Forest industry has a lot at stake in linking loonie to the American dollar
By John Clarke
The little loonie is just about the perfect logo for Canada Inc these days: a gentler, kinder dollar, no pretensions to power, a size-six coat-tail to the American matinee idol up there in the lights all over the world.
A stubborn little thing too, resisting
all the brave talk of Finance Minister Paul Martin and Bank of Canada
governor David Dodge on booster trips to the financial stars in New York
Gail Fosler, chief economist of the United States Conference Board, says talk never works because there's little the investment managers don't already know about the Canadian situation. And according to Morgan Stanley chief economist Stephen Roach, the market is always suspicious of attempts to manipulate currency with rhetoric.
Yet, while the loonie is apparently going
to be left to fend for itself, it's being battered by President George W
Bush's latest budget and US productivity that continues to outstrip
All of which is giving impetus to a
debate on whether we should scrap the loonie and adopt a common currency
with the Americans, either dollar for dollar or pegged at some
Forest products, particularly lumber, are
among the basic commodities doing poorly and helping to depress the
currency traders' confidence in the Canadian economy.
One of the most strident voices is Sherry
Cooper, chief economist of BMO Nesbitt Burns Inc. Described as a global
strategist, she says straight out that the loonie's days are over.
Paul Tellier, chief executive officer of the Canadian National Railway, is not quite so blunt. But there's no doubt he speaks for more and more CEOs (half of them in a recent poll) when he calls for a national debate on closer economic ties with the US.
A common currency would be part of a closer economic union that, to integrationists, would be perfectly compatible with sovereignty. Yet sovereignty is not just a patriotic issue. Many economists argue it ensures flexibility in managing problems that international markets sometimes throw at Canada.
So the debate is far from academic for
the forest industry. It's been said often enough to have acquired the
mantle of truth that a cheap loonie has been a great boon for lumber, even
in the face of American attempts to restrain softwood shipments into their
The loonie, together with more efficient
production systems, helps lumber to compete somewhat better than other
industries where the productivity gap is larger. Whether that gap is a
cause of dollar decline or a symptom of it is very much an open question.
"Until we find out whether it's our
tax policies, capital gains practice or a general failure of management
and business practice and how to deal with these issues, going to
dollarization would have a significant negative effect," he says.
What's missing here amazingly is a voice from lumber in the emerging debate. There are other preoccupations but none of them more important than the exchange rate. It would be unfortunate if they diverted attention from an issue with such potentially long-term implications for the forest industry.
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