The 1990's have not been kind to the thesis that Canada is emerging as a principal power in a more diffuse international system called into being by the sustained, significant decline of the United States as a system-dominant power. Yet a close examination of Canada's diplomacy through the G7 and IMF during the course of the severe 1997-9 global financial crisis demonstrates that Canada played a full part in the concerted leadership exercised effectively by the G7 to stem the crisis and install an strengthened international financial system in its wake. Even during the adverse conditions of autumn 1998 Canada had a far more substantial impact upon the crisis than the crisis did on Canada. Internationally, Canada provided intellectual leadership by presenting comprehensive programs and initiatives for coping with the crisis and defining a new international financial architecture. Canada further exercised policy leadership by identifying in advance and consistently pursuing to ultimate success distinctive positions based on Canadian interests and values: controlled capital liberalization; financial system surveillance and peer supervision; private sector involvement, social responsibility in adjustment packages; and fiscal stimulus and generous ODA rather than the inflation-fighting and deficit reducing stance that had dominated Canadian and G7 policy during the previous decade. Canada finally displayed structural leadership by contributing its proportional share, as a member of a G7 concert serving as lender of last resort, to contain the crisis of confidence and bring debt relief to the poorest. Canada pursued its preferences and programs throughout by combining with a shifting array of G7 partners on different issues and at different times, often opposing the initiatives of both the United States and United Kingdom, and ultimately having a discernable impact in shaping outcomes on the issues it and the G7 as a whole deemed central. In doing so it worked effectively to begin putting in place a more humane and socially responsive form of globalization that that which had prevailed prior to and during the early stage of the global financial crisis of 1997-9.
The 1990's have not been kind to the thesis that Canada is emerging as a principal power in a more diffuse international system, called into being by the sustained, significant decline of the United States as a system-dominant power (Dewitt and Kirton 1983, Hawes 1984, Cooper 1997, Nossal 1997). This has been a decade in which the United States has appeared to rise, in the wake of the cold war's end and a globalizing world, as the world's only superpower, fuelled by a "Goldilocks economy" that inspired President Clinton, at his 1997 Denver Summit of the Eight, to recommend the American way as the model his Group of Seven (G7) partners should adopt (Bayne 1997). The advent of prolonged economic stagnation, and by 1998 severe recession, in Japan, combined with major structural problems in the German and other European economies, have widened the once steadily narrowing gap in GDP between the US and its leading economic rivals (Fry, Kirton and Kurosawa 1998). Canada too, beset by recurrent constitutional and national unity challenges, sluggish productivity growth, and a declining currency has also seen its GDP gap with the US widen (Kirton 1999).
The Asian financial crisis that began in Thailand July 1997, and went global in the second half of 1998, seemed at first to intensify these dynamics. The crisis appeared to produce a powerful and decisive US acting, in classic hegemonic fashion, as the international lender of last resort, a weak and paralysed Japan compounding the problem, and a relatively small and open Canada, widely seen as a commodity-based economy as a time of world-wide deflation, acutely vulnerable to the intense assaults that a globalized international financial system brought. As the crisis reached its acute phase in the autumn of 1998, Canada's position as a longstanding G7 member and host of APEC's November 1997 Economic Leaders' Meeting in Vancouver, so proudly heralded in the Chretien Government's definitive Statement on foreign policy in February 1995, seemed to belie Canada's profound, underlying weakness (Canada 1995).
Such appearances, however, proved to be deceiving. To be sure, the Asian financial crisis did have an identifiable, and potentially very harmful impact on Canada. In particular, by the autumn of 1998 it had begun to slow the vibrant growth the Canadian economy had enjoyed over the previous two years, contributed to a further weakening of commodity prices, and reduced Canada's trade with crisis-afflicted countries in Asia, with severe effects on the prairie wheat and pork economies (IMF 1998). However robust domestic demand, strong exports fueled by a vibrant US economy, and modest dollar depreciation long insulated Canada from most of the negative effects. Only the arrival of a systemic crisis in the autumn of 1998, marked by a falling Canadian dollar, and a paralysis in US financial markets, posed a true threat. In short, the threat posed by the Asian financial crisis to Canada was global rather than regional, and systemic rather than macroeconomic. It was at these levels that Canada's response came.
