22 November 2008
Lima, Peru
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Thank you very much. Thank you, Jaime, for your kind introduction. President Garcia, distinguished guests, ladies and gentlemen.
First, thank you for inviting me to address the 2008 APEC CEO Summit here in Lima. This is the second time I have had the privilege of speaking at this important gathering. I thank APEC for again extending me this opportunity.
I would also like to extend my gratitude to President Garcia and all Peruvians for their warm welcome to this meeting of APEC economic leaders. I say this in French because, for President Garcia and I, the founding language of Canada is also our second language, and the one we use when we speak with each other.
Finally, I want to thank and recognize some young Canadians here with us today – the delegates from Junior Team Canada. Young people like these are the next generation of our leaders. Perhaps more than any of us, they have a vested interest in finding solutions to the challenges facing the world today, and for the long term.
The APEC CEO Summit brings together many of the brightest and best business minds from both sides of that vast ocean. It's an opportunity to share perspectives and exchange ideas, and it could not have come at a better time. As everyone here knows, the financial crisis has become an economic crisis, and the world is entering an economic period unlike, and potentially as dangerous as anything we have faced since 1929. Your expertise and effort will be critical as our respective countries work to mitigate the effects of this crisis.
A week ago, I was in Washington, where G20 leaders discussed the situation. We will have similar discussions this weekend at APEC. We will be advancing the principles behind Canada's own approach to economic policy on financial sector policy, monetary policy, fiscal policy, and trade policy – an approach which I call "Sound Foundations and Open Doors."
Specifically, Canada has a solid and stable financial system, in fact the World Economic Forum says it is the strongest in the world. Our banks are competitive,
but also reasonably and effectively regulated nationally, with minimal exposure to toxic assets. Canada also has long had low and stable inflation, generally staying in the one to three per cent range.
As well, Canada has a strong budgetary position. The federal budget remains in surplus, as are the budgets of most other governments in the country. Our debt burden is now the lowest in the G-7. And of course Canada is one of the most trade and market-dependent economies in the world, while maintaining strong social services and social insurance, including an actuarially sound public pension system.
Of course, our situation is not perfect. Given that our closest neighbour and largest trading partner is the epicentre of the financial earthquake and global slowdown, the affects are real and the impetus for immediate action has been particularly great. We have taken dramatic actions on the financial, monetary and fiscal policy side, and we anticipate more actions.
At the same time, we want to ensure that these actions, which are essential in the short term, do not undermine the sound foundations of long-term economic growth.
On the financial side, we have moved quickly on reforms to financial regulation proposed by the Financial Stability Forum and will be acting similarly on the work plan that accompanied the G-20 declaration. Our goal here is to improve regulation, not necessarily increase regulation. In fact, we are urging our provinces to work with us to eliminate duplication and create a common regulator in the securities area.
As well, we have had to take unprecedented action to get credit flowing in our financial system. We have done this by purchasing government-insured mortgages and providing guarantees to inter-bank lending.
But – and this is important – these have been commercial operations in the financial sector, not government subsidies or equity participation. And let me just say this: as necessary as such actions may be in some countries, there should be a plan to unwind these kinds of direct participation by governments in the banking business in the longer term. Better government regulation of financial institutions, not financial institutions run by the government, is the solution.
On the monetary policy side, our central bank has acted, sometimes in concert with others around the world, to lower interest rates, inject liquidity and pursue expansionary monetary policy. In fact, we have brought in legislation in the past year to facilitate some of these interventions by the Bank of Canada.
At the same time, we believe it is necessary for monetary policy to maintain inflation targets. We must avoid deflation today, just as we must guard against
a rapid escalation in inflation once the world economy begins to recover.
Likewise, we believe in a flexible exchange rate. This is sometimes painful, but it has kept our economic sectors adjusting and avoiding permanent imbalances in the domestic economy. Since some of the current world economic problems began with large global imbalances, we would urge more flexible exchange rates worldwide in the longer term.
