Concluding Statement of the 2017 Article IV Mission

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

Context

...

10. Infrastructure investment is a cornerstone of the government’s growth strategy and the proposed Canada Infrastructure Bank (CIB) will be an effective instrument in achieving this goal.

The CIB is expected to invest in large, complex, and revenue-generating projects, which would not otherwise be feasible, given the risks involved are too large, and returns too small, to attract private investors while the cost is prohibitive for the federal government to go it alone. By taking a subordinate equity stake and leveraging private capital, the CIB would limit government borrowing and reduce pressure on budget financing, and free up fiscal resources for other high priorities. In addition to capital, private investors will be expected to bring their technical competence, discipline, and creativity, that could help reduce risk and lower the overall project cost. The success of the CIB will depend on ensuring that the project selection process is transparent and balances public and private interests. Given the potential of the CIB to advance long-term growth, the government and the CIB must address public resistance to user fees as well as skepticism over involving private investors in public infrastructure projects, with education and a clear statement of the CIB’s benefit.

...

IMF. June 13, 2016. IMF Country Report No. 16/146. CANADA 2016 ARTICLE IV CONSULTATION — PRESS RELEASE; AND STAFF REPORT 

...

24. It is essential that the authorities follow through with “Phase 2” of the
infrastructure initiative to achieve productivity goals. This will require close cooperation and
coordination between federal and provincial authorities. The federal government should take the
lead in developing a nation-wide infrastructure plan that identifies infrastructure gaps and
prioritizes projects that enhance the economy’s productive capacity. Priority projects could
include those that reduce urban transportation congestion, and improve and expand trade
corridors. As a first step, a forum to bring together and engage all relevant stakeholders should
be established. Furthermore, new and innovative sources of funding are needed to support the
infrastructure plan to limit the impact on debt at the provincial and municipal level. We welcome
the financing options elaborated in the 2016 Budget that include greater involvement of public
pension plans, user fees, and more creative use of public private partnerships.

25. As a longer-term reform agenda, the authorities should consider the impact of
escalating health care costs and aging pressures on provincial finances. Fiscal gaps at the
provincial level could emerge and widen over time, with material implications on provincial debt
burdens within a 15–20 year time frame. This puts the onus first and foremost on provinces to
adjust their spending priorities.

...

44. The federal government is committed to maintaining its low debt burden. In Budget
2016, the federal government announced that it is committed to undertaking investments in the
economy while maintaining Canada’s fiscal strength by reducing the federal debt-to-GDP ratio to
a lower level over a five-year period. A timeline for balancing the budget will be set when growth
is forecast to remain on a sustainably higher track.

...

51. The long-term policy challenge is to make the best use of the available fiscal space
to accelerate structural reform and diversify Canada’s future sources of growth. Political
resolve along with close collaboration between federal and provincial governments will be
necessary to push the agenda forward, ensure efficient implementation, and overcome
implementation challenges.

. Fiscal policy can play a catalytic role by increasing public infrastructure investment. If done
correctly, public infrastructure investment could pay for itself as debt-financed projects could
have large output effects without increasing the debt-to-GDP ratio. Setting up a nation-wide
infrastructure plan would help raise the quality of infrastructure investment through, among
others, better project appraisal, selection, financing, execution, and rigorous cost-benefit
analysis.

. A multi-pronged approach is needed to improve productivity growth and external
competitiveness. Fiscal policy, through targeted R&D tax incentives to promote innovation
and competition, more generous childcare subsidies to encourage women to join the labor
market, and expanded publicly funded training programs to help workers retool their skills,
would place Canada in a better position to compete in existing and new export markets.

...

The Globe and Mail. 14 Jun 2017. CPPIB weighs in on infrastructure bank
BILL CURRY

