Address by the Prime Minister of Canada1, Pierre Elliott Trudeau
- International Monetary Fund. Secretary's Department
- Published Date:
- November 1982
Speaking for all Canadians, I say: Welcome to Canada. We have waited long for you to come—38 years. We have waited since Canada was with you at Bretton Woods in 1944. At that time a few farseeing Canadians were working there with other like-minded delegates on ideas and proposals for an International Monetary Fund and a World Bank. They were attempting to create economic order out of a world of economic and political chaos. So our feeling toward you is not just one of membership. It is one of historic kinship.
All here, I have no doubt, wish that we were meeting in better economic times. The conditions we face today are worse than any since our beginnings at Bretton Woods. The word “crisis” now emerges frequently in discussion of international economic, trade, finance, and energy developments.
These hard times, and these perceptions of looming crises, are generating fear in the minds of some of our people. In many others, frustration and confusion. Also worrisome are the questions current problems encourage concerning the Bretton Woods institutions. Are they effective? Have they failed us? We see widespread unemployment, inflation, reduced trade, unsettled international financial markets, exchange rate instability, high interest rates, and reduced access of developing countries to international funds.
When a community faces a crisis it meets and pulls together. It looks anew at its fundamental objectives and purposes, it examines its strengths, its difficulties, and its opportunities for surmounting current problems through common action. We, the members of the Fund and the Bank, are in that position today.
We must re-examine our roots and our purposes. Those who toiled at Bretton Woods were driven in their work by the intellectual conviction that the economic and financial chaos of the 1930s need not have happened. The awesome economic problems they faced and feared, they regarded as being man-made, not God-given. The ingenuity of man, they felt, could successfully be applied to solving them. Today we must approach our difficulties with the same faith and confidence.
Driving the intellect of the men and women of Bretton Woods was the even more powerful force of simple human decency. There was a common determination to ensure that the misery and despair wrought by the international economic depression of the 1930s, still so fresh in their minds, would not again be visited upon the world. Today we must approach our responsibilities with the same moral determination that economic growth and stability will be restored, so that hope will replace fear, jobs will replace unemployment, and food will fend off starvation.
But even with the best intellectual effort and the strongest will, Bretton Woods would not have succeeded without a clear sense of the crucial importance of international cooperation. Today, even more so today, our economic interdependence compels us to understand that, since many of our problems transcend international borders, we must solve them together if they are to be solved at all.
Confidence in our ability to overcome our problems, determination to do so, and acceptance of the need to cooperate in solving them are as fundamentally important today as they were in 1944 when they constituted the spirit of Bretton Woods. We can draw on that heritage for strength.
But this still leaves a vital question unanswered. If the spirit of Bretton Woods still serves us well, have the institutions of Bretton Woods failed us? Is the current international economic and financial environment proof of that?
In my view, the Bretton Woods institutions have not failed us. Their original purposes and structures and procedures were designed to deal with developments that had brought the international economy to its knees in the 1930s: competitive exchange rate devaluations, destructive restrictions on trade, chaos in domestic monetary management, a collapse of international capital flows, and little foreign aid. The Bretton Woods institutions emerged to address these problems, and they did so with brilliant success. For two decades or more after Bretton Woods, their influence assisted much of the world in achieving one of its great periods of development and, by historical standards, of enlightened relationships between rich and poor countries.
No, the Bretton Woods institutions did not fail to meet the challenges for which they were designed. But they were not able, within existing mandates, to ensure adequate international economic stability in the face of the new difficulties that emerged in the late 1960s and 1970s.
An important aspect of the new difficulties was the shift in economic policies of member countries and the periodic policy divergencies between them. In the earlier years relatively stable monetary and fiscal policies of members, particularly the industrial countries, helped maintain the strength of the international economy.
But in the 1970s various domestic developments seemed to demand a shift in national policies. Slow growth and rising unemployment called for a new response. Policy precepts of the day pointed to demand expansion as being appropriate. In the circumstances, individual industrial countries adopted agressively expansionary fiscal and monetary policies. It was not foreseen that these actions would interact to produce an unsustainable inflationary boom and, in addition, would not solve emerging structural problems in industry. As we now know the resulting inflation helped generate conditions of domestic and international economic instability and stagnation.
The fiscal and monetary policies of many member countries were not the only source of difficulties. Equally important were the energy crises and the painful adjustments they necessitated; the social rigidities that continue to complicate the removal of deeply imbedded inflation; the growing size, sensitivity, and vulnerability of international financial markets; the mounting debt and funding problems of developing countries; and the structural weaknesses of major industries.
In Canada, I believe we have drawn the appropriate lessons from these experiences of the past decade. We recognize that some of our economic problems are domestic in character and require strict domestic economic policy discipline to be cured.
How to reduce inflation without excessive costs in the form of lost jobs is currently the most important economic policy problem we face in Canada. We have found that inflation is not consistent with growth and stability. Furthermore, once imbedded, it is most difficult to remove.
This is because, in a practical sense, inflation is much more than a monetary phenomenon. The speed of cost and price adjustments is related not just to changes in the growth of money and credit but also to the attitudes and perceptions of our people. These factors will therefore determine the speed at which our costs and prices will stabilize once again and so lead to conditions permitting a resumption of growth. Well! It is easy to act upon the growth of the money supply but it is difficult to bring about the determination and the collective will to slow down cost and price increases. Now, our policy tries to create that national will.
