Bank of Canada Governor Mark CarneyFred Lum/The Globe and Mail
Bank of Canada Governor Mark Carney wouldn't say Monday whether he would be interested in becoming head of the International Monetary Fund should the position become open following managing director Dominique Strauss-Kahn's arrest for attempted rape, and stressed that the scandal won't have a ``material'' effect on the IMF's work.
At a news conference in Ottawa Monday, Mr. Carney said he does not want to prejudge discussions under way at the IMF about whether Mr. Strauss-Kahn should be stripped of his post immediately in light of his arrest, adding that whatever the fund decides, he is confident that its crucial role in helping to resolve the European debt crisis and its role in other aspects of the global recovery won't be hurt.
The issues at hand are ``bigger than any one individual,'' Mr. Carney said, and, in any case, acting managing director John Lipsky is a ``very capable leader.''
``The bottom line is, we do not expect these issues to have a material impact on either the global recovery or certainly the Canadian expansion,'' Mr. Carney said. ``There are a number of people and institutions and countries working on these issues that are fully informed about them and capable of resolving them, so this is a serious situation, an unfortunate situation, but it is not a material situation.''
That sentiment was echoed by Finance Minister Jim Flaherty later Monday afternoon. "Whatever circumstances it is facing, I am absolutely confident the IMF will carry on with its business as it needs to under the guidance of John Lipsky," he said in a statement. "I have consulted with Canada's representative at the IMF, Tom Hockin, and that has reinforced my confidence in the Fund. I know John Lipsky very well, he is very competent and completely knowledgeable about IMF affairs. He has my full support and confidence."
When asked whether he would be interested in replacing Mr. Strauss-Kahn - who was already widely thought to be leaving the fund later this year to prepare a campaign for president of France - Mr. Carney said he's not yet halfway through his seven-year term as Governor and is ``interested in fulfilling my responsibilities.''
Nonetheless, Mr. Carney did say that Canada has long favoured a ``merit-based'' process for choosing the leaders of multilateral institutions like the IMF, and that this should mean the person chosen does not have to hail from a particular country or region. Though he did not acknowledge as much himself, such an approach - as opposed to the job going to another European as per tradition, or instead going to a candidate from an emerging-market nation - could boost Mr. Carney's chances.
``I think if it's a merit-based process, by definition there is not a regional add-on to it and what's looked for, in all these organizations, are individuals who can represent the organization as a whole,'' Mr. Carney said, ``not as a citizen of a specific country or a resident of a certain region.''
Earlier Monday, Mr. Carney spoke to the Canadian Club of Ottawa, saying Canada's sound fiscal footing will help the economy in the next phase of the global recovery but warning that its prospects also depend on efforts by key trading partners to tackle their debt loads and on how well emerging powerhouses like China manage their own rapid growth.
Mr. Carney gave no indication that his views on economic growth or inflation have changed since he left interest rates untouched in mid-April. Nor did he provide any signal to markets that he might use his May 31 decision to signal a return to higher borrowing costs some time this summer, repeating his oft-used phrase that future moves would need to be "carefully considered."
Instead, Mr. Carney expanded on themes he has touched on in past speeches as he has sought to explain to Canadians the outside forces shaping a transformation in the global economy - primarily the massive shift in economic activity from the so-called advanced economies to the developing world - and the opportunities and pitfalls that this process is creating for Canada.
``The balance of these two major forces - weakness in advanced economies and strength in emerging economies - determines the global economic outlook,'' Mr. Carney said, noting that the risk of overheating in emerging markets, and how policy makers in such countries address this, is now the biggest threat to the rebound.
``Canada's fiscal strength and monetary policy credibility represent crucial advantages that must be preserved,'' Mr. Carney said. ``Our commitment to openness should drive us not only to create new markets but also to help secure the new economic order.''
A pace of urbanization in Asia that has seen the number of people living in cities in China and India rise by almost half a billion since 1990 is just the start of a shift that will likely continue for decades, adding about 70 million people to the global middle class each year and, consequently, keeping commodity prices high, Mr. Carney said.
While that presents opportunity for commodity-exporting nations like Canada, many of those countries are keeping monetary policy too loose, making ill-advised moves to deal with huge capital flows, and in some cases failing to let their currencies appreciate quickly enough, he said.
``These policies risk asset bubbles in emerging economies, more acute inflationary pressures globally and subpar global growth,'' he said.
Meanwhile, in order for advanced economies like the United States, the United Kingdom and Spain to stabilize their debt, they will need to increase their primary budget balances by between 8 and 11 per cent of gross domestic product, Mr. Carney said. And that assumes that interest rates on their debt don't change.
``If markets begin to lose patience, higher rates will ensue and the required adjustment will be even larger,'' Mr. Carney said. ``Canada is one of the few advanced economies on a path to avoid this outcome. However, despite this crucial advantage, we cannot fully insulate ourselves from the spillovers from others.''