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Politics Ottawa in no rush to convert GM share selloff proceeds into Canadian dollars

The General Motors logo is seen outside its headquarters at the Renaissance Center in Detroit, Michigan in this file photograph taken August 25, 2009. The Canadian government announced this week it’s selling its remaining stake in GM – more than 73 million common shares – and an auction of this size is expected to fetch $2.7-billion (U.S.), which translates into about $3.4-billion (Canadian).

Jeff Kowalsky/Reuters

Ottawa says it will take its time converting the proceeds from a massive sale of General Motors share into Canadian dollars for fear of stirring up the currency market.

Economists say the federal government is trying to prevent currency traders from driving up the value of the Canadian dollar in anticipation of a lump-sum conversion from American dollars into loonies.

The Canadian government announced this week it's selling its remaining stake in GM – more than 73 million common shares – and an auction of this size is expected to fetch $2.7-billion (U.S.), which translates into about $3.4-billion (Canadian).

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Rather than wading into currency markets to buy more than $3-billion of Canadian money all at once, the federal Finance Department says it will unwind its American cash over time.

It declined to say over what period this would take place.

"The government will convert the proceeds over an appropriate time frame in order to avoid unduly impacting the foreign exchange market," Finance Department spokeswoman Stephanie Rubec said Tuesday.

Economists say the Finance Department is trying to keep its options open.

"The foreign exchange market is exceptionally deep and liquid and likely could absorb such a transaction over a short period of time," Bank of Montreal chief economist Douglas Porter said.

But he said players in the market could game things if they had clear knowledge of when Ottawa planned to convert the cash.

"If the foreign exchange market believed Ottawa was going to make the conversion to Canadian dollars this week, the market could drive up the value of the Canadian dollar ahead of the transaction," he said.

"In anticipation of Ottawa buying $3-billion, the foreign exchange market could potentially push up the currency by a cent or two, costing the government."

Mr. Porter said he believes Ottawa will swap currencies quickly.

"I suspect the conversion actually will be done in relatively short order – they will pick their spot."

The GM proceeds will be used to help Ottawa balance the budget, as promised, this fiscal year.

The governments of Canada and Ontario received shares of GM and Chrysler after helping bail out the auto makers during the financial crisis that hit in late 2008. The U.S. government, which led the bailout, also received auto shares.

The gains from the sale are not expected to fully recoup the cost of bailing out the auto firms. But Ottawa and Ontario have argued the unprecedented decision to intervene was worth it because it prevented a much greater loss of Canadian auto-sector jobs.

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On Tuesday, the Ontario government called on Stephen Harper's Conservative government to use the GM share proceeds the same way it has: funding new road, transit and highway projects.

"Last year the province announced the sale of the remaining interest in GM and we recycled, dollar for dollar, one public asset for another: the $1.1-billion in proceeds from that sale was directed towards infrastructure, roads and transit projects across the province," Ontario Finance Minister Charles Sousa said in a statement.

"We know that these investments are critical for economic growth and that's why we directed GM share funds to the Trillium Trust which is dedicated to transit and infrastructure."

The Harper government, which has been accused of doing too little to spur economic growth, is promising more infrastructure spending in its April 21 federal budget.

Industry Minister James Moore is pledging a "serious commitment" to job-creating infrastructure spending in the fiscal plan. "I think you're going to see some very large-scale announcements in every part of the country to the benefit of productivity, to the benefit of infrastructure and to the benefit of the quality of life of everyday Canadians," he said in remarks reported Sunday by CTV News.

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