Canada and Quebec

Press, 18 December 1976, Page 8

Canada and Quebec

By JOHN BEST, of “The Times,” through NZPA Montreal The election of a separatist Government in Quebec has jolted economists and economic analysts more than it has the Canadian economy. But the balloting took place only about four weeks ago, and the present outlook is both cloudy and a little disquieting. In many respects it has been a case of the more things change, the more they remain the same in the period since the Parti Quebecois under Mr Rene Levesque swept to power over the once almighty Liberals. Unemployment nationally remains high at 7.3 per cent — slightly down from earlier levels, but an improve-! ment that is more apparent, than real since it is accounted for mostly by “drop-outs” from the labour force. Inflation continues to abate, and last month the Consumer Price Index was ahead of November, 1975, by only 5.6 per cent, the smallest annual increase since 1972. Some people are talking about the lifting of wage and price controls next spring, halfway through their original three-year life. But the Government has said nothing publicly to substantiate such rumours. It is worried that the recent 6 per cent devaluation of the 'Canadian dollar, triggered by .(the Quebec election, but ; organically linked to prejexisting causes, will refuel inflation by making imports imora expensive.

The Finance Minister (Mr Donald MacDonald) gave warning last week that the dollar’s fall would add 1.2 per cent to the cost of living. At the same time it should help to rectify the balance-of-payments problem that was partly responsible for precipitating the devaluation. The Government forecasts a cash deficit of $Can5OOOM in the next fiscal year, about equal to the one this year. According to some reports, it is considering a cut in corporate tax in the spring to stimulate investment, which has been sluggish, and reduce unemployment. All in all, it is not clear that the accession of the ! Parti Quebecois to power (has produced any big disturbance in the Canadian economy. In the sense of causing things to happen that would not have happened otherwise. The picture could, however, change rather quickly. One indication of this is the mutterings frequently heard from Wall Street that Canada, particularly Quebec, lis no longer the safe haven (for American investment (that it was.

( Demand for Canadian] ' bond issues fell off markedly | (in New York after the elec-! ition. though later it picked up. ; Various investment experts have suggested that ithe flow of capital into Cainada may dry up in the i present period of uncertainty. This would be a serious blow to Canadian always heavily

dependent on United States investment capital. The political colour of the new Government in Quebec is not likely to reassure investors — quite apart from its separatist leanings. It is both Left-wing and nationalistic, and its platform would exclude foreign participation in a wide variety of economic activities in the province.

But the flight of capital from Quebec that many had predicted should a separatist Government be elected has not materialised, though rumours abound about this and that company making •contingency plans to move out.

! Business leaders appear 'content to sit tight and (await developments, though i there have been accounts (of young English-speaking ( executives putting their Montreal homes up for sale and making plans to leave the predominantly Frenchspeaking province. For their part the separatists now in charge are at pains not to scare business any more than it has been so far. Mr Levesque has made clear that his Governiment is not about to start a (wholesale nationalisation I binge, that its first priority lis to lower Quebec’s 9.8 per (cent unemployment rate and to end “corruption” in the civil service.

Committed as ever to the goal of separation, he is, however, pledged to submit the issue to a referendum before taking any action. His undertakings have mildly reassured business and in•dustry.