Finance Minister Paul Martin quickly distanced himself yesterday from the storm of controversy swirling around Deputy Prime Minister John Manley, who rebuked Corporate Canada earlier this week for using the low dollar as a crutch.
And the Bank of Canada knocked down Mr. Manley's argument that Canadian companies are getting lazy because of a weak Canadian dollar, and that an appreciation of the currency will drive many of them out of business.
Mr. Manley's comments helped send the currency sharply lower, losing almost half a cent on Wednesday, although it regained some ground yesterday.
Yesterday, amid harsh criticism from the opposition, which accused the Deputy Prime Minister of "trash-talking" the currency, both Mr. Martin and the Bank of Canada argued that Canadian corporations could indeed compete with a stronger Canadian dollar.
"Canadian companies can certainly compete," Mr. Martin told reporters after a Question Period dominated by persistent criticisms on the matter from the Canadian Alliance, the Tories and the New Democrats.
"The government and the Bank of Canada, the Prime Minister and myself, were very clear about the dollar in our comments a couple of weeks ago. Mr. Manley shares those views. Our position is . . . we were not happy at all about the direction of our dollar, and that position remains," Mr. Martin said. "The position that Mr. Dodge, the Prime Minister and I took three weeks ago is the government position."
The opposition, which is frequently accused by the Liberals of talking down the Canadian dollar by being too negative, turned the tables yesterday by calling Mr. Manley's comments "grotesquely irresponsible."
"His ill-considered remarks drove the dollar down one-third of a cent in one afternoon," acting Alliance leader John Reynolds said. He was clearly aiming to drive a wedge between Mr. Manley and Mr. Martin, who are rival Liberal leadership hopefuls.
Mr. Manley dismissed Wednesday's large drop in the dollar as a function of normal market ups and downs. It regained 0.21 of a cent yesterday to 62.84 cents (U.S.).
He reiterated his statements that companies need to invest more in innovation, technology and equipment in order to be internationally competitive.
But he did not link that lack of investment to the level of the dollar, as he did earlier this week when, in an interview with Bloomberg News, he said: "I worry that too many Canadian firms are profiting mightily from a 62-cent dollar who would be hard-pressed to compete at an 80-cent dollar, for example . . . And if they don't make the investments in research and development and technology and innovation, when the dollar gets to that level, they'll be out of business."
Yesterday, the deputy governor of the Bank of Canada dismissed Mr. Manley's logic: "The argument goes something like this: The low Canadian dollar allows Canadian exporters and [Canadian firms that compete domestically with imported goods]to sit back and take it easy," Pierre Duguay said in a speech in Kingston, Ont. "The facts do not support this story."
He said productivity is picking up speed in Canada, and the lag between Canada and the United States in the past has been due to technological advances in some U.S. sectors that have no counterpart in Canada.
The Bank of Canada, Mr. Martin and Prime Minister Jean Chrétien have gone to great lengths in the past month to talk up the dollar. They have made a point of saying it is undervalued, and telling traders they should recognize Canada's strong economic fundamentals by buying more loonies.
Some Bay Street economists said yesterday they disagree with Mr. Manley, arguing many exporters have benefited from a lower dollar, but have not become reliant upon it.
Marc Lévesque, economist at Toronto-Dominion Bank, said "there is very little evidence" that Canadian manufacturers need a low dollar to compete.
He says Canada's productivity gains have been fairly stable over the past 10 or 15 years, and Canadian companies have posted "double-digit" increases in investment in their operations, ensuring that many of them remain competitive with U.S. rivals.
Tim O'Neill, chief economist at Bank of Montreal, says Canada's productivity growth trailed U.S. levels in the 1990s chiefly because the U.S. high-technology equipment-manufacturing industry saw soaring productivity growth. Other Canadian industries have held their own, he says.
"The lazy-manufacturer argument just doesn't up to scrutiny, pure and simple."
But Jayson Myers, chief economist for the Canadian Manufacturers and Exporters, said yesterday that Mr. Manley is right.
Janet McFarland