July 2, 2009
Archived - Speech by the Honourable Jim Flaherty, Minister of Finance, to the Santiago Conference 2009 of the Americas Society/Council of the Americas
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It's wonderful to be here in Chile given the excellent state of the relationship between Canada and Chile. The President here visited us not too long ago, and our Prime Minister has been here to visit as well. I'm looking forward to our meeting of the Finance Ministers of the Americas tonight and tomorrow. And it's very valuable to us as ministers of finance when we can reach out to each other. We work together well in the Americas.
I've been the Minister of Finance in Canada almost three and a half years and I remember the first year as being relatively easy. And then we had a credit crisis, and then we had a recession in the industrialized countries, and then spreading into the developing countries, and then into the poorest countries in the world. So now we have a synchronized global recession and arguably the most serious recession at least since the Second World War.
I just returned from Italy from a meeting of the G-8 finance ministers about 10 days ago. Earlier this spring I was with our Prime Minister in London for the G20 Leaders Summit on April 2. Before that, it was the G20 Leaders Meeting in Washington, DC in November. Obviously we have lots of meetings. There are lots of global get-togethers and I attend my fair share. But I tell you, they are important and they have been invaluable during the course of the credit crisis and this recession. And that includes the meeting that we're going to have tonight and tomorrow, and I thank Chile for hosting the meeting of the Finance Ministers of the Americas.
The cooperation that comes out of these meetings is critical, especially during a global recession, because we all have a stake in the recovery effort. There was an excellent example of this cooperation in the Americas today. We had a meeting of the Governors of the IDB, the Inter-American Development Bank, that took place this morning and is continuing this afternoon. This morning we were looking at short-term efforts to try to create more credit in the Americas. Subject to the approval of the Board of Governors, the meeting this morning of the Inter-American Development Bank considered a Canadian initiative to increase the IDB's lending capacity. This temporary increase in callable capital by Canada is worth US$4 billion and will increase the IDB's lending capacity by 70 per cent. This is a substantial boost that will help the IDB's member nations combat the global financial crisis. In April our Prime Minister originally announced the multibillion-dollar Canadian measure at the Summit of the Americas. When fully approved it can immediately begin offering countries in the region greater access to credit. They are in need of this kind of support, and Canada is happy to do this in the short term. For the longer term there is increased capitalization needs at the IDB, and that is what is being discussed this afternoon.
For Canada's part, these meetings here in Chile could not come at a better time, and not just because of the current international economic turmoil. Our government has made engagement with the Americas a key priority of our government policy. Our goals are clear: increasing prosperity, enhancing security, and promoting the values that Canadians hold dear – freedom, democracy, human rights and the rule of law. Our Prime Minister put it this way in a speech in Peru last year: "These will form the sound foundations and open doors that are critical to a strong regional and global recovery."
I'm sure many of you have already seen evidence that Canada is renewing its presence in the region. We are responding to difficult times by building bridges and strengthening global relationships. The IDB initiative that I just mentioned is the latest illustration, but there are other examples of Canada reaching out to countries coping with economic hardship.
Over the past three months alone, here some of the things that we have done.
We provided an additional US$10 billion to the IMF to provide emergency access to capital for emerging markets and developing countries.
We contributed US$200 million to the global Advance Market Commitment. This is a terrific program from finance ministers who don't often get involved in the world of vaccines, to fund the creation of a vaccine for the pneumococcal virus which kills tens of thousands of children a year in the poorest countries in the world. That came out of the work of finance ministers to ensure that the financing will be in place for the production of this vaccine at a cost that is affordable in the poorest countries of the world. I joined international colleagues in announcing this when we were in Italy two weeks ago.
I also signed an agreement with Robert Zoellick, the President of the World Bank, less than a month ago in Ottawa. We made a US$200 million contribution to the Global Trade Liquidity Program to provide a further financing boost to world markets.
We provided $5 million in support of the IMF's Technical Assistance Center for Central America, Panama and the Dominican Republic. The Center is designed to promote economic growth and development in the region and it was launched last week in Guatemala City.
We also just announced $2.3 million in debt relief for Haiti, and that is a 100 per cent write-off of Haitian debts owed under the Canadian Debt Initiative. This is yet another Canadian commitment in the Americas, freeing up valuable financial resources that can be better spent on Haiti's priorities, on Haiti's people, than on its liabilities. As a result of this debt forgiveness with respect to Haiti, Canada has now cancelled all CDI debts owed by Latin American and Caribbean nations.