The essence of our approach is to try to create that national will. We are convinced that if our people understand the benefits to all of reducing inflation, their individual actions will accelerate the process. We do not underestimate the difficulty in explaining that individual restraint for the common good is also in harmony with self-interest. But that is the challenge we have taken up.
In our policy program we are taking direct income and price action within the federal government and we are asking for voluntary responses from all others. We will continue to restrain money supply growth and work toward smaller federal fiscal deficits. We are confident that our own example of direct restraint, and a broader understanding of the absolute necessity of reducing costs and inflation, will together generate the national determination on which success of the voluntary approach depends.
We are absolutely determined to solve our domestic problems. Along with this we must, and we will, support new international initiatives that will enhance international economic and financial stability. Without the latter, efforts to solve our domestic problems can have only a partial success.
The sources of international instability to which I have already referred indicate where new initiatives may well be needed. All of us, I believe, recognize that international stability depends heavily on the quality of individual national policies and on policy harmony between member countries, particularly the industrial countries. Over the past decade we have seen numerous national actions, involving different countries at different times, which conflicted with maintaining international stability. Out of them came troublesome inflation and current account imbalances; restrictions on trade and finance; and instability in exchange rates, interest rates, and energy prices.
We must avoid such destabilizing policies in the 1980s. But is there among us the international consensus, the will, that is needed if progress in this area is to be assured? However difficult the task, we must encourage the Fund to find increasingly effective means for helping to maintain stability and harmony in the economic policies of its members.
Earlier I spoke of “national will.” Now, of “international consensus.” Esoteric concepts. Elusive phenomena. But fundamental in practice. The success of our domestic policies depends on our people identifying more closely with the common good and less with narrow sectoral interests. Similarly among nations. International interdependence requires that our individual actions increasingly be determined by common international objectives rather than by beggar-my-neighbor policies and instincts.
Nowhere is our interdependence more evident, and some would say more fragile, than in the flow of international capital, both private and official. The 1970s saw an extraordinary increase in private international financing, including the flow of such capital to developing countries. About half of all funds flowing to developing countries in 1980 was private capital. Unless these funds keep flowing in support of productive development, many developing countries will fall far short of their minimum needs.
Yet at present we see increasing signs that private funding may diminish, not increase. Fears over the credit standing of sovereign authorities and over the difficulties of individual financial institutions and international corporations are now frequently expressed. They risk eroding the free flow of capital. We must not permit this to happen in the 1980s. We cannot afford international financial crises. Domestically the problem has for decades been recognized, and it has been responded to in part through the development of the “lender of last resort” function of our official monetary institutions. The Fund should now take the lead in examining as a matter of urgency whether current international arrangements provide adequate protection against financial crises or whether they should be further developed. In this regard, I welcome proposals brought forward at this meeting that would mean extra resources available to countries experiencing such difficulties.
These flows of private funds at nonconcessional rates, and flows of official funds under conditionality terms that involve policy discipline, are fully in harmony with sound economic development. Investments that are productive in the foreseeable future will be able to meet nonconcessional terms, and policies of stability are a prerequisite for the productive use of imported capital.
But growth and development must go beyond the limits imposed by foreseeable economic return. Health and sanitation and education and communication and transportation and food production—all these give high returns to society but not in a form that markets can measure over short periods. Concessional funding, both bilateral and multilateral, therefore continues to be a vital element of balanced growth and development in many developing countries. For the poorest countries it is their only source of foreign capital for development. And the necessary response from the richer countries can be made with the certain knowledge that such growth and development enrich the whole of the world economy, the industrial countries, and the developing countries. We must ensure that the momentum of foreign aid is maintained and we must maintain the strength of the World Bank.
The 1970s forcefully revealed yet another aspect of international interdependence. It revealed that inflation and economic stagnation in the industrial countries soon lead to slow growth among the developing countries. Interdependence here is uncompromising, impersonal, and cruel. It is, therefore, of concern to us all that we do not yet fully understand why industrial decay set in among the industrial countries in the 1970s. The structural impact on some of our industries of exploding technology, of major changes in energy costs, and of swift shifts in the competitive position of particular countries goes much deeper than that of a temporary economic slowdown.
The 1930s produced a Maynard Keynes for bringing insight into demand management. The 1980s need quite a different insight. It concerns the prerequisites for stable, noninflationary economic growth and rising productivity. Our various international institutions, including the Fund and the Bank, can and must help industrial countries understand better the nature of their obstacles to growth and productivity, as well as help developing countries overcome the obstacles they face.
Clearly, we are now in full face of the high risks and difficult challenges of accelerated interdependence. These challenges justify the same sense of urgency among us that was present among the founders at Bretton Woods. Few of us can have certain hope for acceptable growth and stability if the international economic and financial environment is in turmoil, as it has been.
So in addition to our individual efforts, we must marshal the spirit of Bretton Woods to work our way through our deeply troubled times. We must look to a stronger Fund and a stronger World Bank. We must see their role, as well as the role of other international institutions, strengthened so that they can deal better with the international problems that surround us today and that threaten our future. As it has done since the beginning of Bretton Woods, Canada will play its part.
Delivered at the Opening Joint Session, September 6, 1982.