TORONTO, JUNE 24 -- Reflecting increasing concern over the potential impact of Canada's constitutional crisis on foreign currency and investment markets, the country's finance minister said today that the government will maintain its tight monetary policy to protect the value of the Canadian dollar and control a worsening of the economy.
Michael Wilson, the finance minister, said in a telephone interview that he had spent the day talking with foreign investors, urging them to balance their concerns over the failure of constitutional reforms designed to keep Quebec in the confederation with an appreciation of the basic soundness of Canada's economy and its firm economic policies.
A set of constitutional amendments adopted in 1987 at Meech Lake, Quebec, and intended to keep the predominantly French-speaking province from seeking independence expired Saturday, after the provincial legislatures of Newfoundland and Manitoba failed to ratify the accord before the deadline.
Quebec Premier Robert Bourassa said his government would no longer participate in any constitutional conferences and would reassess the province's political relationship with English-speaking Canada.
Wilson urged foreign observers to remember that "in the past, Canadians have been able to bridge their differences and find the necessary solutions.
"People forget that this country of 26 million people has the world's eighth-biggest industrial economy. The failure of the Meech Lake accord doesn't represent a fundamental split in the nation. It is simply a breakdown of a process," Wilson said.
Asked whether foreign investors had enough knowledge of Canadian politics to discount the likelihood of an imminent breakup of the confederation, Wilson replied: "Time will tell. We have been doing quite a bit of talking with them today about it."
Wilson's office telephoned The Washington Post to suggest an interview, an unusual step by a cabinet minister, indicating the depth of the government's concern over the potential impact that the constitutional crisis could have on foreign money markets. The minister also spoke to other news organizations today.
Wilson acknowledged that any backlash would start with the major foreign currency markets when they reopen Monday, and that government economists would be closely watching the performance of the Canadian dollar. The currency closed on Friday at 84.85 cents (U.S.) after the Bank of Canada intervened to defend it against a decline precipitated by concerns that the Meech Lake accord would not be ratified.
The Canadian dollar fell two-thirds of a cent at the opening of Asian currency markets tonight.
Some independent economists have predicted a free fall of the Canadian dollar if the separatist movement in Quebec gains momentum. The dollar has been held at an artificially high value because of the government's tight monetary policies of high interest rates -- the prime lending rate is 14.75 percent -- and intervention by the central bank.
"We know a weaker dollar means a higher cost of imports, and that situation reflects on the price of goods in the market. If that is the case, we will adjust our monetary policy accordingly," Wilson said. He said the government was determined to hold inflation to last month's 4.5 percent annual rate even if it meant higher interest rates in the future.
However, the high-value dollar has hit Canadian exporters and adversely affected Canada's balance of payments against the current account deficit. That deficit -- the shortfall of goods and services trade, including capital investment -- stands at $20 billion (Canadian), according to Wilson. Canada needs to import $20 billion in capital just to stay even.
During a 10-day crisis period in the constitutional negotiations in April, about $1.2 billion in Canadian government bonds were sold by investors, most of them Japanese.
Wilson said he did not expect a repetition of that kind of sell-off, and said Japanese investors had been buying significant amounts of treasury bonds in recent days.
Wilson conceded that there has been a slowdown in the economy, a continuous drop in the real gross domestic product over the last several months, but he stressed that the decline has been a result of policies designed to cool down the economy. Wilson discounted predictions that Canada would enter a recession.
The government's program of budget restraint also would make the economy more sound, he said. According to Wilson, in the 1989 fiscal year, the public budget deficit was $29.5 billion (Canadian), $1 billion less than forecast.