437. Telegram From the Embassy in Canada to the Department of State0
1364. At suggestion of Rasminsky, Governor of Bank of Canada, I called on him today and had a general discussion, primarily of economic matters. Rasminsky said he had wanted to talk with me to express in most sincere and heartfelt terms the profound gratitude and appreciation he entertains for the USG and particularly for officials in the Treasury, Federal Reserve and EXIM Bank for their excellent response last week to the problems faced by the Bank of Canada and Canadian Government. He went on to say he believes the financial measures have afforded a reasonable breathing space which should enable the Canadian Government to take necessary action to rectify the structure of its trade and payments. He noted that Canadians [have] been running a current account deficit of about $1,500 million with the US which is the main element in its imbalance of payments. He said it [Page 1183] had been wrong for Canada to assume that the net inflow of capital investment, which has for years balanced Canada’s payments, would continue indefinitely. He feels strongly that Canada must have in sight a means of resolving the problem of trade imbalance which would not be so dependent on an unpredictable flow of capital.
Rasminsky believes that the essential internal measures required to rectify Canada’s position as a potential recipient of investment include major tax reform, which would make the personal and corporation income tax less onerous at the middle levels. He said that unfortunately the kind of tax reform required would look like soaking the poor. He was apprehensive over what the politicians may do to the financial and trade program announced over the weekend. He implied unhappiness with the rather grudging support given by Pearson to the government’s measures thus far.
Rasminsky noted that it had been a very bitter pill for Diefenbaker to have to accept financial support from other countries, and he emphasized the great sensitivity of Diefenbaker in this regard. He said he realized that there would be a tendency on the part of the USG, now that election is over, to expect action on a number of pending questions. He recognized this as quite reasonable and understandable, but he warned that any attempt to imply that the US expected such action as a “payoff” for the support given last week, might well be counter-productive. I said I thought it unlikely that the US would talk in such terms, since our own payments system and our own balance of payments problems were closely related to the Canadian situation, and that it obviously was not in our self interest to have the Canadian financial position deteriorate. Rasminsky said that he had been very anxious that Canada not be the Kreditanstalt of 1962, and he understood how the US felt about the matter. He added that it was unfortunate that an improvement in Canada’s balance of payments almost inevitably resulted in an adverse development in the US balance of payments.
Rasminsky informed me that the Government of Canada is planning a $250 million bond issue to be floated in New York in the near future. When this is completed, I understand $250 million worth of the EXIM Bank line of credit will be allowed to lapse.
Rasminsky was reasonably optimistic about the success of present measures, but felt that the import surcharge program contained so many inconsistencies that it would be subjected to heavy attack. These inconsistencies arise because the action had to be taken without asking for any legislation.
- Source: Department of State, Central Files, 842.00/6–2862. Secret; Priority; Limit Distribution.↩