Pension fund urges Senate not to change the bank’s governance rules to reflect its own, saying the two entities are very different
Minister of Infrastructure and Communities Amarjeet Sohi responds to a question in the House of Commons on June 5.
The Canada Pension Plan Investment Board is weighing in on the Canada Infrastructure Bank debate for the first time, urging Senators not to follow the advice of some experts who say the bank’s governance should be modelled after the CPPIB.
As the manager of more than $317-billion in assets, the CPPIB is Canada’s largest pension fund. It is also among the many large institutional investors that the Liberal government hopes to attract as partners in Canadian infrastructure projects through the bank.
In a letter sent this week to the Senate, the bank’s senior managing director, Michel Leduc, said the differences between the CPPIB and the infrastructure bank mean that they require different forms of governance.
“Crown corporations are not homogeneous; the optimal balance between public accountability and commercial autonomy must differ as a matter of public policy from one to another,” Mr. Leduc wrote.
The Canada Infrastructure Bank Act is included as part of C-44, the Liberals’ omnibus budget bill, and the Senate began its public debate of legislation Tuesday evening.
Senators are facing heavy pressure from the government to pass the legislation before the summer recess. Finance Minister Bill Morneau and Infrastructure Minister Amarjeet Sohi have bolstered their public advocacy of the bill in recent days, while former pension executive Jim Leech, the government’s senior adviser on the issue, wrote an essay this week in support of the legislation’s current governance rules, which are a point of contention.
Following a recent prestudy of the bill’s infrastructure sections, the Senate banking committee concluded it was “not convinced” the proposed governance provisions of the bank strike the right balance between the need for government oversight and bank independence.
The conclusion was in relation to concerns that the infrastructure bank will be vulnerable to political interference. Some experts have challenged the fact that the bill would have bank executives serving at the pleasure of government – meaning they could be fired by cabinet at any time. Some have argued the legislation should state that executives can only be fired with cause, as is the case with the CPPIB.
The CPPIB’s governance structure was specifically suggested as a model for the bank by Mr. Morneau’s advisory council on economic growth. Andrew Claerhout, an infrastructure specialist with the Ontario Teachers’ Pension Plan Board, also told senators during a committee appearance that he would prefer to see a governance structure for the bank that is similar to the CPPIB.
However, the letter from the CPPIB pushes back against that view.
“In the case of CPPIB, duties relate to making investments funded exclusively from contributions made by employees and employers; our narrow commercial purpose is to seek a maximum rate of return; and direct and equal accountability to 10 shareholders (nine provinces and federally). These distinguishing characteristics compel striking a different balance,” Mr. Leduc wrote.
As expected, Independent Senator André Pratte gave formal notice on Tuesday of a motion to divide the more-than-300-page omnibus budget bill in a way that would remove a new proposed law called the Canada Infrastructure Bank for further study in the fall. The senator’s motion has not yet been put to a vote.
Mr. Pratte has said his amendment is aimed at delivering a message to the government that it should not include such substantial measures in an omnibus bill, because it makes it significantly more difficult for Parliamentarians to give the initiative a thorough review.
That argument appears to have substantial support among senators, and Mr. Pratte said he may have enough votes for his motion to succeed. The government side is expected to challenge the motion on procedural grounds.
Interviews with senators this week suggested a high degree of uncertainty as to what will happen in the coming days regarding the budget bill.
Independent Senator Yuen Pau Woo, who is sponsoring the budget bill in the Senate, said in his opening speech that Senate concerns over governance are “legitimate.” However, he noted that the legislation includes a fiveyear review, which could allow Parliament to make revisions if necessary.
Mr. Woo said he agreed with the view that it is important for the bank to have appropriate oversight, but that the government should “jolly well” have an oversight role given that it will be the bank’s only shareholder.
“Are we really in a position to micromanage that balance in this chamber?” he asked.
On the issue of opposing omnibus legislation in order to allow for more detailed study, Mr. Woo said “there is very little grounds for splitting the bill” because the Senate held several committee hearings specifically on the bank.

The Globe and Mail. 14 Jun 2017. Infrastructure bank is a chance for the Senate to do what it does best
CAMPBELL CLARK

The Senate should speak up. [André] Pratte notes that separating will only delay the infrastructure bank by a few months. But it would mean separate scrutiny. And it would send a warning about omnibus bills.

Move to split budget bill epitomizes what makes the Red Chamber relevant
Now is a good time for the Senate to rebel. There’s usually little justification for the unelected chamber to oppose the will of an elected government backed by a majority in the elected House of Commons.
But Senator André Pratte has found a prime example of a legitimate Senate role: He wants to split the government’s budget bill to force the proposal for a $35-billion infrastructure bank to go through more scrutiny in Parliament.
It’s the kind of spoke in the wheels that governments really find annoying. The infrastructure bank is supposed to be a centrepiece of the Liberals’ efforts to expand public-works projects, in this case by mustering private financing. Finance Minister Bill Morneau has been working on it for 18 months. By setting it up through the budget bill, the government figured it would pass quickly, before Parliament rises for the summer next week.
But Mr. Pratte is trying to slow it down just a little. On Tuesday, he put forward a Senate motion to split the legislation into two parts, so the bill to create the bank would be examined separately.
He is making himself a nuisance, to his credit. The Senate is in a rare moment of flux, and a majority might just join him.
Usually, the Senate’s contributions to democracy are questionable enough. Unelected senators don’t have a lot of legitimacy when they oppose a bill passed by MPs in the Commons, or even amend it significantly. It was made that way by Constitutional design and it’s increasingly anachronistic.
But Mr. Pratte’s motion is the sort of thing the Senate should do: slow down a government using omnibus legislation and its Commons majority to hustle important matters through Parliament. This is the epitome of Senate’s small-but-specific legitimate role as the chamber of “sober second thought.” No matter how much it annoys the government.
The budget legislation, Bill C-44, is a mammoth catch-all piece of legislation with a laundry list of measures from the March budget, including tax changes, immigration rules, employment-insurance measures, amendments to the Judges Act and four transportation laws, and so on, in a bill counting more than 80,000 words.
Inside it is another bill, the Canada Infrastructure Bank Act, to create the $35-billion bank. Its provisions don’t affect the rest of the budget bill. And it creates something new.
“It’s a new type of financial institution that will have a major impact on how infrastructure is financed, chosen and built in this country,” Mr. Pratte said.
He’s in favour of the bank, by the way. He just thinks Parliament should consider it separately.
The Liberals used to think that way, too. Their 2015 platform promised to end the use of omnibus bills which, they said, Stephen Harper employed “to prevent Parliament from properly reviewing and debating his proposals.”
Now, Mr. Morneau takes the position that if it’s in his budget, it belongs in his budget bill. But that’s just as much a crock now as it was under the Conservatives.
So the Senate should speak up. Mr. Pratte notes that separating will only delay the infrastructure bank by a few months. But it would mean separate scrutiny. And it would send a warning about omnibus bills.
It’s not clear if Mr. Pratte’s effort will succeed. The government might ask the Senate Speaker to declare Mr. Pratte’s motion out of order because it would split a money bill in two, and every bill that appropriates money requires a “Royal recommendation” from a cabinet minister. But splitting the bill doesn’t affect the appropriation, so that probably would not succeed.
Then it’s a question of whether senators vote for it.
It’s a strange time in the Red Chamber. Since Prime Minister Justin Trudeau began appointing independents, party lines have broken down, and senators have chosen to amend more bills – at times, even when it seemed to counter the democratic will of the Commons. Maybe senators will be willing to knock the government back a bit this time.
But it’s June, and they might just want to go home, rather than sitting a few more days to debate budget bills. But this is a good time for senators to wrangle over a point of principle, because it’s a rare occasion when they have one that’s right in their wheelhouse.

