February 24, 2009 / 2:53 AM / in 9 years

Canada's PM concerned about U.S. financial system

OTTAWA (Reuters) - Canadian Prime Minister Stephen Harper voiced deep concern about financial systems in the United States and other countries on Monday and called on governments to avoid protectionism in their rescue efforts.

<p>Canada's Prime Minister Stephen Harper departs after meeting with United Nations Secretary General Ban Ki-moon at the U.N. Headquarters in New York February 23, 2009. REUTERS/Chip East</p>

Harper said Canada, the largest trading partner of the United States, had expressed its concerns about the “Buy American” provision in the $787 billion U.S. economic rescue package but was sure the White House was aware of the dangers.

“There are trade provisions that allow you to have preferences in government procurement,” he told CNBC. “But we think it’s very important that, if we’re going to kick-start this global economy, that administrations around the world avoid turning stimulus packages into protectionism.”

From his conversations with U.S. President Barack Obama, Harper said he was “quite convinced that he understands how serious it is to avoid a protectionist drift.”

Canada is in recession, like the United States and many other developed economies, and is in the process of bringing in a second round of economic stimulus -- a two-year package worth C$40 billion ($32 billion).

But Canada’s tightly regulated financial sector has not suffered as much from the losses and exposure to toxic assets as its U.S. and European counterparts.

“We’re obviously all hugely worried about the American financial system and about the financial system of some other countries,” Harper told Fox News.

“Until that problem gets fixed, it’s hard for me to see how we’re going to turn the corner on this recession.”

Harper, visiting the United States after Obama made a one-day trip to Ottawa last week, noted a “fairly cautious culture” and compactness in Canada’s financial system, with just six big banks and three major insurance companies.

“Our banks, when they sign mortgages, largely hold those mortgages rather than trading them, so they have a lot more interest in the underlying quality of those mortgages and we avoided the subprime kind of problem,” he told CNBC.


Canada is also the largest energy exporter to its neighbor but faces opposition in some quarters of the United States over the environmental impact of its oil sands projects.

Given the enormous U.S. appetite for energy, Harper said “there will be no choice but to import oil sands oil” and that any policy to halt its flow was “completely unrealistic.”

“That doesn’t mean that we will shirk our environmental responsibilities,” he said. “But there should be no illusion that economic reality will hit those environmental policies pretty hard when one goes to implement them.”

Harper said the Canadian government, which ran budget surpluses for more than a decade until this year, should be able to return to surplus in about four years.

“Don’t get into this mess in the first place,” Harper joked when CNBC asked what action the United States should take.

“They’ve got to do some things now to stop the continuing drop in economic activity and the short term is going to drive a lot of decisions for better or worse.”

Finance Minister Jim Flaherty warned earlier on Monday that Canada’s economic numbers “are going to continue to deteriorate for the time being.”

Retail sales plunged 5.4 percent in December, the biggest monthly drop in at least 17 years, Statistics Canada reported on Monday.

With that and other bad news, economists predict the Canadian economy shrank by more than 3 percent at an annualized rate in the final quarter of 2008 -- a bigger contraction than the Bank of Canada’s latest estimate of 2.3 percent.

($1=$1.25 Canadian)

Reporting by Randall Palmer; Additional reporting by John O'Callaghan in Washington; editing by Todd Eastham

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