Future of Canada's `Super Banker' Remains a Hotly Debated Question

TO some Canadians, John Crow is a hero for killing Canada's inflation monster. To others, the Bank of Canada governor is a cold-hearted economist whose policies have cost the country thousands of jobs and billions of dollars.

However he is judged, the coming weeks will determine whether Mr. Crow stays or goes.

After seven tumultuous years, Crow's term as Canada's super-banker, the equivalent of Federal Reserve Chairman Alan Greenspan in the United States, is coming to an end on Jan. 31, 1994. Whether or not to reappoint Crow to a new term is one of the biggest decisions facing the newly elected Liberal Prime Minister Jean Chretien.

While the bond and currency markets approve of Crow's inflation-fighting prowess, many people are calling for his removal and a looser monetary policy more conducive to creating jobs. Critics blame Crow's 1988 high-interest rate ``zero inflation'' policy for the nation's 11.1 percent unemployment rate.

``Crow's neoconservative monetary policies have severely damaged the Canadian economy,'' says Jordan Grant, a Toronto-area developer who heads the Bank of Canada for Canadians Coalition, a small-business coalition that last week called for Crow's ouster. ``It will be impossible for the Liberal government to take the Canadian economy in a new direction if Crow continues.''

Mr. Chretien also was critical of Crow's performance during the campaign, saying the bank's policies had cost jobs and caused businesses to fold, deepening the 1990-92 recession. In September he called for a looser leash on interest rates and inflation and a slightly higher deficit to stimulate job growth.

That was not a message foreign investors wanted to hear, and the Canadian dollar and bond markets plunged. Paul Martin, Chretien's closest economic adviser, quickly downplayed Chretien's comments, saying the Liberal Party leader's fight was not with Crow but with the Conservative government.

Last week Chretien appeared to move toward Crow's reappointment, choosing Mr. Martin as finance minister over others who openly opposed him. Yet Martin was noncommittal when asked about Crow, saying he would make up his mind after the two met to discuss policy in coming weeks.

IF Crow is dismissed, economists warn that interest rates and inflation will rise, boosting the cost of mortgages and business loans. Fears that the deficit might increase to $40 billion from $35.5 billion caused traders to dump the Canadian dollar, which fell one cent to 76.39 US cents by Wednesday. A weak dollar could undermine investor confidence in Chretien's government.

Debate continues in Liberal circles about whether the government should take a ``short term'' hit from the markets and remove Crow now, in order to have a looser monetary policy and higher employment when an election rolls around. The other option is to keep Crow, enjoy low interest rates, and hope inflation does not return in the next few years.

``Regardless of how much we may have disagreed with fiscal and monetary policies of the previous government, removing Crow would be perceived as a public firing and a return to inflationary policies,'' says John Bulloch, president of the Canadian Federation of Independent Business, which represents small-business people in Canada. ``This could be very destabilizing and potentially very dangerous.''

Mr. Bulloch and others say there is little to be gained by firing Crow now. With inflation under control, Crow is letting interest rates drop. These analysts say Canada has ``paid the price'' for low inflation, which is currently running at an annual rate of less than 2 percent, and should enjoy the benefits as interest rates continue to fall.

Some economists say even a new central banker would find himself constrained by debt and the markets. ``We have a high structural debt in Canada,'' says Andrew Pyle, chief economist with MMS International, a financial market advisory service. ``One should not expect to see the floodgates opening. Canada just doesn't have the room on the books.''

If Chretien does renew Crow's appointment, Mr. Pyle says, one of the major reasons will be to mollify the bond markets.

About 35 percent of Canada's $689 billion (Canadian; US$516 billion) net public debt owed by federal, provincial, and municipal governments is carried by foreign investors. None of them wants to see Crow go. In his absence, some warn that high deficit levels will mean a national credit crunch.