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Speech at a Forum on the Global Economy, June 14, 1995
Tomorrow, I will have the honour of welcoming the leaders of the other G-7 nations to Halifax for the G-7 Summit.
This is the third time Canada is hosting the G-7. And I believe this meeting in Halifax can be one of the most constructive in the G-7 process.
We agreed that a review of international institutions would be the key element of the Halifax Summit. Fifty years ago, Canada was an active partner in establishing the Bretton Woods institutions -- the LW and the World Bank-and the United Nations. These post-war institutions have evolved in a positive way over the years in order to adapt to new international realities.
The international community greatly needs strong, credible and responsible international institutions. Of course,we will not identify all the solutions, but we can certainly get the job started and demonstrate genuine leadership. The G-7 does not want to set itself up as a management board, but it remains a unique forum for essential discussions in preparation for the major changes ahead. Immediately after the Halifax Summit, we will work with the international community and the international institutions to meet these new challenges.
Jobs and economic growth are the priority of every G-7 nation. It is certainly our priority here in Canada. Our government was elected on a jobs and growth platform. And we have spent the last year and a half implementing it.
The results have been encouraging. More than 430,000 jobs have been created. And the national unemployment rate has come down from 11.5% to 9.5%. That is the first time it has fallen under 10% in four years. In 1994, we had the highest growth rate of any G-7 nation, and the same is forecast for this year. Our inflation rate remains low: We are getting our fiscal house in order -- so that we can sustain this growth and job creation over the long term. That is the best guarantee we have to sustain and improve the social programs we all value.
We have come a long way in a year and a half in terms of growth. And in terms of our fiscal situation. Of course, we still have a long way to go. But our success to date and the new spirit of optimism in Canada makes me confident that we will succeed.
I think it is fair to say that all G-7 nations are moving in the same direction, with the same goal of growth, job creation, low inflation and fiscal deficits and debts on a downward track. But healthy national economies cannot exist in an unhealthy global economy. Not in the 1990s. A stable world economy. Growing markets abroad. These are essential in our export-driven national economies. And in this area, I believe the Halifax G-7 can make an important contribution.
Our govermnent firmly believes that liberalized trade is the most effective international lever that exists for promoting jobs and growth. Our countries depend on exports. Our future prosperity is tied to the ability of others in other nations to buy what we produce. That is why trade has been -- and will continue to be -- such an important priority for us. Nor is it a priority only for our country or for G-7 or industrialized economies. It is a priority for all nations.
In my time as Prime Minister I have met with literally dozens of leaders from the developing world. And to a person, they have spoken of their desire to be part of the global economy and see the benefits of international trade take root in their own countries.
In Halifax, Canada wants to build on the world's success in moving toward more liberalized trade.
We have just completed a gruelling round of multilateral trade negotiations. We now have to implement the results and get the new World Trade Organization up and running.
We want the G-7 in Halifax to provide leadership on the need for cooperation between the WTO and other international economic institutions.
My Summit colleagues agree on the need to expand trade liberalization. We still have unfinished business, especially in the fields of telecommunications, financial services, investment and competition policies.
Trade is just one aspect of the new global economy. Technology. Integration. They have changed the way the world does business. Capital flows from one point on the globe to another in moments. Decisions can be made quickly and the impact felt immediately.
One result is a constant, surging flow of private capital. In many ways that can be a very good thing. Promoting investment and growth. And reshaping development for many nations.
It has been a vital engine for prosperity and jobs for countries around the world. But the volume, speed and reach of today's capital flows carry risk as well as reward. They can shock suddenly and brutally. No country is immune, and the shocks can be transmitted around the globe in an instant -- as the past year has dramatically illustrated.
Mexico is a case in point. The sudden flight of billions of dollars in capital turned what might have been a short-term liquidity problem into what has been called the first real crisis of the new era. And the repercussions -- the so-called tequila effect -- were felt in markets around the globe.
These global markets are imposing new dimensions of pressure on national economies and policy makers. And while we can try to anticipate these pressures, and respond as they emerge, there is no way to control them.
That is why I believe the G-7 should come forward in Halifax with concrete plans to bring greater stability and to minimize risks.
At times of volatile change, there is always the temptation to try and turn the clock back -- to impose barriers that restrict markets. That may be appealing. But it would be impossible. Even if we wanted to do it.
We cannot undo technology. We cannot wipe away the last thirty years. We cannot pine for the way things used to be. We must deal with the reality of today.
One thing is becoming increasingly clear. And that is that the process of liberalization requires careful management.
To reap the full benefits of liberalized capital markets, countries must modernize their own financial sectors, including their regulatory systems. Otherwise, the process of transformation can create social and economic pressures that ultimately jeopardize the process of development itself.