So Canada has accomplished a great deal with our friends and allies in the Americas, but as many Latin American nations know full well, a serious commitment to foster good relations requires more than just good intentions. It means opening your markets to goods and services and not permitting bad times to slam them shut. In Canada's case, our actions speak volumes. Our trade with Latin America has grown almost 23 percent since 2007. This is nearly twice the growth rate last year of US trade with the region.
We believe in free trade and we act. In our recent Economic Action Plan, which is the budget that I presented to our Parliament in January of this year, we not only spoke about free trade, we eliminated more tariffs – tariffs on imported machinery and equipment. And we are working with Canadian businesses to find even more ways to provide tariff relief because we believe in free and open trade, especially with the Americas.
Our commitment to opening doors in the Americas is evident from our relationship with Chile. Since the beginning of our free trade agreement a little more than a decade ago, two-way trade between Canada and Chile has tripled, trade that is driven by investment. Canada is now the third largest investor in Chile behind only the United States and Spain. And in each of the last three years Canada has been the top new investor in Chile. Almost half of this investment is in the mining sector, but is also diversified into utilities, financial services, and chemicals. Agreements signed last year by the President of Chile and our Prime Minister will promote the exchange of scientists and researchers, create new opportunities for sustainable development of minerals and metals, and identify specific investment opportunities in mining, forestry, fishing, and agriculture.
Canada's relationship with Chile is a good example of the benefits of free and open trade. But it is not the only one, in large part due to our Global Commerce Strategy. We are moving ahead with other partners in the Americas. We have successfully concluded free trade negotiations with Colombia and Peru. We expect to be in a position very soon to conclude a free-trade agreement with Panama.
Negotiations and agreements like these are deepening our economic ties with this region. At the same time we are continuing to promote strong labour and environmental obligations and commitments to corporate social responsibility. Bringing these goals together will mean that the benefits of increased trade and investment will lead to social progress for all.
Canada has many partners in the Americas in these initiatives, partners like Chile, a country that is strongly committed to free trade and has trade agreements with more than 50 countries to prove it. And by the way, Chile's first comprehensive free-trade agreement was with Canada in 1997.
Clearly there are countries in the Americas, countries like Chile, that have put in place the economic and open trade policies needed to weather the current global storm. The challenge now, as the G20 has recognized, is to work together to ensure markets stay open. History is full of examples of countries turning inward during hard times and paying an expensive price long afterwards. This is history we cannot afford to repeat.
Canada likes to think that the worst conditions should bring out the best in people and in nations. We have advocated a pragmatic and effective approach at home and around the world. We've asked ourselves and others not to opt for what might be popular or populist, but what the situation demands – leadership, in other words.
Canada and other nations such as Brazil and Argentina demonstrated leadership in extraordinary times during the G20 Leaders Summit in London three months ago today. In London we collectively agreed that an open world economy based on market principles, effective regulations, and strong global institutions is the only sure foundation for sustainable globalization and rising prosperity for all. If global stability is your destination, this is the road map.
In reaching these objectives Canada has led by example. We have created the institutions and the approaches that can serve as a model for other nations. And we are making a contribution to the global response that is greater than our share of the global economy. We are building our Canadian strengths that will enable us to endure a global recession and flourish once it's over.
Now a good part of that has to do with the Canadian financial system, which is getting a fair amount of attention. Like Chile, whose financial system also ranks among global leaders, Canada's system has been resilient throughout the global crisis. The Canadian financial system was once dismissed as boring back when credit was flourishing. The global crisis has shown us that boring has its benefits.
Canada has had no bank failures. The government has not had to inject equity or otherwise bail out any banks or financial institutions in Canada. I have not put any taxpayers' money into any of our financial institutions in Canada. Canada's financial system remains sound, well capitalized, and less leveraged than its international peers. All of this is a reflection of a well-run regulatory regime—and I emphasize well-run, because as you know many of the financial institutions that failed in the past couple of years were regulated. One must have effective regulation for it to be meaningful in our respective financial systems.
International authorities like the World Economic Forum and the IMF have pointed to Canada as a model, as a way forward. President Obama when he came to Canada in February said the same thing. I noticed Treasury Secretary Tim Geithner borrowed the boring tag as his own goal for the US system when he introduced comprehensive financial regulatory reforms in Washington recently.
So Canada speaks with authority based on experience when the world came together to talk about repairing the financial systems. We know that we are not going to have recovery in the real economies of the world until the financial systems are running well, and until the banks are fixed. Just last fall there was no universally accepted approach. People in this room may remember the many calls at that time to fix our problems by creating elaborate and untested new schemes.
