Introdution

The 1990s 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.¹ Rather, this decade has been marked by the apparent rise of the United States, in the wake of the cold war's end and a globalizing world, as the only superpower, fuelled by a 'Goldilocks economy' that inspired President Bill Clinton, at the 1997 Denver summit, to recommend to his Group of Seven (G-7) partners that they adopt the American way.² Prolonged economic stagnation in Japan and major structural problems in the German and other European economies have widened the once steadily narrowing gap in gross domestic product (GDP) between the United States and its leading economic rivals.³ Canada, beset by recurrent national unity challenges, sluggish productivity growth, and a declining currency has also seen the gap widen.⁴

The Asian financial crisis, which began in Thailand in July 1997 and went global in the summer of 1998, seemed at first to intensify these dynamics. A powerful United States appeared to act in classic hegemonic fashion, as the international lender of last resort, while a weak and paralyzed Japan formed part of the problem, and a relatively small, very open, commodity-intensive Canada was highly vulnerable to the assaults of a globalized international financial system.⁵ As the crisis became acute in the autumn of 1998, Canada's underlying weakness seemed to overshadow its position as a long-standing G-7 member and as host in Vancouver in November 1997 to the leaders of the Asia Pacific Economic Co-operation (APEC) forum.

Such appearances, however, were deceptive. To be sure, by the autumn of 1998 the Asian financial crisis had begun to slow the solid growth in the Canadian economy of the previous two years, contributed to a further weakening of commodity prices, and reduced Canada's trade with crisis-afflicted countries in Asia, with clear costs to the Canadian prairie wheat and pork economies.⁶ However, robust domestic demand, strong exports to a vibrant United States economy at the core of the North American Free Trade Area (NAFTA), and modest dollar depreciation protected Canada. The real threat was posed by a systemic crisis in the autumn of 1998, marked by a plunging Canadian dollar and paralysis in United States financial markets. The threat to Canada was thus global rather than regional and systemic rather than directed. And it was at these levels that Canada responded.

Even in the autumn of 1998 Canada had a far more substantial impact on the crisis than vice versa. Canada was able to help contain the global threat and to use the crisis to shape a new international financial architecture and reform the affected Asian countries.⁷ Canada used its privileged position in the most relevant global forum, the G-7, as supported by the International Monetary Fund (IMF), APEC, and the new Group of 22 (G-22, composed of the G-7 together with 15 developing countries), to play an effective leadership role.

Specifically, Canada's intellectual leadership took the form of comprehensive programmes and initiatives for coping with the crisis and defining a new international financial architecture. Its leadership was apparent at the Halifax summit in 1995, continued with its peer supervision plan and 'roadmap' concept in the spring of 1998, and culminated with the Six-Point Plan of 29 September 1998 and the debt relief plan of March 1999. Canada also undertook policy leadership by identifying in advance and consistently pursuing to ultimate success distinct positions based on Canadian interests and values. In place of the inflation-fighting, fiscal consolidation, neo-liberal stance that dominated G-7 policy in the previous decades, it supported controlled capital liberalization; financial system surveillance and peer supervision; private-sector burden-sharing, social responsibility in adjustment and debt relief packages; fiscal stimulus and enhanced Official Development Assistance (ODA) expenditure.

Finally, Canada displayed structural leadership by contributing its share, as a member of a G-7 concert serving as a collective lender of last resort, to contain the crisis of confidence and contribute to debt relief for the poorest.⁸ It not only contributed multilaterally as a leading member of the 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); it 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 autumn of 1998, when the resources of a financially and congessionally paralyzed United States were not sufficient to stave off the burgeoning global crisis. And Canada stood ready to provide new ODA to ensure a successful, well balanced, debt relief initiative at the 1999 Cologne G-7/8 summit. It pursued its preferences by combining with a shifting array of G-7 partners on different issues and at different times, often opposing the initiatives of both the United States and Britain. Ultimately it had a discernible impact in shaping outcomes in the direction of a more humane, socially responsible form of globalization on what were central issues for it, as for the G-7 and for the global community as a whole.

The financial crisis of 1997-9 thus affirmed Canada's position as a principal power in the face of an acute, genuinely global, systemic crisis. It did so at a time when an apparently hegemonic United States was paralyzed by and vulnerable to a rapidly spreading global financial crisis bred by a now effectively globalized system. It did so at a time when the forces of globalization were often thought to render states, especially those like Canada with small, open economies, highly constrained in the face of powerful market forces. It did so in a domain - global finance - in which its issue-specific capabilities have been regarded as particularly modest.⁹ Yet, the crisis enabled Canada to use its formidable array of resources to act as a full-fledged member of the global G-7 concert and to advance to a substantial degree its preferred vision of global order.