Canada Gets New Central Banker: Same Policy, But Less Baggage

Low inflation legacy is great, but government seeks growth

CANADA'S central banker John Crow called it quits Wednesday after seven tumultuous years in which he was lauded by some but castigated by many others for his unwavering pursuit of zero inflation.

Mr. Crow succeeded in chopping inflation from 5 percent to 2 percent between 1990 and 1992. Canadian inflation is still resting peacefully at about 2 percent, among the lowest in the industrialized world.

Yet much of the blame for Canada's weak economy and high unemployment has been laid at Crow's doorstep, with critics arguing that he overused high interest rates to fight inflation. With a new Liberal Party government known to question Crow's policies, the question of whether Crow should go when his seven-year term ended Jan. 31 had become a national debate.

Finance Minister Paul Martin announced Crow's resignation ``for personal reasons'' as well as Crow's replacement Gordon Thiessen, a 30-year veteran at the Bank of Canada who had been Crow's deputy. Mr. Thiessen has a reputation for being in close harmony with Crow's views.

``The government remains committed to a low inflation policy as a key ingredient in keeping rates down and promoting economic growth,'' Mr. Martin said. ``Canada is one of the lowest inflation countries in the world. It will stay that way.''

Many had argued that Crow's reappointment was vital to reassure international lenders worried by Canada's growing debt and deficit problem. With Thiessen's appointment, currency and bond markets did not dive as had been predicted if Crow were drummed out.

``The reaction today has been positive for the [Canadian] dollar,'' says Rob Burgess, vice president for foreign exchange at Toronto Dominion Bank.

Bond and currency markets are comfortable with ``the announcement that the current inflation targets will be extended through 1998,'' says Andrew Pyle, economist with MMS International in Toronto, a financial market advisory service.

The new Liberal government of Prime Minister Jean Chretien had not wanted to rock the financial markets nor leave Crow in power. Short-term interest rates remain significantly higher than in the United States and must fall further, the Liberal government has said, to produce job growth.

That such a lowering would come with returning inflation is what investors fear most. Markets will be gauging whether Thiessen deviates from Crow's course.

Although current low inflation rates meant little immediate danger of a rise in interest rates in 1994, analysts say there was a longer-term fear in Liberal circles that if Crow was reappointed, he might raise interest rates about the time of the next election.

So while policy and substance have not changed, replacing Crow with Thiessen both satisfies party loyalists and keeps markets relatively happy.

``We're obviously pleased Mr. Crow hasn't been reappointed,'' says Jordan Grant, an Ontario developer who led a group seeking Crow's removal. ``We were urging government to go outside the Bank of Canada for a successor. But we assume Thiessen has agreed to return to balanced objectives.''

Crow loyalists' feelings were likewise muted: ``Crow was a symbol - his policies represent stability and value to those who hold Canada's debt,'' says John Bulloch, president of the Canadian Federation of Independent Business. ``Thiessen represents the continuation of those policies.''

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