9 November 2007

Harper urged to take action on dollar

The following was excerpted from the 9 November 2007 edition of “globeandmail.com”.

Prime Minister Stephen Harper is facing mounting pressure from provincial leaders to help blunt the impact of the high-flying dollar on the economy.

The latest calls for action came yesterday from the premiers of Ontario and Quebec, whose economies have been hit by the swift appreciation of the currency.

Ontario Premier Dalton McGuinty met privately with Mr. Harper yesterday in Toronto, where he asked Ottawa to take part in a provincial program that will pump $1.1-billion into the struggling auto sector to lure new investment focused on environmentally friendly technologies.

Mr. McGuinty described the meeting as a broad-ranging discussion that focused on many issues, including the economy.

Quebec has already asked for federal money to help retrain older forestry workers and help manufacturers become more competitive by developing new products.

Quebec Premier Jean Charest also called yesterday for a first ministers conference to address the effects of the strong dollar.

"I think it's urgent," Mr. Charest said in the National Assembly….

Ontario and Alberta welcomed Quebec's proposal.

Both Ontario and Quebec have called for the Bank of Canada to lower interest rates. But while Mr. Harper voiced his own concerns this week about the dollar's unprecedented ascent, his government has signalled that its hands are essentially tied. Not only is monetary policy the responsibility of the central bank, the dollar is largely at the mercy of events outside of Canada.

While the currency is driven in part by Canada's booming resource sector, the biggest impact is from the meltdown in the U.S. subprime mortgage market, which has weakened the U.S. economy.

The premiers are pressing Ottawa to come to the aid of manufacturers and exporters, those hardest hit by the dollar, which has gained about 25 per cent in value against its U.S. counterpart this year.

The dollar slipped yesterday to $1.0684 (U.S.) as oil prices declined. Wednesday, the currency rose to a record high of $1.1024 before sliding to $1.0745 - the sharpest move in 12 years in percentage terms.
Ontario has shed 174,000 manufacturing jobs since 2002. The bleeding continued yesterday, with Buchanan Forest Products announcing that the dollar is forcing it to lay off up to 800 workers and temporarily close four mills.

"The Prime Minister expressed some interest in seeing what we might do together to help the manufacturing sector generally and the auto sector more specifically," Mr. McGuinty told reporters.

Mr. Charest urged the federal government to introduce measures to deal with specific areas of the economy such as forestry and manufacturing.

The Prime Minister's Office said Mr. Harper is open to meeting the premiers. Spokesman Dimitri Soudas said Mr. Harper several months ago told the chairman of the Council of the Federation - which represents the premiers - that he would be interested in an informal meeting at his residence in Ottawa either later this year or early in 2008.

But Mr. Harper said yesterday that he favours using tax cuts to jump-start the economy. "Keeping taxes down, not raising them back up, is key to moving this country in the right direction," he said in a speech to the Canadian Club….

Since 2002, on a trade-weighted basis, the U.S. dollar has declined about 20 per cent against the currencies of its 37 most important trading partners.

Finance ministers and central bankers will gather in South Africa next week to discuss the havoc the weakened U.S. dollar is causing on global currency markets.