Even under the adverse conditions of autumn 1998 Canada had a far more substantial impact upon the crisis than the crisis did on Canada. Canada's impact came first in containing the global threat the crisis posed, Moreover, Canada was able to use the window of opportunity the crisis provided to shape and secure outcomes Canada had long desired in constructing a new international financial architecture and in reforming the affected Asian countries (Kawasaki 1998). Canada approached the crisis by using its privileged position in the most relevant global forum, the G7, as supported by the Asia Pacific Economic Co-operation (APEC) forum and the new Group of 22 (G22), to play an effective, full-fledged leadership role (Young 1991, Rapkin 1990). More specifically, Canada provided intellectual leadership by presenting comprehensive programs and initiatives for coping with the crisis and defining a new international financial architecture. Its intellectual leadership started with the Halifax Summit of 1995, continued through its peer supervision plan and "roadmap" concept in the spring of 1998, and culminated in its Six-Point Plan of September 29, 1998, and its Winnipeg debt relief plan of March 1999. Canada further exercised policy leadership by identifying in advance and consistently pursuing to ultimate success distinctive positions based on Canadian interests and values: controlled capital liberalization (eventually with a proposed Emergency Standstill Mechanism); financial system surveillance and peer supervision; private sector participation, social responsibility in adjustment and debt relief packages; and fiscal stimulus and enhanced ODA expenditure rather than the inflation-fighting and fiscal consolidation stance that had dominated G7 policy during the previous decade. Canada finally displayed structural leadership by contributing its proportional share, as a member of a G7 concert serving as lender of last resort, to contain the crisis of confidence and contribute to debt relief of the poorest (Kindleberger 1988). It not only contributed mutlilaterally as a leading member of the International Monetary Fund (IMF), International bank for Reconstruction and Development (IBRD), Asian Development Bank (ADB), Inter-American Development Bank ( IDB), General Arrangements to Borrow (GAB) and the New Arrangements to Borrow (NAB) but also provided national funds to South Korea in December 1997, to Thailand in April 1997, and to Brazil in November 1998, Moreover, it cut interest rates in the first wave in the autumn of 1998 when the resources of a financially and Congessionally paralysed United States alone were not sufficient to stave off the burgeoning global crisis. And it stood ready to provide new ODA to ensure a successful Cologne debt initiative as the 1999 Cologne G7/8 Summit approached. Canada pursued its preferences and programs throughout by combining with a shifting array of G7 partners on different issues and at different times, often opposing the initiatives of both the United States and United Kingdom. And it ultimately succeeded in having a discernable impact in shaping outcomes, towards a more human socially responsible form of globalization, on the issues it and the G7 as a whole deemed central.
The global financial crisis of 1997-8 thus affirmed Canada's position and role as a principal power in the face of an acute, genuinely global systemic crisis. It did so at a moment when an apparently neo-hegemonic United States was itself paralysed by and vulnerable to a rapidly spreading global financial crisis. It did so at a time when the forces of globalization were often thought to render states, especially those of smaller open economies such as Canada, highly constrained in the face of powerful market forces. It did so in a domain - that of global finance - where Canada's issue specific capabilities have been viewed as especially modest (Webb 1992). Yet here Canada was able to use its formidable array of resources, and the crisis as an empowering opportunity, to act as a full-fledged member of the global G7 concert, and advance to a substantial degree its preferred vision of regional and global order.
To develop this argument, this study examines Canadian diplomacy, largely conducted through the G7 and APEC, through the four phases of the crisis and the effort to construct a strengthened international financial system in response. The first was the response through the G7 and the IMF to the first, regional, Asian phase of the crisis, from July 1997 to the early summer of 1998. The second was Canadian diplomacy through APEC, from the November 1997 Vancouver Economic Leaders' Meeting (ELM), through the May 1998 Kananaskis APEC Finance Ministers Meeting (AFFM) to the November 1998 ELM in Kuala Lumpur. The third was Canada's role in the G7, IMF and related groupings such as the American-crafted G22, during the third, acute, global, systemic phase of the crisis, from the late summer through the autumn of 1998. And the fourth was Canada's approach in the wake of the second phase of the Brazil crisis, to construct a reformed and strengthened international financial system as the June 1999 Cologne G7/8 Summit approached.
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