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‘SHORT-TERM DEFICIT’ POSSIBLE – Prime minister says Canada will do its part as Group of 20 leaders agree to ambitious reform plan

Posted by Gilmour Poincaree on November 17, 2008

Published: Sunday, November 16, 2008

by Sheldon Alberts, Canwest News Service

WASHINGTON – Prime Minister Stephen Harper says he’s eyeing the possibility of “short-term deficit Harper of Canada, left, as he arrives at the North Portico of the White House in Washington , Friday, Nov. 14, 2008. President Bush invited leaders of the G-20 community to Washington for a weekend summit to discuss the world economy and the current condition of the financial marketsspending” to boost Canada’s economy as part of broader, co-ordinated international efforts to halt a global plunge into economic recession.

At the close of the Group of 20 leaders’ summit yesterday afternoon, Mr. Harper said Canada still hopes to preserve its balanced budget, but is prepared to use fiscal stimulus, if necessary, to do its part on the world stage.

“Look, if there is a worldwide agreement, then we will engage in sufficient stimulus to do our part in carrying global economic demand. We will fulfil our part of that agreement,” he said at a news conference at the Canadian Embassy.

“What we’ve got to be sure is that if we do short-term deficit spending as a deliberate policy – if we do that, we haven’t settled on doing that, but if we do that – we will have to be able to demonstrate to Canadians that those deficits will genuinely be short-term and cyclical, and we will come out of them quickly.”

His comments came as G20 leaders agreed to an ambitious – if still ill-defined – plan to reform international financial institutions, tighten global regulations, and inject life into their individual economies.

In a five-page declaration that mapped out planned actions in broad strokes, the world leaders vowed to bolster international oversight of large financial institutions, better monitor executive salaries at top firms, and increase transparency of complex financial products.

They also vowed to reshape international financial institutions, such as the International Monetary Fund and World Bank, and to give more influence to rapidly growing economic powers such as China, India and Brazil.

“We will implement reforms that will strengthen financial markets and regulatory regimes so as to avoid further crises,” the leaders said in the summit’s final statement.

If undertaken, the reforms could be the most sweeping overhaul of the international financial system since the Second World War.

The two-day summit itself made history, bringing together for the first time leaders from Canada, the United States, Great Britain, France, Japan, Italy, Australia, Brazil, China, Germany, India, Indonesia, Italy, Mexico, Russia, South Africa, Saudi Arabia, South Korea, Turkey, Spain and the European Union.

The leaders set a March 31, 2009, deadline for the creation of “supervisory colleges for all major cross-border financial institutions” to enhance surveillance of their activities.

The final statement said governments would “use fiscal measures to stimulate domestic demand to rapid effect, as appropriate” in the upcoming months – though there was no promise of a comprehensive or joint plan.

“All the leaders in the room understand the extreme dangers of the situation and the necessity of acting quickly and in concert,” Mr. Harper told reporters.

“There is a view coming out of this meeting I can tell you very strongly … that monetary policy alone will not be sufficient to take the global economy through this crisis.”

He singled out China for praise, which last week pledged almost $600 billion U.S. in new spending for major infrastructure projects.

What form a future fiscal stimulus might take in Canada, however, remains somewhat of an unknown.

Mr. Harper, who plans to deliver a mini-budget at the end of November, said he had directed Finance Minister Jim Flaherty to “try to preserve Canada’s balanced budget position.”

But he quickly added, “We will do what we have to, to contribute to boosting global demand.”

The prime minister left open the possibility of providing future government assistance to Canada’s ailing auto industry, with or without similar action being taken by the U.S. government.

“We don’t yet know what the American approach will be. We’re obviously watching that very carefully and we’re talking to our American counterparts,” he said. “We cannot ignore what the Americans do. On the other hand, we as the government of Canada have to ultimately undertake our own actions.”

While Mr. Harper said the group’s joint declaration should give Canadians “hope” that world leaders recognize the scope of the international crisis, he acknowledged there’s likely no way to avoid some substantial economic pain.

“Does (the G20) plan mean Canada or any country will be spared effects, or that this problem is not going to be with us for some time? No, it does not mean that,” he said.

“The world economy has difficult times ahead. Canada has so far been sheltered from most of those. But we will not be sheltered entirely from those problems.”

The most difficult questions leaders addressed at the meeting – the scope of regulatory reform and international oversight — has been put off until after U.S. President George W. Bush leaves office.

The leaders agreed to meet again at the end of April, months after incoming president Barack Obama will be installed in the White House.

“We’re adapting our financial systems to the realities of the 21st century. A lot of the regulatory structures that are in place were 20th-century regulatory structures,” Mr. Bush said in a statement after the summit’s conclusion. “The question is, How do we establish good regulatory structure without destroying the incentive to innovate, without destroying the marketplace?”

In a thinly-veiled critique of the U.S., the final summit statement blamed “policy-makers, regulators and supervisors in some advanced countries” for failing to properly police financial institutions in the lead-up to the crisis.

The leaders criticized the U.S. for allowing “weak underwriting standards, unsound risk-management practices, increasingly complex and opaque financial products, and consequent excessive leverage.”

© Canwest News Service 2008

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘OTTAWA CITIZEN’ (Canada)

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