Department of Finance Canada, April 7, 2017. Minister Morneau in London to Promote Canada's New Investments for Stronger Partnerships

London, United Kingdom – Canada is open to the world—welcoming new ideas, creative ways of thinking and a diversity of cultures. It's a big part of what makes Canada a great place to invest, grow a business and raise a family. Through Budget 2017, the Government of Canada will continue to strengthen Canada's middle class by deepening its engagement with the world and investing in key partnerships such as the special relationship it has with the United Kingdom.

Canada and the United Kingdom have deep historical ties, bounded by people-to-people connections and a strong global partnership.

Finance Minister Bill Morneau today spoke with U.K. investors at Canada House, where he highlighted the longstanding relationship between Canada and the U.K. and why Canada is a great place to invest and do business.

The Minister spoke about how Budget 2017 will further strengthen Canada's place in the world and give people a real chance at success by equipping them with the skills they need for the good, well-paying jobs in the new, innovative global economy.

Quote
"Canada and the United Kingdom enjoy a partnership that is essential to our shared prosperity, and which has long served as a model for the rest of the world. Working together, we can create more opportunities and prosperity for middle class families in both of our countries."

- Bill Morneau, Minister of Finance

Quick Facts

• The United Kingdom is Canada's most important trade partner in Europe and, from a global perspective, ranks fifth after the United States, China, Mexico and Japan. 
• In 2016, total bilateral trade in goods and services reached nearly CDN$40 billion, and over the last five years, the United Kingdom has been Canada's third-largest goods export market.
• The United Kingdom is an important source of direct foreign investment into Canada, ranking fourth among all countries, and Canadian companies invest heavily in the U.K. In 2015, the two-way stock of investment stood at almost CDN$130 billion.

Speech by the Honourable Bill Morneau, P.C., M.P. April 7, 2017. Building Confidence in Our Economic Future

London, United Kingdom - Thank you, Janice (Charette) for that kind introduction. And thanks to those who helped organize this event here at Canada House today: David Marsh from the Official Monetary and Financial Institutions Forum, and Rachel Pine. And thank you to all of you for coming. It's a pleasure to be here.

I'm thrilled to be back in London.

During my last visit here in November, I had the opportunity to speak with students at my alma mater, the London School of Economics, about what makes the Canada-U.K. relationship so special.

Whether through our history, or through trade, our two countries are deeply connected.

But it is our common values and our continued friendship that truly unite us.

For decades we sustained economic growth in our two countries—and indeed around the world—on hope and optimism, the promise that our hard work would lead to a better life and a better world for our kids and grandkids.

That hope is no longer as clear.

We live in a time when many people are worried that the economy only benefits society's luckiest few. Their anxiety is valid.

One of the greatest challenges we face today as leaders is how to inspire the confidence people need to succeed and that economies need to grow.

In Canada we have been working to fix this.

But back when we first formed government in 2015, our plan was met with skepticism by some in the international community.

At my first G20 Summit in Antalya, Turkey, in 2015, the new plan in Canada was looked upon with curiosity by some of the other representatives.

At the time we had just introduced a number of measures, all directed at helping middle-income Canadians—what we call our "middle class."

A new, tax-free and more generous child benefit.

A tax increase for the richest one per cent.

A tax cut for middle-income earners.

And ambitious investments in infrastructure that put our strong fiscal position to work on things like public transit.

Our goal was, and is, simple: use all the tools we have to grow the economy in a way that benefits all Canadians—and give them a clear signal that their government and their economy are working for them.

Less than a year later, at the G20 Summit in China, the idea that the benefits of growth need to be more widely shared was on everyone's lips and top of the agenda.

A few weeks ago, at the G20 Finance Ministers' Meeting in Germany, it was simply accepted as fact.

For our part, Canada will continue doing what hopeful and optimistic countries do: invest in ourselves. And we are inviting the world to also invest in us and to work with us.

We have proven our resilience and our stability through the global financial crisis and the recent downturn in commodity prices, and we are building on these strengths.

We have the lowest total government net-debt-to-GDP (gross domestic product) ratio of all the countries in the G7.

The International Monetary Fund projects that we will be one of the strongest-growing economies in the G7 in economic growth over the coming years.

We have a highly skilled, diverse and cohesive population, including the best availability of skilled labour in the G20.

Our financial system is sound.

And finally, and maybe most importantly, we work well with others.

We know that Canada's future success is tied to its place in the world.

We can't go it alone.

But we also fundamentally believe partnership is essential to building a more inclusive economy.

