Pinch hitting for federal finance minister, Ralph Goodale, David Dodge, governor of the Bank of Canada, told an audience of German and Canadian businessmen in Berlin that the unwinding of current fiscal imbalances is being disproportionately felt by countries in the West.

Subbing for Goodale in a speech delivered today at the German-Canadian Business Club of Berlin-Brandenburg and the Association of Berlin Merchants and Industrialists, Dodge noted that China, and other countries in South Asia, aren’t operating by the same rules as countries who allow their currencies to float freely, and imbalances are building.

There are two big concerns about this, he said, “First, the sense that some countries are not playing by the rules could give rise to protectionism, with potentially very serious negative consequences for the global trading system. And second, a disproportionate burden of adjustment to changing economic circumstances is being borne by those of us with flexible exchange regimes, including Canada and Europe.”

Dodge suggested that there is a real need, “to think hard about these international monetary arrangements”.

“The issue of international monetary arrangements deserves critical attention and debate, as we look out over the medium- and longer-term to the challenges facing the global economy,” he said.

As for Canada’s situation, Dodge noted that private sector forecasters now expect 3% growth for 2004, and 3.2% growth in 2005, which is a little stronger than the Bank of Canada’s recent Monetary Policy Report which projects economic growth of 2.9% in 2005 and 3.2% in 2006.

Dodge noted that “given the current high ratio of employment to population, and given that Canada’s population will soon begin to age rapidly, we will have to rely increasingly on productivity to raise living standards in the future.”

“To increase productivity, we Canadians need to invest in human capital, physical capital and innovation — the three drivers of productivity growth. The key will be to adapt to change through policies that promote flexibility,” he said. “That’s why Canada is investing in the skills and knowledge of our people, and is creating a competitive environment through lower taxes that encourage investment in physical capital and reward the efforts of entrepreneurs. These flexibility-enhancing policies, along with lower barriers to trade, smart regulation and openness to international investment, are the building blocks of Canada’s modern and prosperous economy.”

http://www.bank-banque-canada.ca/en/speeches/2004/dodge_221104.pdf