TORONTO, OCT. 11 -- Canada's three most powerful business organizations harshly criticized the Conservative Party government of Prime Minister Brian Mulroney's government today for what they termed out-of-control spending and "macroeconomic mismanagement" and called for a two-year freeze on new federal spending to reduce the $380 billion national debt and $30 billion budget deficit.
The Canadian Chamber of Commerce, the Manufacturers' Association and the Business Council on National Issues -- all of which have given solid support to Mulroney since he was elected in 1984 -- said in an unprecedented statement that Canada "stands out among industrial countries as one with a particularly strong addiction to government debt" and called for a reduction in interest rates to help spur the country's weakening economy.
As a result of the Mulroney government's "dismal fiscal policy," the business leaders said, Canada "may be on the crest of a full-scale economic recession." The sharp criticism could prove particularly damaging to Mulroney, who, with his approval rating slipping as low as 15 percent in public-opinion polls, has leaned heavily on business backing since he was reelected in 1988 -- partly on the basis of his support for the U.S.-Canada free-trade agreement.
The condemnation by the business groups follows a public warning from the Conference Board of Canada, a private economic-research group, that government use of a tight monetary policy and high interest rates to curb inflation has already brought about the country's first "made-in-Canada" recession -- meaning an economic downturn not driven by U.S. market forces.
Abandoning its previous optimistic forecasts of slow growth, the conference board said that Canada is in the midst of its second longest economic decline since the Great Depression of the 1930s, with economic contraction certain to be recorded for the last three quarters of this year. Economists define a recession as two consecutive quarters of decline in a country's production of goods and services.
James Frank, the conference board's chief economist, predicted that the current recession will be milder and shorter than the 18-month recession of 1981-82 but that it will last at least until next spring, with a growth rate of only .4 percent for all of 1991. Frank estimated that inflation will be in the range of 6 to 7 percent next year, with unemployment reaching 9 percent, resulting in a period of stagflation before the economy improves. Stagflation is an economic condition marked by continuing inflation together with a decline in business activity and rising unemployment.
At the same time, however, Mulroney's finance minister, Michael Wilson, refused to acknowledge that Canada is in a recession and said that interest rates -- currently pegged at a prime rate of 13 percent -- would be reduced only if inflation declines. Consumer prices are expected to increase 4.4 percent this year and 6.1 per cent in 1991, partly because of the impact of higher oil prices and a new 7 percent federal value-added tax.
"If we pursue quick-fix solutions that ignore inflationary pressures surrounding us, especially the current volatile situation regarding international oil prices, we will end up doing ourselves more harm than good," Wilson told a meeting of manufacturers today. Wilson said that increases in federal spending -- not including debt service -- have been kept below the inflation rate and currently are at the lowest levels in 20 years.
Another government spokesman, Parliamentary Majority Leader Harvie Andre, argued that the recession definition of six consecutive months of economic shrinkage had not yet been met, adding, "Indications are it won't be a severe recession, indeed if it is a recession." Responding to the call for a federal spending freeze, Andre said: "The difficulty is, Canadians don't want to pay for the government programs they want to receive. . . . When we put a cap on funding programs, there are hunger strikes."
The three business groups complained that Canada's competitive position in global markets is being seriously undermined by the high interest rates, which they attributed largely to excessive government spending, tax increases and a ballooning federal debt.
"If allowed to continue, high interest rates and the undisciplined spending and tax policies favored by our governments will erode the future standard of living of all Canadians. Our three organizations are convinced that a determined national effort is urgently needed to address Canada's looming fiscal crisis," Manufacturers' Association President Laurent Thibault told a news conference.
Thomas d'Aquino, president of the influential Business Council on National Issues, an Ottawa-based group of 150 chief executive officers, agreed, saying: "High deficits and high interest rates are the inevitable results of a combination of lax fiscal and tight monetary policy. These have proven a deadly combination for the Canadian economy."
Adding to the the problem, the businessmen said, is the artificially high value of the Canadian dollar, now at 87.01 cents to the U.S. dollar, reflecting a rise of 12 percent since the 1989 U.S.-Canada free-trade agreement. Canadian exporters say that the high dollar has adversely affected Canada's balance of payments against its record $20 billion current-account deficit, which is up $4 billion from 1984. The current-account deficit is the shortfall in international goods and services trade, including capital investment.
In a fact sheet distributed with their condemnation of government fiscal policies, the business leaders noted that among the world's seven leading industrial nations, Canada has the second largest combined federal and provincial government debt -- bettering only Italy -- a figure the businessmen said was equivalent to more than 70 percent of the country's gross domestic product.
Because of its "insatiable appetite for debt," the business groups said, the government is increasing its borrowing abroad, with net foreign indebtedness rising from $137 billion in 1983 to $230 billion last year. The businessmen also faulted Canada's 10 provinces for excessive spending, which they said contributed to inflationary pressures. Ontario showed the least fiscal discipline, the business leaders said, increasing its spending between 1986 and 1990 by more than 9 percent at a time when its economy was already overheated.