Since taking office, we have built a strong case for our plan and our vision.

Consumer spending is up, due in part to our introduction of a middle class tax cut and a new enhanced child benefit.

Unemployment has fallen in the time since we took office in late 2015.

Over the past seven months, the economy generated more jobs than in any seven-month period in a decade.

And the pace of economic expansion is forecast to pick up in 2017.

These are good, early signs of a plan that is working.

But we know there's more to do.

This is why we are not just creating the jobs of today, we're getting people ready for the jobs of tomorrow.

We are supporting a culture of lifelong learning and skills training to help workers and their families adapt to the changing demands of our time—and ensure that Canada remains competitive.

Our aim is to make sure that the benefits of a more innovative society are shared equally across genders, generations and geography.

For us to accomplish our goals in Canada, we will continue to build global trading partnerships that create growth for all Canadians.

That means being champions for trade and selling what we do in Canada to the world.

That also means selling the benefits of trade to Canadians and people around the world.

That is the message I bring to international forums, and that is the message I bring when I meet with people like United States Secretary of the Treasury Steven Mnuchin.

And the more time I spend in the United States promoting Canada and promoting our trading relationship, the more I understand how much we agree on this.

Trade needs to bring real benefits to people—people who may be struggling, people who are worried about their children's futures.

Those same people will support trade if they see it creating better jobs and making their lives more affordable.

That is how you restore hope and bring optimism back to people who have lost it.

That is what people expect of their government, and I for one fully intend to make sure that we work hard to deliver.

Thank you. I am happy to take a few questions.

Budget Plan

...

Chapter 2—Communities Built for Change

...

Delivering Results With the Canada Infrastructure Bank

In its 2016 Fall Economic Statement, the Government announced plans to establish a new Canada Infrastructure Bank, an arm's-length organization that will work with provincial, territorial, municipal, Indigenous and private sector investment partners to transform the way infrastructure is planned, funded and delivered in Canada.

Leveraging the expertise and capital of the private sector, the Canada Infrastructure Bank will provide better results for middle class Canadians. Public dollars will go farther and be used more strategically, maximizing opportunities to create the good, well-paying jobs needed to grow the middle class now, and strengthen Canada's economy over the long term.

The Canada Infrastructure Bank will be responsible for investing at least $35 billion over 11 years, using loans, loan guarantees and equity investments. These investments will be made strategically, with a focus on large, transformative projects such as regional transit plans, transportation networks and electricity grid interconnections.

Accelerated Implementation

To ensure that funds can begin to be invested in a timely manner, the Government will soon propose legislation establishing the Canada Infrastructure Bank.

The Government will begin a process to identify the Bank's Chief Executive Officer and Chairperson of the Board of Directors, with the goal of having the Canada Infrastructure Bank operational in late 2017.

Better Decisions Through Better Data

To help municipalities better track, collect, use and share the data needed to measure the impact of infrastructure investments, the Government of Canada and the Canada Infrastructure Bank will work in partnership with provinces, territories, municipalities and Statistics Canada to undertake an ambitious data initiative on Canadian infrastructure.

The data initiative will help all levels of government by providing intelligence to better direct infrastructure investments, and will support efforts to:

• Provide comparable data and information on issues such as infrastructure demand and usage for jurisdictions across the country.
• Provide a national picture on the state and performance of public infrastructure across asset classes.
• Deliver high-quality data analytics to help inform policy and decision-making, and promote fact-based dialogue between all orders of government.
• Track the impacts of infrastructure investments so that governments can report back to Canadians on what has been achieved.

Further details on the initiative will be announced in the coming months.

Department of Finance. March 22, 2017. Budget 2017 — Building a Strong Middle Class. Remarks by the Honourable Bill Morneau, P.C., M.P.

...

Infrastructure

Across the country, we’re building stronger communities.

We’re doing it by creating jobs, shortening commutes, ensuring clean air and water, and improving quality of life for millions of Canadians.

In the last year and a half, 744 public transit projects have been approved and are creating good, well-paying jobs for Canadians.

In Calgary and Ottawa, long-awaited and transformative light rail transit projects are underway.

In Montréal and Vancouver, riders can look forward to a more enjoyable commute thanks to rehabilitation work being done to the metro and SkyTrain systems.

We’re repairing nearly 50,000 social housing units, to make sure families have a safe and secure place to live.

We’ve lifted 18 long-term boil water advisories in First Nations communities, getting us closer to our ultimate goal of ensuring that every child in Canada has access to clean drinking water.

Ten years from now, our cities, towns, and northern and rural communities will be healthier and better connected.

Our air and water will be cleaner.

More Canadian goods will get to international markets.

And modern, efficient public transit systems will get hard-working parents home more quickly at the end of a long day.

HOUSING BUBBLE

The Globe and Mail. Jun. 12, 2017. Home Capital unit under scrutiny over anti-money-laundering controls
RITA TRICHUR

Home Trust Co., the main operating subsidiary of troubled alternative mortgage lender Home Capital Group Inc., is beefing up its anti-money-laundering controls under orders from Canada’s banking regulator.

Toronto-based Home Trust, which offers mortgages, credit cards and deposit products to thousands of customers across the country, was put under heightened scrutiny by the Office of the Superintendent of Financial Institutions starting in late June, 2015, according to a person familiar with the matter who spoke on condition of anonymity because the person is not authorized to speak to the media.

