Speaking at the 5th Global Competitiveness Forum at the Four Seasons Hotel Monday, he said the government must work to provide a stable financial system that promotes optimism. This will ultimately lead to growth and stability.
Chretien, Canada's 20th prime minister, headed his country's government for more than 10 years, from 1993 to 2003. Commenting on the risks of dealing with economic and financial crises, he said, “My life has been a risk. I have run for Parliament 12 times and three times for the prime ministership.”
In 1993, when Chretien first became prime minister, Canada's deficit was 6.1 percent of gross domestic product (GDP) and the national debt was about 70 percent of GDP. “We were spending 27 cents of every tax dollar on the interest rate,” he said.
“The debate was like today: Should we invest or put order in the finances of the nation?” he said. “This was a time when The Wall Street Journal had concluded that Canada was on its way to becoming a Third World nation. So my government was confronted with this dire scenario.”
Chretien decided then that the best way to restore the economy of Canada was to create new confidence in the nation. “With all the bad news, we had a nation that was depressed. So we decided, let’s fix one big problem. And we took the risk, put all our eggs into restoring the finances of the nation.”
Budgets were slashed, bureaucrats were laid off. “One of my ministers said we all would be defeated in two years,” Chretien said. “He is still there, by the way.”
He added: “It was the risk we took. And we survived. Because you have to create optimism in your society. Governments cannot solve all the problems. You want to create an atmosphere where the people are willing to move.”
Canada's problem at that time was that the government was borrowing too much money. “We were in competition with the private sector for that money, so the interest rate was about 11 percent,” Chretien explained.
Curing the problem of the nation's finances would create the maneuvering room needed for economic growth. “We worked on balancing the books,” he said, “and we had seven years of surpluses. When I quit, we were the best in the G7.”
Some countries do face very difficult problems, he noted. “But the reality is that there is still a lot of growth in the world.”
China's problem is that it is growing too fast. “They are worried about inflation,” he said.
Then there are countries like India, Brazil, Saudi Arabia and many others that are doing quite well.
“Others will have to take the risks,” Chretien said — the same kind of risks his government took in Canada to rescue the country's financial institutions.
“In those days everybody was for deregulation,” he observed. “We said no to deregulation. Now our banks look like they are the best in the world. Stability was needed in Canada at that time.”
“The economy of any country,” Chretien said, “is based on the fact that every citizen, every minute, is making a decision that has an impact. If he is afraid, and refuses to spend money, then there will be no growth. And if you are lucky, then you can be prime minister twice.”
