Canada

The diminishing dollar

Canadians cope with the freefalling loonie

JOHN SCHOFIELD August 3 1998
Canada

The diminishing dollar

Canadians cope with the freefalling loonie

JOHN SCHOFIELD August 3 1998

The diminishing dollar

Canadians cope with the freefalling loonie

JOHN SCHOFIELD

June and Reg Gleason have narrowed down their vacation shopping list to one category: knick-knacks. There are the trusty key chains, a few fridge magnets, a piggy bank made out of cedar. At $1.50 for a U.S. dollar, that is all the couple from London, Ont., say they can afford during a fourday swing through Maine on their way to Nova Scotia. “We’re not spending a lot of time here because there’s just too much of a spread right now,” said Reg, 55, from a bed and breakfast in Bar Harbor last week. But the Gleasons are braver than most of their fellow Canadians, who have been a rare breed in these parts lately, says Arlene Stetson, co-owner of the Augustus Bove Bed and Breakfast in Naples, Me. “I bet I have not had more than three couples the entire summer,” she says. ‘They like coming, but it’s the exchange rate that’s killing them.” “Ouch” is the operative

word—at least for those unfortunate enough to be trading crippled Canadian dollars for the seemingly invincible U.S. greenback. The cries of anguish grew louder last week as the dollar continued its steady slide, crashing through the 67-cent (U.S.) mark to end the week at 66.71 cents, its 10th record-low close in the space of two weeks. Economists continued to argue over whether the currency’s decline is actually good or bad for Canada—although a few more joined the minority of pundits urging the Bank of Canada to prop up the currency by boosting interest rates. And as the debate raged on, the main question was: how low can it go? “The near-term picture is not very rosy,” says Sal Guatieri, a senior economist with the Bank of Montreal. “You can’t pick a bottom.”

While economists vary on a suitable remedy, most agree the real reason for the dollar’s weakness is Asia’s economic turmoil,

which has depressed commodity prices worldwide and cast a cloud over Canada’s resource-based economy. Asia’s woes are taking a toll on Canada’s cities, too: the Conference Board of Canada predicted last week that Vancouver’s economy, which is heavily reliant on Asian investment, will grow by only 1.8 per cent this year, compared with 5.1 per cent for Toronto and 4.9 per cent for Calgary. While Japan’s new prime minister-apparent, Keizo Obuchi, is talking tough about economic reforms, the Bank of Montreal’s Guatieri says there is no telling how long the region’s economy will take to recover—with the dollar rising on its coattails.

Canadian travellers accustomed to U.S. vacations are not holding their breath. Increasingly, they are abandoning their usual holiday haunts. In the first five months of this year, the number of Canadians travel-

ling to the United States dropped by 400,000 over the same period in 1997, a 6.4-percent slide. Cynthia Kerwin and her husband are among those who decided to stay home. Kerwin, a 29-year-old Montreal computer analyst, has visited Florida’s Disney World six times, four of them as an adult. The couple planned to return this year to see Animal Kingdom, the latest addition to the Orlando amusement park, but they recently decided to postpone the trip until next year in the hopes that the exchange rate would improve. Park admission alone is $65 a person per day, she notes, and hotels typically cost $150 a night or more. Total cost for a three-day trip, including meals, for one adult? At least $900—not including airfare. “It’s just not worth it,” says Kerwin.

Travellers who do venture south are usually spending less. Their penny-pinching ways, and the overall decline in Canadian tourists, has hit historic U.S. holiday destinations hard. Old Orchard, Me., a seaside favorite with Quebec francophones, is a classic case. In the mid-1980s, Quebecers comprised about 80 per cent of tourists there. Today, they make up no more than half. “We have noticed that people M who used to spend 10 days are I now spending five or so,” says o Marc Bourassa, co-owner of the Kebek 3 Motel. At the Studio Gift Shop, a high-end boutique in nearby Ocean Park, owner Lynn Desrochers says Canadians are easy to spot: they are the ones with furrowed brows, doing quick mental calculations. “They figure out what it costs in American money to see if it’s worth buying,” says Desrochers. “For the most part, they hold off.” Canadians’ newfound phobia for the United States sometimes seems to defy reason. In Blaine, Wash., on the border with British Columbia, gasoline is still a steal at $1.05, or $1.56 (Can.) a gallon, compared with $1.97 in Vancouver. But the town’s gasstation owners, who rely on B.C. motorists to stay afloat, are falling on hard times. City manager Anthony Mortillaro estimates that this year, the community of 3,500 has lost about one-third of its gas-tax revenues, or more than $150,000 because of the faltering loonie. “We don’t understand it,” says Mortillaro. “Gas is still cheaper. If people do the math, maybe they’ll see that buying some products in the States is still a good use of their money.”

In some sectors, Canadians are willing to

grit their teeth and shell out. Record companies, for example, are prepared to go to almost any expense for promising artists, says Gary Furniss, vice-president of Toronto-based Sony/ATV Music Publishing of Canada. The company is making a big bet on Tara Lyn Hart, a singer from Manitoba who Furniss describes as “the next Celine Dion of country.” Instead of a homegrown—and considerably cheaper— recording, Hart’s debut album, due out this fall, was recorded almost entirely in Nashville and Los Angeles, using highpriced talent such as Walter Afanasieff, Mariah Carey’s longtime producer. ‘We definitely considered the cost,” says Furniss. “But when we sign somebody, we’re looking at their career, so if it’s something that will help their career, we still do it.”

But in the currency casino, winners and losers can be hard to predict. Common sense suggests that importers buying U.S. goods for sale in Canada would be suffering most. But Steve Chan, a partner in Can-Am Produce & Trading Ltd., a Vancouver fruit and vegetable wholesaler, is not complaining. He estimates the company buys about 70 per cent of its produce from south of the border, but revenues are up despite the loonie’s malaise. Because payments to the company from retailers can take anywhere from 45 to 90 days, Chan says, the company calculates a buffer on the exchange rate to protect itself from fluctuations. Early last year, for example, when the U.S. dollar was worth $1.43, Can-Am was passing on the cost to retailers at a rate of $1.45. Now, it is charging $1.55 with the greenback worth nearly $1.50. Sometimes, he admits, the company overcompensates. But, he adds, ‘We can use the weak dollar as an excuse.” The Bank of Montreal’s Guatieri says that, in most cases, shoppers are not paying a penalty for the lower dollar. Retailers and manufacturers are finding it difficult to pass on increased costs because of stiff competition, especially from cheaper Asian goods. That is why the country’s annual inflation rate remains at a modest one per cent and consumer demand, which helped boost retail sales 0.5 per cent in May from the month before, remains strong. Hiking interest rates, Guatieri warns, could ruin that. His advice to Bank of Canada governor Gordon Thiessen? Hang tough.

For inspiration, Canadians weary of their beleaguered buck can look to Australia. Since hitting a record low of 58.5 cents (U.S.) in mid-June, the Australian dollar has steadily climbed back to almost 62 cents on the strength of renewed hope in Asia’s recovery. Eventually, the loonie will follow that upward trend, says Guatieri. Until then, Canadians seeking U.S. souvenirs will have to make do with knick-knacks.

SHARON DOYLE DRIEDGER