In doing so, OSFI issued a warning to the lender about problems with its anti-money-laundering compliance procedures and its risk-management practices, that person said.

That intervention process, known as staging, is triggered when OSFI formally instructs a financial institution to fix a significant problem.

When a lender is staged, it is given a rating ranging from one to four, depending on the severity of the issue, according to a document on OSFI’s website. OSFI uses its discretionary powers, including imposing restrictions on a staged lender, to oversee the remedial action.

The staging process that began in 2015 is OSFI’s third such intervention at Home Trust in about 12 years focused on weak anti-money-laundering controls. It was never disclosed to the public, as both OSFI and the lenders it supervises are prohibited from making such disclosures.

Those confidentiality provisions, outlined in federal statutes, keep consumers and investors in the dark when a company is in crisis.

Confidentiality provisions shield regulators and lenders from public scrutiny on certain matters, though part of the rationale for them is to minimize the likelihood of depositor runs that would destabilize financial institutions.

Parent firm Home Capital, which is Canada’s largest alternative lender, has faced a crisis of confidence in recent months, including a run on its deposits, in the wake of an Ontario Securities Commission probe into the company’s disclosures about its mortgage business. The flight of capital has caused the lender to lose about $1.8-billion in deposits from high-interest savings accounts since the end of March. The pace of withdrawals accelerated in April after the OSC disclosed detailed allegations against Home Capital as part of a separate regulatory probe, accusing the company of misleading investors about why it was originating fewer mortgages.

The OSC allegations had the effect of spooking major investment firms, making them leery of putting customer money in Home Capital deposit products. The confluence of events has left the alternative lender mulling various strategic options, including a sale, as it seeks new consumer deposits to shore up its funding base. The Globe and Mail reported last week that a number of private-equity firms have put forward preliminary proposals to buy or recapitalize the company.

OSFI’s review of Home Trust’s anti-money-laundering compliance comes at a time when Canada is facing international pressure to combat financial crime. Last year, the Financial Action Task Force (FATF), an intergovernmental body, identified gaps in Canada’s anti-money-laundering regime, including heightened risks in the real estate sector such as mortgage fraud. The FATF, which urged more supervision of the real estate industry, noted that organized crime groups involved in mortgage fraud launder money through banks, money service businesses, trust accounts and other businesses.

OSFI’s staging of Home Trust does not mean the lender is complicit in any money-laundering – only that, in the regulator’s view, its controls for preventing such activities are not as strong as they need to be. Generally speaking, regulators require lenders to weed out risky customers, keep proper records and report suspicious transactions.

Home Trust is not the only domestic lender to run afoul of regulators due to weak anti-money-laundering controls. OSFI recorded 72 failures of anti-money-laundering controls at Canadian banks between 2009 and 2014 alone, according to a 2015 story in The Wall Street Journal that cited a document released under the Access to Information Act.

Last year, Manulife Bank, a subsidiary of insurer Manulife Financial, paid a $1.15-million penalty to the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) for “administrative reporting lapses.” FinTRAC is the federal anti-money laundering watchdog and enforces the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Separately, Bank of Nova Scotia and Bank of Montreal were ordered by U.S. regulators to fix deficiencies in their respective anti-money-laundering controls in recent years, according to public disclosures.

OSFI’s current staging is linked to Home Capital’s discovery in 2014 and 2015 of mortgage-documentation fraud in its broker channels relating to income verification for mortgage applicants, the person said. The falsifications triggered concerns that Home Capital’s principal operating arm, Home Trust, was fuelling its growth in part through lending practices that could have enabled the circumvention of federal anti-money-laundering and anti-terrorist financing regulations in addition to OSFI’s mortgage underwriting rules, that person added.

In addition to faulty income verification, OSFI’s anti-money-laundering concerns centred on Home Trust’s monitoring of the roughly 6,440 tainted mortgages that it had uncovered by early 2015, that person said. Home Trust was instructed to take a close look at the gifts of cash some customers used to fund their down payments, the person added.

OSFI’s mortgage underwriting rules, known as the B-20 guideline, require lenders to determine the source of down payments. OSFI also raised concerns about Home Trust’s risk-management practices, including its handling of credit risk, and oversight by the company’s board of directors, that person said. The regulator was also concerned about risks with the lender’s business model, including its reliance on deposits gathered by brokers and its dependence on the Ontario market. At the end of last year, 84 per cent of Home Capital’s mortgage and loan portfolio was to customers in the province, exposing the company to risks associated with high property prices in the booming Greater Toronto market.

Other concerns centred on the risk profile of the alternative lender’s core client base, which is composed of customers who don’t qualify for home loans from major banks, that person added.

Home Capital, in response to OSFI’s concerns, made a number of changes, including adopting a new charter for the board of directors and adding new directors to beef up corporate governance, the person said. For instance, Brenda Eprile, a former senior partner specializing in risk at PricewaterhouseCoopers, became an independent director of Home Capital in 2016, but was elevated to board chair earlier this year.

“I agreed to join the board of Home Capital in 2016 and to become the chair in 2017 because I believe in the fundamental business premise of Home Capital, which is to assist home buyers, many of whom are new Canadians, to obtain mortgage financing and achieve their dreams of home ownership,” Ms. Eprile said in an e-mailed statement provided by a spokesman.

