CANDIDATE Jean Chretien promised Canadians ``jobs, jobs, jobs'' and that if elected prime minister things would ``be just like the good old days.''
Mr. Chretien won a landslide victory last month by inspiring hope in a nation with 1.6 million unemployed workers. But Canada's new prime minister will soon have to square his heart-warming campaign rhetoric with the country's cold economic realities, economists say.
On Tuesday the Chretien government announced a record high 1992-93 federal deficit of $40.5 billion (Canadian; US$30.8 billion), far worse than the $35.5 billion projected by the outgoing conservative government this spring.
``I want to tell you these numbers are simply not acceptable,'' Minister of Finance Paul Martin said at a press conference.
The higher deficit will require Chretien's new government to cut deeper into social programs and prevent additional government spending to boost the economy and reduce unemployment, several economists told the Monitor. Chretien just does not have the latitude to do the kind of economic pump-priming typical of the ``the good old days,'' they say.
``Because of the worsening fiscal situation, the government's hands are tied,'' says Michael Gregory, a senior analyst with Wood Gundy, a Toronto brokerage firm. ``No matter which party won [the election], the debt and deficit crisis was bound to dictate fiscal policy.''
The Canadian economy struggled out of recession two years ago in early 1991. But huge and growing federal and provincial debts, flagging consumer confidence, 11-percent-plus unemployment, and high tax burdens, have kept the nation's economy growing at only 2.7 percent annually.
Even a 2.7 percent growth rate puts Canada among the fastest growing of the seven major industrialized countries.
Chretien has promised a $6 billion jobs program that will create an estimated 65,000 jobs annually in coming years. But that number is a drop in the bucket and Chretien knows it. His only hope to reduce the unemployment rate to a single digit in coming years is a significant expansion of Canadian business activity.
``The business cycle is poised for an upswing,'' says Patrick Grady, president of Global Economics, an Ottawa economic consulting firm. ``It would be a surprise if we didn't get strong growth next year. But there are some special factors in Canada's case that make things difficult - such as the fact that it can't use fiscal policy to stimulate the economy. And it's not clear yet how monetary policy will be handled.''
Chretien is expected to deliver a key economic address early next month. Bond rating services and international fund managers, who already hold about $240 billion of Canadian provincial and federal debt, will be watching closely for any sign of Chretien ducking out on his promise to reduce the federal budget deficit to 3 percent of gross domestic product, the nation's total output, over the next three years - a reduction of $10 billion annually.
CHRETIEN said during the campaign he could accomplish that without increasing taxes or cutting social programs. But with a $40 billion deficit, he would have to cut an additional $8 billion or so each year.
On the positive side, with inflation at just 2 percent, Mr. Grady says Canada can afford lower interest rates, which should spark the economy - eventually. Rates have been coming down, but he admits that has done little to help the economy so far. The reason, he says, is that consumers - like their governments - are carrying a historically heavy load of debt that many are trying to pay down. Few are willing to borrow, even though interest costs (around 4 percent) are at their lowest levels in more than a decade.
``Investors are anxious to get back in, but are leery of the developing story of fiscal finances on the federal and provincial level,'' says Carl Weinberg, senior economist with High Frequency Economics, a New York economic consulting firm. ``Canada has low inflation and doesn't look too bad if you forget about debt'' and the Quebec separatist movement, he says.
Despite the ``ifs'' that unnerve investors, many analysts say there will be a wide calming effect on markets if Bank of Canada Governor John Crow is reappointed for another seven-year term - and if Chretien sticks with cuts to the deficit at promised levels.
The reality, Grady and others say, is that there is no quick fix to Canada's economic problems. The best thing Chretien can do is foster business confidence and a stable economic environment, they say.
``Chretien realizes that given the magnitude of the deficit problem, there is no way to eliminate it that quickly,'' Grady says. ``The challenge to creating more jobs is getting the economy growing again.''