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Canadians Blame Central Bank for A Slow Rebound

Debate focuses on interest rate issue: fight inflation or spur growth. RECESSION REDUX

CANADA'S economic recovery seems to be over almost as soon as it began, according to most economists reading the latest reports.

Unemployment has surged ahead again to more than 11.1 percent; bankruptcies are up 8 percent in the first two months of the year and manufacturing jobs continue to disappear.

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"We're not just stagnating, we're in a downturn," says Douglas Peters, chief economist with the Toronto Dominion Bank in Toronto.

Many economists, including Mr. Peters, are putting the blame on the tight money policies of the Bank of Canada.

While unemployment is high, inflation is low. Canada's inflation rate has been below 2 percent since January. Peters has been critical of the federal government's policy of fighting inflation with high interest rates that have kept the Canadian dollar high, hurting exports.

"Canada has achieved a low inflation rate but that has been attained at a cost of two years of recession, the destruction of Canada's manufacturing industries, and $100 million [Canadian; US $84.2 million] increase in international debt" says Peters. "While I applaud the low inflation I deplore the method of achieving it and the destruction of the Canadian economy that has resulted."

But some economists do applaud the work of the Bank of Canada and its governor, John Crow. For them the central bank has been right in making inflation public economic enemy No. 1.

"The Bank of Canada policy has been essential," says Michael Walker, head of the Fraser Institute, a free market think tank in Vancouver. "It won't be long before people are saying John Crow was right to ignore that type of advice on interest rates and the dollar."

The unemployment figures, announced April 10, mean an extra 72,000 Canadians are out of work, bringing the total to 1.52 million. The nation's highest jobless rate was in Newfoundland, where a decline in offshore oil drilling and the collapse of cod fishing has put more than 20 percent of the labor force out of work.

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Statistics Canada, a federal government agency, reported that the jobless rate for adult men was 10.4 percent, the highest rate since World War II.

Mr. Walker says the statistics spell gloom on the surface but don't tell the real story.

"We're at a turning point and back to growth," says Walker. "The rise in the unemployment figures is because people who had left the work force entirely are now looking for jobs and swelling the unemployment figures."

Other economic forecasters, from the Conference Board of Canada to the International Monetary Fund, do not have such a rosy view.

"If you look at what has happened in the last few months of [this] year, there has been no real growth in Canada," says Jim Frank, chief economist with the Conference Board in Ottawa.

In its latest report, the Conference reduced its growth estimate for the Canadian economy in 1992 to 2.1 percent, down from an earlier forecast of 3.2 percent.

The solution, says Peters, is to get the federal government to end the recession with lower interest rates and selective public spending. "And a strong US economy, if I could do anything about that," jokes Peters.

But he expects Ottawa to ignore such advice.

"They say it is inflationary, but it is not," says Peters. "But I think the risk of inflation is minimal. Japan, Britain, and Germany are in recession, and the United States is coming out of one. It is not a time when anybody is going to raise prices."

"It doesn't work," says Walker of the Fraser Institute. "If you could get a high rate of growth by lowering interest rates and devaluing the currency, Mexico would be the richest country on the continent because that's what they did in the early 1980s."

But the economists at the large financial institutions are almost unanimous in saying the recession is still on.

The Royal Bank of Canada, the largest in the country and sixth largest in North America, says the economy probably shrank in the first three months of this year and will grow by only 1.4 percent this year. The bank considered the economic consequences of further haggling over Canada's Constitution and the possible breakup of the country if Quebec decides to leave.

"The problem with the constitutional debate is not just a psychological one," says Edward Neufeld, executive vice president of economic affairs in Royal Bank of Canada's latest published outlook.

"It is the reality that a breakup of the country would have enormous costs and great financial disturbance," Mr. Neufeld says, "and markets try to anticipate that."

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