Central bank's new governor brings export expertise

The Globe and Mail

Bank of Canada Governor designate Stephen Poloz (right) shakes hands with outgoing Governor Mark Carney during a news conference in Ottawa, on Thursday May 2, 2013.

(Adrian Wyld/THE CANADIAN PRESS)

The Harper government has reached outside the Bank of Canada to choose its next governor, selecting an expert in trade and exports as the country’s new top economic steward.

Stephen Poloz, the head of Canada’s export credit agency, was named the country’s lead central banker Thursday by Finance Minister Jim Flaherty, inheriting the job at a difficult time when the economy is losing momentum and interest rates are at historic lows.

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Mr. Poloz is well known to the Harper government: He and his team at Export Development Canada played a key role in the federal and Ontario governments’ $13-billion bailout of Chrysler and General Motors Corp. in 2008 and 2009.

He gave no indication he plans to deviate from departing central banker Mark Carney’s policies, including a “flexible” approach to reaching an inflation target of 2 per cent and the bank’s focus on low interest rates.

“We aren’t out of the woods yet,” Mr. Poloz said of the task facing Canada, which relies heavily on trade. “We’re in a recovery mode, but in a recovery that is not as robust as was anticipated … and I think we will have to stimulate the economy for a certain amount of time.”

He was picked over odds-on favourite Tiff Macklem, the bank’s senior deputy governor who has served as Mr. Carney’s No. 2 since 2010.

Mr. Macklem’s high profile and the widespread assumption that the bank veteran would inherit the post likely worked against him, according to sources who pointed to a steady drumbeat of press coverage that featured him as the top choice. He was the only candidate to publicly acknowledge his interest.

In a sign of how broadly it was assumed Mr. Macklem would be selected to helm the Bank of Canada, Bank of Montreal on Thursday drafted a press release lauding the choice and sent an advance copy to Mr. Flaherty’s office.

One senior source said “people who would have been directly involved in the process” were irked by what they regarded as a campaign of sorts to ensure Mr. Carney’s No. 2 succeeded him.

While the Conservatives largely approved of Mr. Carney’s management of monetary policy – some felt he was too much of a hawk on interest rates – they disliked the departing governor’s high profile in the media. Senior Tories have also long resented the way Mr. Carney got credit internationally for Canada’s relatively lustrous economic performance.

Those who know Mr. Macklem would not describe the intelligent and thoughtful economist as a self promoter, but he seems to have suffered from guilt by association. Tories saw the heavy media focus on Mr. Macklem as a negative.

The Conservatives cite Mr. Poloz’s managerial experience at the helm of Export Development Canada, the country’s export credit agency, in explaining their choice. This, combined with his economic credentials and his own time spent at the bank – 14 years – helped.

“He’s run and led a large and diverse organization,” a senior Tory said. “He has intimate knowledge of how the bank operates and runs, having been someone in a senior position in the Bank of Canada.”

The Canadian dollar weakened by 0.2 per cent against the U.S. dollar after the late-afternoon Thursday announcement in Ottawa, as markets digested Mr. Flaherty’s surprise pick.

“Outside economists in Canada and policy makers in Canada, nobody knows who he is,” Charles St-Arnaund, a former Bank of Canada economist who now is a currency strategist at Nomura Securities in New York, said of Mr. Poloz. “The first thing I was asked was not, ‘What does this mean?’ but ‘Who is he?’ ”

Mr. Poloz, 57, is a respected economist with a PhD from the University of Western Ontario who worked at the Bank of Canada for the first 14 years of a professional career that spans three decades. As head of Export Development, a Crown corporation that finances and insures exports, Mr. Poloz oversaw an expansion of the institution’s power to do more domestic lending, and was involved in the government bailout of Chrysler LLC and General Motors Corp. in 2008 and 2009. He also served as EDC’s chief economist and as president of the Ottawa Economics Association.

“This guy absolutely has the qualifications to be Bank of Canada governor,” said Christopher Ragan, an economics professor at McGill University in Montreal who has known Mr. Poloz since the early 1990s. “Will monetary policy be in good hands? The answer is absolutely yes.”

Still, Mr. Poloz’s selection will raise questions about whether Prime Minister Stephen Harper is seeking greater influence over monetary policy by installing a governor from outside the institution – and bypassing the universal favourite.

“Tiff has an outstanding international recognition through his work within the G20 as the deputy minister of finance – Poloz cannot match that in my opinion,” added Thorsten Koeppl, associate professor of economics at Queen’s University in Kingston, and a former economist at the European Central Bank.

After Mr. Carney announced in late November that he had accepted the British government’s offer to run the Bank of England effective July 1, Mr. Flaherty inserted himself into the hiring process in way that was notably different from Mr. Carney’s selection in 2007.

The job of finding a governor of the Bank of Canada is technically the responsibility of the central bank’s board of directors, which is charged with interviewing candidates and making a recommendation to the Finance Minister. Yet in January, Mr. Flaherty issued a press release to say that he would be interviewing a shortlist of candidates – something he did in 2007, but without the fanfare.

Mr. Poloz asked reporters for more time to assess his position before commenting on policy issues, though he expressed support for the central bank’s current approach to inflation, household debt and how it communicates with the public.

He also cited positive economic signs.

“Good growth, according to EDC’s internal figures on our exports to emerging markets, which is great to see but it’s a smaller piece than the very important U.S. side,” he said. “And if that happens as predicted, then of course investment follows.”

With reports from Greg Keenan, Barrie McKenna, Joanna Slater and The Canadian Press

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