Asia slowdown hits Canada Coming closer: Canadian dollar falls as Ottawa struggles with lower demand for its export products.

July 30, 1998

A SUDDEN DROP in the value of the Canadian dollar, compared to its U.S. counterpart, is a hardship for Canadian pilgrims to the sandy beaches of East Coast states. Everything here costs more in terms of the money they earned at home. It's good for U.S. tourists scaling the walls of Quebec and street festivals of Montreal. Everything there is cheaper.

The recession gripping East Asia affected the Canadian northwest first, but now is Canada-wide. There is less export demand for oil, grain and wood, much of which goes to Japan. This has made the Canadian dollar, which was worth about 75 cents U.S. early last year, fall below 67 cents.

Canada's government has done nothing about this. And for good reason. By letting the market decide the Canadian dollar's worth, Canadian exports are aided.

Were the central bank to raise interest rates, more investors would buy Canadian dollars, raising their value. But Canada's economy would slow down as mortgages and loans became more expensive. That is being avoided.

None of this is comforting to U.S. citizens. As more currencies go down against the U.S. dollar, it hurts U.S. firms' competitiveness. Another sign of Asia's recession coming closer is the layoff of 3,000 workers by Mexico's biggest steel maker, which is facing competition from cheaper Asian steel.

The strength of the U.S. economy, and its appeal to foreign investors, is comforting. But there is no comfort in the spread of distress elsewhere. The U.S. economy does not operate in a vacuum.

The increasing nearness of Asia's recession is alarming news for U.S. workers and firms. It is reason enough for the U.S. Treasury and Federal Reserve Board to use all their influence to help Japan restore its own vitality.

Pub Date: 7/30/98

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