Making the best of a bad situation

Amid the pandemonium of coronavirus deterrence and financial turbulence, there was a flurry of collaborative Canadian leadership that will serve us all well.

After several days of piecemeal advice from provincial and federal health and border authorities about how far we should restrict movement, Ottawa finally set a bar Friday for what kind of international travel is acceptable, and was blunt about the risks of not following that advice.

As for financial turbulence, as one economist after another projected a mild recession for Canada this year, the finance minister, the top central banker and the top regulator of banks and financial institutions broke protocol to stand together and heap on several new ways to allow cash to flow more freely.

The main thing on their minds: stabilization. Or, making sure the run on toilet paper doesn’t turn into a run on everything else.

They followed up on Monday with a rare, co-ordinated G7 plan of action that will attempt to nurse the global economy back to health, after which, the prime minister promises, Ottawa will unveil a significant stimulus package targeting households, workers and anyone struggling to make ends meet because of the crisis.

The federal NDP was disappointed this type of help for families didn’t come earlier, and for good reason. Workers are making harsh decisions right at this moment, calculating the cost of staying home. Immediate federal clarity on what type of income support is on offer would certainly help.

But the crash in financial markets meant Ottawa had to act quickly to regain investor confidence, especially since the financial spinoffs of the virus are hurting Canada and its commodity-based economy more than others. And cash was showing alarming signs of being in short supply.

In Canada, we have reached consensus on a key point: whatever the cost of an aggressive response to the threat coronavirus poses to our health, it will be worth it.

The health side of this pandemic requires that the economy essentially shut down much of its activity. People need to stay home. They need to stop travelling, going out to concerts and sporting events and restaurants. They need to stop going to work, even if that means they can’t do their job properly.

It’s a period of “economic hibernation,” as CIBC chief economist Avery Shenfeld called it.

The costs of that hiatus are enormous. For the economy this year, it means we’ll see almost no growth as a country, and several months of some companies and employers struggling to stay afloat.

But the most immediate policy need was to at least stabilize financial markets so that banks would be able to lend at will, companies having trouble making payroll could borrow at will, and investors would have the confidence to stick around through the turmoil.

Government money for families and workers will be more effective if there is at least some semblance of financial stability.

So the three institutions with the most influence in Canada’s financial markets drew on their collective powers and on all the lessons learned from the last financial crisis. And they emptied their wallets.

The Bank of Canada cut its key interest rate by half a percentage point for the second time this month, and took extraordinary measures to inject extra cash into the system for the second time within a week.

They’ll likely have to repeat this cycle in the weeks ahead, economists say, but this was about as much as they could do in one fell swoop.

Finance Minister Bill Morneau added some details to his commitment from earlier this week to boost access to credit for small businesses and exporters. A vague promise last Wednesday turned into a $10-billion deposit on Friday.

And not to be outdone, the regulator of financial institutions relaxed the capital requirements for the country’s banks, freeing them up to lend out about $300 billion more to corporations.

The banks immediately responded, saying they would indeed lend more, and they’d be flexible, too, aiming to get companies through the bad times, rather than drive them under.

We can have some hope that the effects of the coronavirus downturn won’t be quite as nasty as we had feared.

Heather Scoffield is a columnist with Torstar Syndication Services.


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