Staged -- rather than sudden and total -- market liberalization can be a better approach for many countries who are in the process of opening up their economies.
Another fact of life in the global economy is the rapid and sometimes dramatic movement in exchange rates. There is no question that volatility in exchange rates can cause and has caused serious problems for some nations.
But I believe we also have to be realistic about our options. In my view, the return to fixed exchange rates or target bands is not a realistic option. To produce stability, a fixed exchange rate system requires a very high level of convergence among the economies involved. Even in the European Union, with its high degree of integration, such a system has already proven very difficult to achieve.
Canada was one of the first countries to move to a floating exchange system in the early 1970s. And that move has served us well -- allowing us to adjust more smoothly to evolving circumstances.
But the fact is that the system allows volatility. That countries, such as Mexico, can be economically battered in exchange runs.
We cannot undo technology. We cannot turn back the clock. We cannot simply expect those famous currency speculators to shut off their computer terminals, hang up their red suspenders and get a life.
But what we can do -- what we must do -- is take effective, concrete action to minimize the vulnerability of national economies. Action to get our own houses in order, as Canada is doing. Action that ensures that in crisis situations, international financial institutions have the means to move decisively.
That is why I have made it a personal priority as chairman that this year's Summit focus on reforming the International Monetary Fund and the World Bank.
I have undertaken an extensive consultation on the role of the IMF and the World Bank in today's global economy. Not just with the other G-7 leaders. But with leaders throughout this hemisphere, throughout Asia and Europe. With nations of the developing world and the former East Bloc. With international labour and business leaders. And with the leadership of the IMF and the World Bank themselves.
And I have concluded that at Halifax we have the opportunity to seize on this fiftieth anniversary of these institutions to give them the tools they need in today's world.
First, we need to improve the IMF's surveillance and early-waming capacities.
This starts with more effective monitoring by the Fund of the national policies of member-countries. It also means greater transparency by national govermnents, and especially timely public disclosure of information on key economic developments.
Disclosure is not always something the bureaucratic mind-set cherishes -- especially when the news is painful. But it is ultimately in the best interest of us all. Because reliable information leads to rational decisions -- and better informed markets are less likely to engage in knee-jerk reactions.
The IMF must also be able to be more proactive -- and more candid in delivering bottom-line policy advice if governments are avoiding hard decisions.
Next, we must back up better early-warning systems with the ability to respond quickly if a crisis develops.
We must recognize that situations will arise where action must be fast to be effective. This will require new mechanisms, and Canada wants the Halifax Summit to offer some concrete proposals here.
But any capacity for action clearly depends on the resources available. That is why the IMF must have the financial resources to effectively manage emerging crises.
Let me emphasize that the Fund is not in a bad financial position. It was able, for example, to provide a substantial loan to Mexico when it was needed.
But it is absolutely essential that the IMF have the assurances of access to significantly more resources if necessary. Again, Canada will be seeking agreement from our G-7 partners to reach specific conclusions on this subject at Halifax.
We must also ensure an adequate regulatory and supervisory framework for financial institutions and markets. Supervision is centered at the national level. A lot must be done there. Because very often the speculation that can undermine national econorffies starts at home. But there must also be a growing commitment to international cooperation.
I will be raising this issue in Halifax. We need to know if there is adequate international cooperation in this area.
We also need to know if there exists enough transparency across the board and whether there is a need for new international standards.
Developing countries have made great progress in reducing their debt burden and adopting policies consistent with macroeconomic stability and improved resources allocation. They have benefited from the greater integration of capital markets, but also have sometimes suffered from it.
Despite significant progress, many developing countries also need financial help from the industrial countries and the international financial institutions (IFI) to sustain growth and development.
To provide this help effectively, we need to target scarce IFI funds to the poorest countries. We also need to focus our aid on the provision of public goods and the development of a healthy private sector.
The UN's capacity must also be strengthened. There are too many agencies and programs, which either conflict with each other or are without mandates appropriate to modem challenges. We want to ensure that the World Bank and the UN use their financial resources efficiently and effectively.
As well as the economic issues I have outlined today, in Halifax we will deal with other issues of international concern, from the role of the UN to fighting terrorism to dealing with the crisis in the former Yugoslavia.
The constant thread in all these areas is the need for greater international understanding and cooperation in the face of scepticism that our international systems are not working well. We Canadians believe deeply in cooperative approaches that reach across cultural, economic and political boundaries.
Canadians are, by tradition and conviction, good global citizens committed to cooperative multilateralism. As host to the G-7 in Halifax, Canada will have a unique opportunity to reinforce those qualities we value here at home: cooperation, teamwork and, above all, progress.
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Source: Chrétien, Jean. Speech by Prime Minister Jean Chrétien at a forum on the global economy. Ottawa: Office of the Prime Minister, 1995. 5 p.