7 November 2008

Worst yet to come: Flaherty

The following is excerpted from the 7 November 2008 edition of “globeandmail.com”.

The worst of the global credit crisis is not over yet, Finance Minister Jim Flaherty said yesterday, and he warned some G20 countries are likely to push for protectionist measures at coming talks.

"I'm starting to worry a bit that some people seem to think that things have improved significantly. In my view they have not," Mr. Flaherty said in an interview on the sidelines of a separate meeting of finance officials of 21 Asia-Pacific economies…

Mr. Flaherty, the only top-level official from the G7 major industrial nations at the Asia-Pacific Economic Co-operation forum meeting in Peru, is heading to Sao Paulo for this weekend's huddle with finance ministers and central bankers from the G20, the world's leading industrialized economies.

There they aim to lay the groundwork for a plan to rebuild the global financial system and prevent future crises, to be endorsed by G20 leaders at a summit in Washington on Nov. 15.

Mr. Flaherty warned against sliding into the temptation of erecting trade barriers to protect local economies or of overreacting with cumbersome regulations or ambitious plans to reinvent global capitalism…

The middle of a crisis is not a good time to be creating new international mechanisms for regulation and surveillance, he said.

The idea of a "new Bretton Woods" agreement, advocated by some European leaders, is not pragmatic at this time of urgency, he said. "It's not what one does in the midst of a crisis."

Mr. Flaherty said that in Canada, the federal government is keeping all options open amid growing cries for help from businesses hurt by the financial crisis.

He also said he had met with several of U.S. president-elect Barack Obama's economic advisers just days before Mr. Obama won the election, to co-ordinate a response to the global crisis.

Mr. Flaherty has already offered up to $25-billion to domestic banks through purchases of insured mortgages, as well as extending guarantees to Canadian banks in wholesale credit markets. Ottawa could boost the mortgage purchase plan to double or more and has a "ladder" of other options at its disposal that it can implement if necessary, he said without elaborating.

Manufacturers, hit hard by the credit crisis and economic slowdown, especially in the United States, have now pressed Ottawa for loan guarantees and lines of credit.

The Finance Minister said that while he seeks to avoid what he would consider "bailouts" of specific businesses, he is mindful that these are extraordinary circumstances that may require unusual measures.

"These are uncharted waters. We have to be pragmatic. There's no closed-mindedness, there's no ideological refusal to consider proposals."

Ottawa's priority in deciding whom to grant special aid is the need to ensure good borrowing conditions, he said…

Mr. Flaherty said he is particularly concerned about the Canadian auto sector, which exports to the United States but will be hurting from the expected recession there…