ECONOMY-CANADA: Asian Fallout Hits Exports

By Paul Weinberg Reprint | | Print |

Paul Weinberg

TORONTO, Feb 24 1998 (IPS) - A nervous Canada is keeping a watchful eye on export orders in the fallout from the economic turmoil in East Asia.

The problems overseas demonstrated “the fallacy” of governments relying solely on exports to spur economic growth, said Bruce Campbell, executive director of the Canadian Centre for Policy Alternatives. But he added that Canada, despite its significant resourses, also was vulnerable to any global crisis because it was putting “all its eggs in one basket.” ” At the same time that the federal government in Ottawa has “squeezed the domestic economy to breaking point” with high interest rates to discourage inflation, it has sought to compensate for the higher costs of conducting local business and greater unemployment – by focussing on international trade.

Campbell said, however, that this export-driven approach, especially in the once dynamic powerhouses of the Asia/Pacific region “is reaping very little fruit.” He is concerned that the full ramifications of the weakening of the economies like South Korea, Indonesia and Japan have yet to be realized.

“There is more to come,” Campbell declared.

Canadian exports of wood products, coal, wheat, nuclear reactors and consulting services in forestry, mining and engineering are all affected by the shortage of ready capital being experienced by Asian/Pacific companies and governments.

They cannot conduct purchases at the same level as before their economic troubles. “Big infrastructure projects such as the building of airports and power plants are being put on hold,” says Lorna Wright, director of the Centre for Canada/Asia Business Relations at Queens University in Kingston, Ontario.

In the commodities sector, “it is difficult at this time to assess the long term impact on Canadian wheat exports,” says Brian Stacey, a communications co-ordinator for the Canadian Wheat Board.

South Korea, one of the top five buyers of Canadian wheat, has received extensions of credit at standard commercial rates approved by the Canadian government. But, says Stacey, “competitors (from other countries) are offering more lucrative terms.”

In addition, a big question mark hangs over the sale of nuclear reactors by the Canadian government supported Atomic Energy of Canada Limited (AECL) to South Korea’s national, majority state owned power utility, KEPCO.

Norman Rubin, director of nuclear research for the Toronto based Energy Probe says that KEPCO has financed the purchase of several Canadian CANU reactors with financial assistance from government banks in South Korea, now hard hit by the fall in value of the nation’s currency – the won.

Ambitious plans by KEPCO for 15 new nuclear reactors by the year 2010, in addition to the 13 already in use in South Korea, have since been scaled back, according to the British magazine, The Economist. Moody’s, a leading U.S. credit-rating agency, has reduced KEPCO’s longer term unsecured debt rating, which is a serious blow in a capital intensive nuclear industry.

Rubin wonders if the Canadian taxpayer will end up footing the bill for the payment of the reactors by KEPCO in existing contracts, costing in the hundreds of millions of dollars and adding further assistance to an already heavily subsidized and perpetually money losing AECL.

South Korea and China are among the few countries left in the world willing to buy nuclear reactors, says Rubin. “This is the last lifeline for a global industry.”

Financial analysts opined that the Pacific coast province of British Columbia, with its close relationship to Hong Kong and Japan, would be particularly vulnerable to the fallout from the Asian financial crisis. In addition to the impact on the overheated Vancouver real estate market, the Asian/Pacific region accounts for 20 per cent of the province’s total trade, said Helmut Pastrick, chief economist with Credit Union Central of British Columbia.

The 15 percent decline in housing “starts” in Japan, for example, has hurt Canada’s coastal forestry sector because at least half of its wood products are sold to Japan. Various large companies including MacMillan Bloedel have gone through a rationalization process, which has included the shut down of sawmills.

Pastrick suggests, however, that the forestry industry in the interior of British Columbia is less affected by the Asian monetary crisis because most of its lumber is exported south to the huge American market.

Dissenting from the gloom over the future of the Pacific Rim is Queen’s University’s Lorna Wright who says that countries in the region are unfairly being grouped together, when each is entirely unique in terms of experiencing the financial crisis.

If China, an important market for Canadian exporters, manages to remain unscathed, she is optimistic that the Asia/Pacific will reassert itself as a dynamic market