At that time the world needed decisive and pragmatic action. Canada provided a compelling case that the world didn't need to design a new fire truck during a four-alarm blaze. Even during unparalleled financial crisis, Canada's success demonstrated that not every existing financial system was destined to fail. Canada showed that some strong fundamentals can make a real difference, fundamentals like higher capital standards and limits on leverage, combined with practical, prudent, applied regulation. So at last November's Summit in Washington we delivered a straightforward message backed by a system that persevered while others struggled. The message was that sound regulation begins at home. Every country needs to fix its own problems because in an integrated global financial system we all suffer the consequences of one another's mistakes.
Following that Summit in Washington in November Canada was asked to co-chair the G20 working group on enhancing sound regulation and strengthening transparency, which we did along with India. Twenty-five recommendations were forthcoming. They helped form the backbone of the April London Summit strategy to strengthen global financial regulation. And the world is now implementing that strategy.
Now on the fiscal front we've also been doing our share. We've assumed our responsibilities within an unprecedented and necessary international campaign to restore economic growth. The stimulus contained in our budget this year went beyond the G20 and IMF targets. The IMF in fact commended Canada's fiscal stimulus plan as large, timely, well diversified and structured for maximum effectiveness. The total fiscal stimulus introduced in Canada is among the largest of any in the G20 economies and about 80 per cent of the stimulus initiatives are now being implemented.
We are delivering enhanced benefits for people who are losing their jobs. We have a significant unemployment issue as most countries do now, so we're investing a billions of dollars in training of unemployed workers. We're also investing billions of dollars in infrastructure across the country. And we are continuing to reduce taxes. We've been acting on tax reduction since we were elected in January 2006. We've reduced taxes of all kinds for individuals, families, businesses. On the corporate front, by 2012 Canada will have the lowest statutory tax rate in the G7, and we will reach the goal of the lowest overall tax rate on a new business investment in the G7 by 2010.
Canada entered this recession in a better fiscal position than any G7 nation, with by far the lowest debt to GDP ratio. One of things we had been doing for a few years was paying down public debt so that we would be ready for stormy weather. And stormy weather certainly came, but now we're in a good position to run a deficit during this difficult time until we come back into surplus. We are incurring temporary and relatively small deficits. Our deficit this year will be about 3.3 per cent of GDP. This is to help us combat the global recession and play our part internationally. Canada was also the last G7 country to enter recession and has experienced the smallest economic decline. The IMF expects Canada to have the strongest recovery in the G-7 when the recession inevitably ends.
So I hope in my remarks today I have made clear that we've done some things right in Canada and created the economic game plan needed to tackle global turmoil. It is heartening, quite frankly, to see the degree of consensus among the G20 leaders and finance ministers at the meetings that have been held, and at the meeting that is to be held in Pittsburgh in September of this year.
Canada's own efforts would be of small consolation if the global economy as a whole remains in peril. Our global response must not send us toward an entirely new set of problems when the current crisis is behind us. The coming months will demand a combined effort to limit the global downturn and get us back to growth and stability quickly.
The world has looked at the Canadian financial system often during this ordeal. We are proud to be seen as a model of how to run a financial system. We are proud to be seen as an illustration of how to prudently manage government finances and prepare for an economic downturn. And we're proud to be an example of why the darkest times demand the most open markets.
We have been able to demonstrate international leadership and we look forward to continuing to do so. Canada will be hosting the governors of the IDB – the Inter-American Development Bank – in 2011. And next year Canada chairs the G7 and the G8. South Korea chairs the G20 next year, and we're working together in this regard. Our meetings in these forums will focus on the global efforts made by the advanced economies to turn the page on the recession. We will look to the future and measures that will leave the global economy stronger and more sustainable than when the crisis first emerged.
Just as 2008 and 2009 have provided lessons on what to avoid, 2010 can serve as the world's durability blueprint, with long-term measures that will lead to recovery and help the world avoid the same thing happening again.
The G7 and G8 must continue to demonstrate leadership on international issues. After all, as has often been pointed out, the current crisis began in advanced countries; it is only fair that they remain at the forefront of efforts to deal with the aftermath. And I won't dare to predict the outcomes of Canada's G8 year, but our goal will be to ensure the economy of the Americans and the world will end up stronger and more sustainable than when the current hardship first emerged.
In good times and bad, I can say this to you with confidence: you can count on Canada. Even as we face great uncertainty, or should I say especially when we face great uncertainty, that pledge will never change.