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By ROB GILLIES, Associated Press Writer Rob Gillies, Associated Press Writer
Sun Jun 20, 4:51 pm ET
TORONTO Canada thinks it can teach the world a thing or two about dodging
financial meltdowns.
The 20 world leaders at an economic summit in Toronto next weekend will find
themselves in a country that has avoided a banking crisis where others have
floundered, and whose economy grew at a 6.1 percent annual rate in the first
three months of this year. The housing market is hot and three-quarters of the
400,000 jobs lost during the recession have been recovered.
World leaders have noticed: President Barack Obama says the U.S. should take
note of Canada's banking system, and Britain's Treasury chief is looking to
emulate the Ottawa way on cutting deficits.
The land of a thousand stereotypes from Mounties and ice hockey to language
wars and lousy weather is feeling entitled to do a bit of crowing as it hosts
the G-20 summit of wealthy and developing nations.
"We should be proud of the performance of our financial system during the
crisis," said Finance Minister Jim Flaherty in an interview with The Associated
Press.
He recalled visiting China in 2007 and hearing suggestions "that the Canadian
banks were perhaps boring and too risk-adverse. And when I was there two weeks
ago some of my same counterparts were saying to me, 'You have a very solid,
stable banking system in Canada,' and emphasizing that. There wasn't anything
about being sufficiently risk-oriented."
The banks are stable because, in part, they're more regulated. As the U.S. and
Europe loosened regulations on their financial industries over the last 15
years, Canada refused to do so. The banks also aren't as leveraged as their
U.S. or European peers.
There was no mortgage meltdown or subprime crisis in Canada. Banks don't
package mortgages and sell them to the private market, so they need to be sure
their borrowers can pay back the loans.
In Canada's concentrated banking system, five major banks dominate the market
and regulators know each of the top bank executives personally.
"Our banks were just better managed and we had better regulation," says former
Prime Minister Paul Martin, the man credited with killing off a massive
government deficit in the 1990s when he was finance minister, leading to 12
straight years of budget surpluses.
"I was absolutely amazed at senior bankers in the United States and Europe who
didn't know the extent of the problem or they didn't know that people in some
far-flung division were doing these kinds of things. It's just beyond belief,"
he told the AP.
The Conservative Party government of Stephen Harper that took over from
Martin's Liberals in 2006 broadly stuck to his predecessor's approach, though
he cut taxes and, when recession struck, pumped stimulus money into the
economy, with the result that Canada again has a large deficit.
But it is recovering from the recession faster than others, and although its
deficit is currently at a record high, the International Monetary Fund expects
Canada to be the only one of the seven major industrialized democracies to
return to surplus by 2015.
This month Canada became the first among them to raise interest rates since the
global financial crisis began.
George Osborne, Britain's Treasury chief, has vowed to follow Canada's example
on deficit reduction.
"They brought together the best brains both inside and outside government to
carry out a fundamental reassessment of the role of the state," Osborne said in
a speech.
It's a remarkable turnaround from 1993, when the Liberals took office facing a
$30 billion deficit. Moody's downgraded Canada's credit rating twice. About 36
percent of the government's revenue went toward servicing debt.
"Our situation was dire. Canada was in a lot of trouble at that point," Martin
said. "If we were going to preserve our health care and our education system we
had to do it."
As finance minister, he slashed spending. A weak currency and a booming U.S.
economy also helped Martin balance the books. In the 1998 budget the government
estimated that about 55 percent of the deficit reduction came from economic
growth and 35 percent from spending cuts.
"The rest of the world certainly thinks we're the model to follow," said
Martin, who was prime minister from 2003 to 2006. "I've been asked by a lot of
countries as to how to go about it."
Don Drummond, Martin's budget chief at the time, says the U.S. and Europe won't
have it that easy, because the economic climate was better in the late 1990s
than it is now, with large trade gains and falling interest rates.
"There's a lot to learn from Canada but their starting conditions are worse,"
he said. "Even though we were on the precipice of a crisis we weren't in as bad
a shape as many of them are."