Concerned about manufacturers, Ottawa eyes another round of economic stimulus

Paul Vieira in Sao Paulo and Alia McMullen in Toronto, Financial Post Published: Sunday, November 09, 2008

Finance Minister Jim Flaherty said Sunday his Conservative government would be prepared to introduce another round of domestic economic stimulus given the "significant" damage that the credit crisis is having on the economy.

He said he was particularly concerned about the manufacturing sector, led by the auto industry, given that U.S. consumer demand has "fallen off a cliff."

"I would not rule out further economic actions," Mr. Flaherty told the Financial Post in an interview in Sao Paulo, at the conclusion of a meeting of finance and central bank officials from the G20 group of advanced and big emerging economies.

The financial crisis, which has seen bank lending dry up, is beginning to cause "significant" damage in the United States, which, in turn, will effect Canadian businesses.

"The goal here is not to worry about a deficit. It is worrying about managing the economy properly, protecting Canadian families, making ,sure Canadian businesses can fund their inventories so that they carry on business and protect jobs."

His talk about a possible stimulus package emerged after China said it would inject nearly US$600-billion into its economy to keep its domestic growth robust. Also, the G20 countries, in their official communiqué, talked about how the nations need to act "urgently" to bolster growth in efforts to overcome a potentially protracted global recession.

"The key challenge is to resolve the financial crisis in a durable manner and to mitigate the impact of the crisis on global economic activity through comprehensive, coordinated and timely measures as appropriate," the communique said.

Later, Mr. Flaherty told Canadian reporters via conference call that he supported China's move to bolster its economy through capital injection and that other large emerging economies would likely announce similar measures soon.

"[The stimulus is] good for the Chinese economy and it's also good for the world economy. I suspect we'll see additional measures in some other economies as well."

He said the Canadian government was "prepared to take further actions if needed; a testament to the belief that a strong global response must begin at home.

"What's taking place around the world today continues to be unprecedented and we must remain steadfast at doing whatever is necessary to prevent our financial system from being put in harms way by global events," Mr. Flaherty said.

Noting that Canada has one of the strongest financial systems standing in the world, he said he had put forward at the meeting Canada's five-point plan to create a stronger global financial system.

"Canada believes we need to take concrete steps, both individually and collectively to ensure global financial stability."

The five steps are: regulate all pools of capital that rely on leverage through a single domestic financial regulator; ensure capital and liquidity buffers are high enough to handle major shocks; regulation to move beyond looking at individual institutions to the system as a whole; improve market infrastructure to make it more transparent and resilient; and strengthen international coordination, review and surveillance to create a second line of defence.

"This crisis has demonstrated that even countries with strong financial systems can feel the effects of inadequate regulatory regimes elsewhere," he said. "Canada will remain an active participant in international organizations, like the G20, that can make a real difference at a difficult time for the global economy."