The pattern was a familiar one. When the dollar began to drop on international money markets last week roughly equal numbers of Canadians rejoiced as despaired. The declining dollar resulted immediately in higher interest rates for loans and mortgages. It also drove up the cost of what for many Canadians is a cherished midwinter tradition—the tropical vacation. And within weeks prices of consumer goods imported from the United States may also rise. But the weakened currency will also likely strengthen foreigners’ demand for Canadian goods and services and improve the rate of
@‘n on investments such as bank mts and retirement saving plans, th some economists predicting the dollar will eventually fall to nts U.S., there may also be a new
round of inflationary pressures that could jeopardize Canada’s economic recovery. But others, including Finance Minister Michael Wilson, said last week that the dollar’s latest slide may only be a temporary phenomenon. Said James Frank, chief economist at the Conference Board of Canada: “This volatility could go on for a couple of weeks. It is a normal thing to happen.” Help: For one thing, a weak dollar could help reverse the downward trend in Canada’s foreign trade statistics. Since 1982, exports to the United States—the nation’s major trading partner—have expanded rapidly, and in 1984 Canada had a record trade surplus of $20.8 billion. But last year that surplus began to shrink. Last week Statistics Canada released figures for November, 1985, showing that exports to the United States fell by 5.3 per cent
to $8 billion while the value of imported U.S. goods rose 11.5 per cent to $6.8 billion. For the first 11 months of 1985 Canada’s trade surplus was $15.5 billion, down $3.6 billion from the same period in 1984. Rising imports from—and falling exports to—countries other than the United States left Canada with a total trade surplus for November of $500 million, down sharply from $2.2 billion a month earlier.
Depressed: According to statistical models prepared by federal finance department officials, for every one-percent drop in Canadian prices, exports to the United States should rise by one per cent. But, said a senior finance department official, “the thing to remember is that this one-per-cent change doesn’t take place immediately.” He added that the long-term effects of a depressed currency were significant only if they created a demand for Canadian goods in the United States.
A weak dollar is clearly welcomed by Canadian manufacturers who ship their goods to the United States, but there is also a high price to pay for a depreciated dollar. Economists estimate that a three-per-cent decline in the dollar creates a one-per-cent rise in the consumer price index.
Many consumers have already felt the adverse effects. In Ontario earlier this month the price of some imported
French wines increased by about 10 per cent. Ontario Liquor Control Board spokesman Christopher Layton attributed the increases to disastrous weather in wine-producing regions of France—and to the weak Canadian dollar, which now buys only 5.2 francs compared with 7.3 francs just eight months ago.
Still, as the dollar has declined over the past 10 years, many Canadians have been partly cushioned from dramatic increases in prices for such products as imported fruit and vegetables, electronic equipment, autos and clothing. The reason: foreign producers and importers often absorb part of their higher costs and only slowly pass on increases to avoid discouraging customers with sharp price increases.
Costs: But eventually, the full costs are felt. Said Maria Nicoletti, manager for Cortina Foods, a small Port Moody,
B.C., company that imports preservative-free tomatoes and olive oils from Italy: “We have to pay most of our suppliers in American dollars. Because we are in a very competitive market, sometimes we have to sell our imported products for less than they cost us.
Sooner or later we have to charge more for the Canadian products we carry just to keep up.”
For his part, Michael Vaughan, the owner of Michael’s Mussels, a Toronto company selling imported and domestic seafoods to restaurants and gourmets in southern Ontario, said that a depressed dollar also results in some imported products simply disappearing from the Canadian market. Said Vaughan: “I can no longer afford to buy freshly cut fish fillets from the United States because my customers are not willing to pay the price.”
Many public and private corporations that borrowed U.S. funds also suffer when the Canadian dollar falls. Similarly, Canadian businesses that purchase equipment or supplies outside the country have to pay more for them. But some Canadian industries, particularly those that export commodities, welcome a cheaper dollar because it provides an opportunity to make short-term profits. Indeed, shares of many mining companies shot upward on the Toronto Stock Exchange last week as investors anticipated improved earnings. At the same time, those companies are vulnerable because a sharp rise in the dollar would severely reduce their profits.
Visitors: For Canada’s travel industry, a devalued currency encourages more visitors to spend more money on the country’s restaurants, hotels and amusements. “It is a terrific boon for tourism right across Canada,” said William Duron, president of the Metro Toronto Convention & Visitors Association, an umbrella organization that represents 800 industry-related compa-
nies in Toronto. Indeed, Statistics Canada figures show that for the first 11 months of 1985 tourist visits from the United States numbered 11.6 million, up 3.4 per cent from 1984.
In November alone 503,200 American tourists visited Canada, an in-
crease of 6.3 per cent over the previous year and and the highest November level in a decade. Still, said Duron, the effect of the favorable exchange rate is “not as great as it could be, simply because most people in the United States don’t know about it.”
Optimistic: That, too, may change. Many travel agents say that they are optimistic that a $20-million federal advertising campaign scheduled to begin across the United States next month will increase the flow of American visitors. A prime aim will be to make Americans aware of the extra strength that their dollars have in Canada. Said Duron: “Once they come and find out that it works out to an additional day or two for free, they sure do tend to come back again.” Martha Chapman, public relations director for Goliger’s, a Toronto-based travel agency with 67 branches across Canada, added that the favorable exchange rate and the publicity for Vancouver’s Expo 86 would provide a strong inducement for Americans to visit Canada this summer.
But for many Canadians, the dollar’s latest drop may be felt most when they begin planning foreign holidays this winter. Many travellers expressed shock last winter when between January and March the dollar nosedived to 72 cents from 75 cents, and for the first time found themselves paying a 40-per-cent premium on their currency. Still, said Chapman, “because we have not had a dramatic, overnight drop this time, not much has changed. A small slip down doesn’t make much difference.” She added that business has remained steady in Goliger’s agencies countrywide.
Indeed, Canadians who can afford to travel at all seem to have become used to their anemic buying power abroad. “The exchange is so bad that my clients are simply ignoring it,” said Gordon Salisbury, a travel agent in Hamilton, Ont. And a Statistics Canada spokesman said that last year many Canadians disregarded the disadvantageous exchange rates. In the first 11 months of 1985 the number of Canadians who visited the United States increased by 2.2 per cent over 1984 to 35 million. Over the same period, 2.2 million travelled to countries other than the U.S., an increase of 15 per cent.
Indeed, many Canadians appear to have decided that the country’s shrinking dollar is not as large a concern as endless months of winter when they consider a holiday in the sun.
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