On the fiscal policy side, we acted early and on a large scale. A year ago, seeing some storm clouds in the world economy, we undertook major fiscal stimulus
through long-term tax reductions – equal to almost one and a half per cent of GDP – for individuals, families, and businesses.
This early action has mattered. Canada has maintained relatively high levels of income and employment growth during the first year of this crisis. Unlike most countries, we have been able to execute this fiscal stimulus while staying in surplus.
However, we did agree at the G-20 last week that additional fiscal stimulus should be used to sustain global demand if monetary policy continues to prove to be inadequate. These are, of course, the classic circumstances under which budgetary deficits are essential. I say this with some reluctance. We in Canada have had bad experience with deficits. We were once badly in a long-term structural deficit position. Federally, 27 straight deficits threatened the very stability of our economy. We worked long and hard to get out of it and to educate the public as to why it was bad.
In my own case, I began my political career in a fledgling new political party, in part to campaign for the necessity of fixing that structural deficit. So whatever short-term fiscal stimulus or deficit spending our government pursues, we will ensure that Canada does not return to long-term, structural budgetary deficits. Unfortunately, some industrialized countries are already in that position.
Finally, we must continue to commit ourselves to an open and freer trade system and be vigilant against the rise of protectionism. When it comes to Canada's support of free and open economies and markets, our view is based on the success of our North American economic partnership. We took a close and trusting relationship with the United States and transformed it into the most successful commercial partnership in the world.
Later, through the North American Free Trade Agreement, we expanded that relationship to include Mexico. The success of NAFTA has exceeded all expectations; together, our three economies have prospered as they never could have alone. In the last 15 years, trade within North American has tripled to nearly a trillion dollars, and nearly 40 million jobs have been created.
Canada is committed to pursuing mutually beneficial economic relationships with like-minded nations around the world. This year, as you know, we signed a Free Trade Agreement with this country, Peru. And yesterday, we announced another important step forward with the signing of a Free Trade Agreement with Colombia, as well as the signing of an agreement on double taxation.
We must remember, notwithstanding our current difficulties, the prosperity generated around the world in the last part of the 20th century and the beginning of the 21st has been unprecedented in history. Removing protectionist barriers and easing trade restrictions helped to usher in this extraordinary era. In these times of economic instability, we cannot turn back. Now is the time for opening doors, not for erecting walls.
In an earlier life I was studying to become an Economics professor. My interest areas were macroeconomic theory, political economy, and economic history. As we enter a period we have not seen in the memory of most people alive today, we must be good students of history – and not just recent history.
Since some are worried about a worldwide depression, let us remember what led to the Great Depression. It was not caused by a stock market crash. That was only the beginning. Policymakers pursued four sets of actions that defined that terrible decade. They allowed a rapid contraction of the banking system. They allowed widespread deflation as a consequence. They undertook to balance the books at all costs – raising taxes and contracting government economic activity at the one time when fiscal stimulus was absolutely essential. And, finally, they erected protectionist barriers in a short-sighted attempt to preserve jobs. These are mistakes the Government of Canada will not make.
Some of these things – letting badly run institutions fail, falling inflation, a balanced budget – would have been the right policies at a different time. But not building walls. Not closing doors. That is always wrong.
And at a time when some are questioning the wisdom of the prevalent economic system – the more open, trade-oriented global market economy – perhaps the success of the Canadian approach can inform the world.
Canada's is a story about people from all corners of the earth coming together in a beautiful but harsh land to create one of the most pluralistic, peaceful and prosperous societies ever known. Just as we must constantly recommit ourselves to cooperation and openness in our national life, we believe the colossal crisis facing the world today is an opportunity to recommit ourselves to the principles of cooperation and openness in the international economy.
These principles are the very foundation of the progress the world has enjoyed to date; we believe they are the key to weathering the storm today and emerging stronger than ever tomorrow.
Thank you.