Home Trust also overhauled its internal processes to better connect mortgage originations with the underwriting of those loans. The lender improved the quality-assurance functions within its compliance department and established performance management frameworks, that person added.

“As the prudential regulator of Canadian financial institutions, it is OSFI’s job to actively monitor and provide ongoing feedback to all financial institutions regarding their business and governance,” Boyd Erman, an external spokesman for Home Capital, wrote in an e-mailed statement.

“It would be illegal for us or for OSFI to directly or indirectly disclose those communications or provide you with any details regarding any discussions with OSFI. However, we can confirm that we have always responded to and addressed any issues raised by OSFI and we have a very good working relationship with OSFI,” he added.

When asked if the lender made a number of changes – including to its internal processes and corporate governance, in response to OSFI’s concerns – Mr. Erman stated: “Following the suspended-broker situation that took place more than two years ago, the company proactively reviewed and overhauled multiple internal processes to strengthen compliance and to create a more robust risk and control framework.”

In a separate written statement, OSFI said that “pursuant to its statutory confidentiality obligations, OSFI does not disclose supervisory actions about any of the institutions it supervises.” Spokeswoman Annik Faucher also said that “financial institutions regulated by OSFI are prohibited from disclosing such information except in the limited cases permitted in the regulations, and on the condition that the information remains confidential.”

Separately, Home Capital is facing allegations from the OSC that it, along with three former top-level executives, made misleading public disclosures about a slowdown in its mortgage originations as it strengthened its underwriting standards and took other steps to stamp out mortgage fraud. (One of the three executives, former chief financial officer Robert Morton, remains with the company in a reduced role.) Home Capital has previously said its public statements satisfied applicable disclosure requirements.

“The OSC is not privy to information about OSFI’s supervisory activities,” OSC spokeswoman Kristen Rose said in an e-mail. “We also cannot comment on legislation administered by another regulator or agency. With regards to anti-money-laundering matters, please note that these fall under federal jurisdiction,” she added.

This isn’t the first time that OSFI has staged Home Trust to fix compliance and risk management deficiencies, according to two people familiar with the matter. The lender was the subject of a similar regulatory intervention during a period spanning 2005 to 2009, due to ineffective anti-money-laundering compliance and credit-risk issues, one of those people said. Pressure to shore up those controls intensified during the global financial crisis, with OSFI stepping up its supervision of the lender at that time, the second person said.

But about two years after that remedial process concluded, the regulator once again intervened at Home Trust over compliance issues. Between late 2011 and early 2014, OSFI staged Home Trust for a second time; zeroing in on anti-money-laundering and anti-terrorism financing deficiencies in addition to concerns about oversight by the board of directors, the first person said.

Home Capital declined further comment for this story. “As already noted, it would be illegal for us or for OSFI to directly or indirectly disclose the communications we have had with OSFI or provide you with any details regarding any communications with OSFI,” Mr. Erman said.

FinTRAC declined to comment on whether OSFI had ever shared the details of its staging review of Home Trust with its officials, and would not disclose whether it has examined Home Trust for compliance failures on anti-money-laundering rules. FinTRAC and OSFI conduct concurrent reviews of financial institutions, but OSFI has much broader supervisory powers.

“Under the legislation, FinTRAC cannot comment on compliance actions it may have undertaken regarding specific entities subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act,” spokesperson Renée Bercier said in an e-mail.

As part of its current OSFI staging process, which began nearly two years ago, Home Trust hired outside consultants to fix its compliance problems and has taken a number of steps to fortify its controls. For example, an independent team was established to confirm employment checks for all borrowers.

Professional services firm KPMG was also hired to conduct a third-party review of the company’s internal investigation into document fraud, known as Project Trillium. By early 2015, more than 6,400 compromised mortgages had been identified, the first person said. The vast majority of those accounts were reviewed and fixed by the spring of 2016.

External consultants were also engaged to review corporate governance practices and the company’s senior management team, leading to a number of changes to the top executive ranks. KPMG declined comment for this story, citing client confidentiality.

For years, parent Home Capital positioned itself as a growth company with residential mortgages comprising the bulk of its business. As its principal operating arm, Home Trust has a significant market share of so-called Alt-A residential first mortgages, which are geared to consumers, such as new immigrants or self-employed applicants, who don’t qualify for conventional home loans from major banks.

Home Capital, however, is facing an uncertain future. The company, which is seeking new funding, has been drawing on an emergency loan from the Healthcare of Ontario Pension Plan as a result of the rapid withdrawal of customer deposits, which have impaired its ability to fund its mortgage business.

Investigation: Mayday at Home Capital: https://www.theglobeandmail.com/report-on-business/home-capital-saga-real-estate/article34972594/

REUTERS. Jun 9, 2017. Home Capital approached by Catalyst Capital: Globe & Mail

TORONTO (Reuters) - Private equity fund Catalyst Capital Group Inc recently proposed a strategic partnership with Home Capital Group Inc (HCG.TO: Quote) that would see it injecting new capital into the lender, the Toronto-based Globe & Mail newspaper reported on Friday.

Citing sources familiar with the proposal, the Globe & Mail reported that Catalyst, an asset manager that focuses on distressed companies, had also put forward a proposed new management team for Home Capital with banking experience.

Home Capital is currently recruiting a new chief executive and chief financial officer.

The report said Catalyst is understood to have lined up support for the proposal from a group of institutional investors.

