Meech Lake Makes Investors Edgy
CANADIAN CONSTITUTIONAL CRISIS
CANADA'S constitutional crisis has made some foreign investors nervous. The federal finance minister told a Wall Street audience last week there is nothing to worry about. But the numbers and some analysts tell a different story. The Canadian dollar has fallen and that is pushing up domestic interest rates. These are already five percentage points higher than American rates. And the economic worries about a possible breakup of Canada are growing.
``Anyone who thinks two countries or three countries or four countries is stronger than one country is living in a dream world,'' William Stinson, chairman of Canadian Pacific Ltd. warned last week in Montreal.
June 23 is the deadline for Canada's provincial governments to approve the Meech Lake Accord, as the nation's constitutional reform package is called. Its biggest achievement is bringing Quebec into the constitutional fold after the former separatist government refused to sign a major 1982 revision of the Constitution that included a Charter of Rights. One stumbling block is the accord's reference to the predominantly French-speaking province of Quebec as a ``distinct society.''
The accord was signed in 1987 by all 10 provincial premiers at the Prime Minister's weekend cottage at Meech Lake, north of Ottawa. Since then there have been some provincial elections. Manitoba and New Brunswick, under new premiers, have not ratified the Meech Lake pact. Even worse, Newfoundland, under a newly elected premier, in February rescinded its ratification.
If the accord is not ratified, many Quebec politicians who were federalists up to now say they might vote for some sort of separation from Canada.
``The consequences of the accord's rejection will be serious for the future of the country, and Quebec will have to seek a substantial reorganization of the association that ties it with the Canadian federation,'' Gil Remillard, the Quebec cabinet minister in charge of Meech Lake negotiations, said this week.
Business does not like the political indecision. The uncertainty has held up two opportunities for Power Corporation, a Montreal-based holding company with $736 million (Canadian: US$625 million) in cash and hungry for investments. ``I have had two big deals where I had interested two groups for several hundred million dollars,'' said board chairman Paul Desmarais after the company's annual meeting last week. ``They said `We like you and we like the project we discussed with you but we are going to wait until after July.' ''
Foreign investors in Canadian bonds are also cautious. Indeed, West Germany's Deutsche Bank has recommended that investors reduce their Canadian bond holdings. In February, nonresidents bought only C$630 million of Canadian bonds. Monthly purchases had averaged C$2 billion over the previous six months.
The Toronto investment dealer, Bunting Warburg, recently put out a report on the impact of the constitutional issue on foreign investors. Says Barbara Kinnear, an analyst with that firm, ``The higher yields on Canadian bonds are directly attributable to nervousness over Meech Lake.''
Canada's Minister of Finance, Michael Wilson, went to New York to allay fears of American investors over the Meech Lake Accord. ``Investors are naturally concerned about political stability,'' Wilson told the New York Association of Business Economists. ``While there are challenging issues still to be resolved, I believe that the Meech Lake Accord will be ratified.''
In the aftermath of Wilson's speech the Canadian dollar fell sharply losing more than one cent against the US dollar in three trading days. His speech may have made investors even more cautious, one analyst suggests.
When Quebecers were asked 10 years ago if they wanted the province to negotiate a separation, 60 percent voted no. Polls show today that most Quebecers would favor some form of sovereignty-association with the rest of Canada. Only 40 percent want outright independence. Some 66 percent disapprove of independence if it means higher taxes.
``I don't think we are going to separate, but I think we should wake up,'' said businessman Paul Desmarais. ``There are too many people saying that if we separate, everything will be fine.''