Further to my earlier post on the OECD and “Dutch Disease”, I have received a heavily redacted response to an access to information request (A-2012-00073/CN.) submitted to the Department of Finance, seeking any comments on the draft assessment and recommendations of the OECD delegation to Canada in 2012.
This arrives just as Conservative ads attack the “risky economic theories” of Mr. Mulcair.
It is normal practice for drafts of the OECD Economic Surveys to be discussed with the Canadian government before they are adopted by the OECD.
While 238 pages of documents of comment and input were identified as relevant to my request, almost all of the material was denied to me, mainly on the grounds that it contained information obtained in confidence from an international organization, or involved advice on the operations of government.
However, the material I received confirms – via a memo from Benoit Robidoux to the Deputy Minister of Finance Michael Horgan dated March 7, 2012, just prior to a meeting with the OECD policy mission on March 14 – that the OECD draft recommendations included this as the first recommendation:
“Create a sovereign wealth fund for natural resource revenues and invest in foreign assets to limit the effects of Dutch disease, while saving for future generations.”
That recommendation disappeared from the published Economic Survey of Canada for 2012 , even though there was some significant supporting argumentation. at p.13 :
“The Canadian dollar has appreciated significantly in the past 10years and remains strong both against the US dollar and on a trade weighted basis. This appears to be largely explained by sharp increases in commodity prices, especially for energy. The appreciation has contributed to a worsening of the current account balance from a surplus of around 2% of GDP in the early 2000s to a deficit of near 3% in recent years. The economy continues to undergo structural adjustments due to these persistent relative price movements since the early 200s. The export oriented manufacturing sector had by by 2011 shrunk to only 12.6% of total value-added, down from a peak of 18.6% in 200. Its share of employment has also fallen substantially over the past decade (from 15.2% to 10.2%) and somewhat more than in the United States. Both outcomes have been clearly correlated with exchange rate developments. Regional growth disparities – based on a real personal disposable income per capita measure – mirror these divergencies in sectoral activity.”
Clearly, the OECD – not widely known as a source of “risky economic theories” – endorses the Dutch Disease diagnosis. Our exchange rate has been driven up by high commodity prices, especially energy prices, thus damaging the manufacturing sector and creating regional economic imbalances. And we should do something about it.