Depositors have withdrawn 95 percent of funds from Home Capital's high interest savings accounts since March 27, when the company terminated the employment of former Chief Executive Martin Reid.

The withdrawals accelerated after April 19, when the Ontario Securities Commission, Canada's biggest securities regulator, accused Home Capital of making misleading statements to investors about its mortgage underwriting business.

The company has said the accusations are without merit. Its funding has stabilized.

Home Capital declined to comment. Catalyst Capital did not respond to requests for comment.

(Reporting by Matt Scuffham)

The Globe and Mail. Jun. 11, 2017. Canada’s new housing risk: uninsured mortgages
BARRIE MCKENNA

OTTAWA — It is the law of unintended consequences.

The federal government wanted to cool the hot housing market. So it moved last fall to limit access to mortgage insurance.

That seemed like a sensible step. Insurance is required for all mortgages when the buyer puts down less than 20 per cent of the purchase price – so-called “high-ratio” mortgages. Federal authorities hoped to curb risky borrowing by prohibiting access to insurance for homes worth more than $1-million and for mortgages amortized over more than 25 years.

It has only partially worked. Yes, the number of new high-ratio mortgages is down sharply.

The problem is that many Canadians are now bypassing mortgage insurance altogether, creating new risks for borrowers and lenders. Buyers are choosing to make larger down payments on more expensive homes and stretching out amortization periods, exacerbating the country’s debt problem. Meanwhile, lenders are more exposed because a growing share of their mortgage portfolios is not insured against defaults.

An increasing share of new mortgage lending is for these low-ratio mortgages, partly because so many homes in Toronto and Vancouver are selling for more than $1-million and don’t qualify for insurance, according to the Bank of Canada’s latest Financial System Review, released last week.

“The changes to mortgage insurance rules in autumn 2016 and an increase in mortgage insurance premiums may have encouraged some borrowers to increase their down payment to access a low-ratio mortgage,” the bank acknowledged.

The result is that the Toronto and Vancouver housing markets have largely stayed hot despite the new mortgage rules.

Almost half of Canada’s $1.5-trillion mortgage market – 46 per cent – is now comprised of uninsured loans, according to the Bank of Canada. More than 80 per cent of new mortgages issued by the Big Six Banks in the Toronto and Vancouver areas are low-ratio loans, which don’t require insurance.

It’s not clear where Canadians are getting the money to put up the larger down payments. It’s one thing if the money is coming from the “Bank of Mom and Dad” – as Bank of Canada senior deputy governor Carolyn Wilkins told reporters. But if buyers are dipping into lines of credit or taking out secondary loans from unregulated financial institutions, they may be putting themselves, and the financial system, at risk.

Many analysts have watched in alarm as the ratio of debt to disposable income has continued its steady rise in Canada in recent years. The ratio is now just shy of 170 per cent – well above what it was in the United States before the housing market there crashed a decade ago.

In some respects, home buyers are responding rationally. Sure, they are taking on more debt relative to what they earn, but debt-service costs have remained virtually unchanged for the past 25 years relative to incomes, according to C.D. Howe Institute economist and senior policy analyst Jeremy Kronick.

What people care about is their monthly mortgage payments. Canadians are taking on more debt to buy more expensive homes, but that has been offset by sharply lower interest rates. The result is that overall debt-service costs have barely budged.

Hidden in the debt-service ratio is the fact that the composition of mortgages has changed. The overall debt burden has shifted from interest costs to principal, Mr. Kronick points out in a recent C.D. Howe report. Canadians are taking on a lot more debt.

“Households are more leveraged and more vulnerable, with principal making up a larger share of monthly housing payments,” the report concludes.

The concern now is what happens if something comes along to unwind the hot market, such as higher interest rates or a recession.

Mr. Kronick worries that Canadians may be ill-prepared for a housing shock. They have kept up their spending in other areas – on cars, home furnishings, technology and the like – even as their housing debt has piled up. Essentially, he said, people are spending their accumulated housing wealth and depriving themselves of a “buffer” if house prices fall.

The bottom line is that government efforts to discourage risky borrowing are, at best, half-measures.

They may even be inciting some Canadians to do the wrong thing.

SOFTWOOD LUMBER

The Globe and Mail. Jun. 12, 2017. Canada, U.S. still ‘far apart’ on softwood negotiations: Freeland
NICOLAS VAN PRAET

MONTREAL — Canada and the United States are still “far apart” in their softwood lumber negotiations, federal Foreign Affairs Minister Chrystia Freeland says, adding talks nevertheless continue to find a resolution.

The U.S. Department of Commerce slapped countervailing duties of nearly 20 per cent on most Canadian softwood shipments to the United States earlier this year after a complaint from the American lumber lobby. The issue is one of several in what appears to be an escalating trade fight between Canada and the United States.

ENERGY

REUTERS. Jun 12, 2017. Oil rises as investors buy into U.S. crude
By Amanda Cooper

LONDON (Reuters) - Oil rose on Monday to break a two-day losing streak, after futures traders increased their bets on a renewed price upswing even though rising U.S. drilling helped keep physical markets bloated.

Brent crude futures LCOc1 were up by 63 cents at $48.78 a barrel by 1405 GMT, having hit a session high of $49.15. U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 61 cents to $46.44, having peaked at $46.69.

