4 November 2008

Industry pleads for help to ease 'crisis'

The following article is excerpted from the 4 November 2008 edition of “globeandmail.com”.

The besieged manufacturing industry is calling on the Harper government to come to the aid of the country's factories the same way it intervened to support the banks.

In a letter challenging Prime Minister Stephen Harper's aversion to subsidizing business, a group of 43 industry associations that represent companies ranging from lumber producers to technology-gear makers said Canada's factories are struggling to obtain affordable loans and lines of credit, exacerbating the threat posed by a global recession.

"Your government must act urgently to ensure that financing remains available to otherwise creditworthy companies," said the letter, signed by the members of the Canadian Manufacturing Coalition. "The Minister of Finance and the Bank of Canada have taken important and positive steps to backstop Canadian banks and ensure liquidity in our credit markets. But credit is still not available to many of our businesses."

The recommendations include sweeping proposals such as "ensuring that credit continues to be available" and a sprinkling of long-standing demands, such as making tax credits for research and development refundable, is also included.

But also among the coalition's requests was a specific demand to introduce temporary guarantees for loans and lines of credit "so that our financial system works for otherwise creditworthy businesses facing the prospect of a sharp downturn in demand."

At the same time, the Business Development Bank and Export Development Canada should be made to be "more pro-active" in providing credit and financial support….

… [T]he manufacturing coalition may be facing a tough sell. Mr. Harper, already facing the first budget deficit in more than a decade, tends to oppose subsidizing business.

And while Finance Minister Jim Flaherty did agree last month to temporarily guarantee banks' medium and longer-term lending to other banks, financial institutions have the argument of being "systemically" important to the entire economy. While the bankruptcy of an automotive parts maker hurts a city or even a region, it doesn't threaten the national economy in the way the seizing of credit markets does….

Along with the banking guarantee, which followed similar moves by at least a dozen other nations, Mr. Flaherty recently announced a $25-billion program to buy mortgages from the banks, a move that was designed to boost liquidity and encourage lending.

Mr. Flaherty has signalled that he would be willing to increase the size of that program. The Conservative government also recently increased credit available from BDC by $2-billion.

Some of Canada's lenders took exception to the notion that they are somehow hindering their factory clients' ability to weather the global downturn….

With the drying up of credit markets, companies that are highly leveraged will have the hardest time making it through the next year.

Newsprint giant AbitibiBowater Inc., for example, has been singled out as one player in danger of ending up on the critical list….

Some of the steps manufacturers urged the Prime Minister to take in a letter yesterday:

Introduce temporary guarantees for loans and lines of credit.
Provide credit and financial support via the Business Development Bank of Canada or Export Development Canada.
Invest in transportation, border, communications and energy infrastructure.
Expand the two-year depreciation for investments in manufacturing equipment for an additional five years.
Make research and development tax credits refundable.