Traders and analysts said the bounce looked technical in nature, after WTI rallied and encouraged a similar move in the Brent market. But they said the move might prove fleeting.

"When you start to approach $45 a barrel in WTI, you're in an area where you do find some price support and I think there has been some evidence last week of investment flows coming back into crude oil," Petromatrix strategist Olivier Jakob said.

"You have to be careful not to be too optimistic for now," he said. "Physical differentials are still under pressure and the time structure is still under pressure in Brent. It's a bit premature to call for much higher oil prices."

Traders said the price rises came as data showed speculative traders had increased their investment in crude futures by taking on large volumes of long positions.

"Oil bulls have reset for a technical bounce," said Stephen Schork, author of the Schork Report.

While financial traders have confidence in rising prices, the physical market remains under pressure, especially due to a rise in U.S. drilling.

U.S. drillers added eight oil rigs in the week to June 9 RIG-OL-USA-BHI, bringing the total count to 741, the most since April 2015, energy services firm Baker Hughes Inc (BHI.N: Quote) said on Friday.

U.S. output has risen by more than 10 percent since mid-2016, undermining OPEC-led pledges to cut almost 1.8 million bpd of production until the first quarter of 2018.

The oil price slid to one-month lows last week as evidence of rising output in Libya and Nigeria, two OPEC members excluded from the cuts, added to investor concerns about excess supply.

"With the typically tighter second half of the year fast approaching, rumors of oil prices having found their bottom are doing the rounds," PVM Oil Associates analyst Stephen Brennock said in a note.

"Yet such claims are premature as lingering doubts that prolonged OPEC curbs will drain the oil glut along with the simultaneous uptick in U.S., Libyan and Nigerian output make for a bearish cocktail," he wrote.

(This version of the story corrects reference to losing streak in paragraph one to two days).

(Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and David Goodman)

BLOOMBERG. 2017 M06 12. America's Stubborn Oil-Supply Glut Catches Funds Off Guard
by Jessica Summers

• Money managers’ net-long position at most bullish since April
• Longs rose, shorts declined, just before oil slumped 5 percent

Crude markets are taking oil optimists by surprise yet again.
Hedge funds boosted bets on a rally just before West Texas Intermediate prices tanked from a report showing surging American stockpiles. Wagers rose 7.3 percent to the highest since April in the week through June 6, U.S. Commodity Futures Trading Commission data show. The next day, futures fell the most since March and are lingering near this year’s lows.

“The last thing the market needed to see was that inventories in the U.S. went up, when they are supposed to be going down seasonally,” Tamar Essner, an energy analyst at Nasdaq Inc. in New York, said by telephone. The report “shows that there are some bulls that are starting to get more interested in the market, but I imagine that when we get the CFTC data next week to reflect the Wednesday selloff, we’ll see a bit of a reversal.”



All eyes turned to what’s happening in the U.S. market after OPEC’s deal to limit output failed to impress investors as it didn’t include deeper cuts, additional allied countries or an exit plan. The report that American supplies of crude and products jumped the most since 2008 came as the last nail in the coffin. Futures -- after reaching $52 a barrel in the run-up to the group’s meeting in Vienna last month -- plunged to near $45 last week and traded near $46 on Monday.

Blame it largely on shale. As explorers in Texas lead the longest U.S. drilling revival on record, confidence in OPEC’s strategy wanes. Igor Sechin, chief executive officer of Russian giant producer Rosneft Oil Co. PJSC, is among those who doubt the deal to reduce supplies will stabilize the market over the long term as U.S. shale fills the shortfall.

Bearish Outlook

Not only did supplies in the U.S. surge in last week’s Energy Information Administration report, but the agency also forecasts U.S. crude output will average more than 10 million barrels a day next year for the first time. Not even tension in the Middle East was able to get oil to pick up steam last week after the shock waves sent by the EIA report.

Hedge funds increased their WTI net-long position, or the difference between bets on a price increase and wagers on a drop, by 15,037 to 221,140 futures and options, the CFTC data show. Longs rose by 2.5 percent, while shorts decreased by 7.4 percent. Net-long positions in Brent declined. Speculators’ wagers on the grade, the global benchmark traded in London, decreased by 42,357 contracts to 307,523, data from ICE Futures Europe showed.

Money managers also boosted their net-long position on the benchmark U.S. gasoline contract, by 6.5 percent. Wagers on diesel flipped to a net-short position.

U.S. total crude and product stockpiles increased by 15.5 million barrels to 1.35 billion in the week ended June 2, according to EIA data. Nationwide crude imports climbed by 356,000 barrels a day and exports dropped by 746,000 barrels a day, the largest decline on record.

“Usually, this time of a year, you see draws. It caught a lot of people off guard,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, said by telephone. “It’s lower for longer, that’s what we feel.”

Growing Doubts

Before oil took a tumble, some banks were already having doubts on the market. Goldman Sachs Group Inc.’s equities team slashed its WTI and Brent price forecasts for this year and Citigroup Inc. said the Organization of Petroleum Exporting Countries needs to give more clarity on the group’s process for targeting stockpiles as it cuts output to ease a global glut.

“My view is one that is cautious on the oil market,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle, which oversees $142 billion of assets. “Prices are low and probably headed lower because fundamentals aren’t supporting you, and at some point, as we get back into the lower part of the 40’s, we’ll have to see if OPEC does defend again.”

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LGCJ.: