Conclusions

The 1997-9 Asian-turned-global financial crisis was ultimately stemmed when the treasury secretary, Central Bank governor, and congress in the United States acted at the last hour to lower interest rates and to authorize an IMF contribution from the United States, thereby preventing the clear and present danger of a financial meltdown that threatened to engulf even a secure United States. However, the United States, crippled by congressional constraints and by frozen domestic credit markets in the wake of the LTCM collapse, was by no means the classic, self-confident, capable hegemon of old. Rather, in an era in which globalization rendered the most powerful, relatively closed, and vibrantly growing United States as vulnerable as its lesser partners, it needed the support of its G-7 colleagues to mount an effective response to cope with panicking markets simultaneously on three regional fronts. Moreover, with Japan financially fragile and in recession and Germany distracted by a government in transition, the lesser G-7 members, Britain, the 1998 host, and Canada, guardian of the Halifax programme of IFI reform, played substantial, multilevelled, leadership roles.

Canada's major role was driven by a recognition of its broad economic interests, domestic values and historic experience, and a systemic sense of responsibility as a member of the governing global concert institutionalized in the G-7. During the three phases of the crisis, Canada recurrently displayed intellectual, policy, and structural leadership. Intellectually, it did so in its Halifax programme, peer supervision, and 'roadmap' proposals; its six-point programme; its Standstill concept; and its proposal for debt relief of the poorest. In the policy realm, it acted with early interest rate cuts and calls for fiscal stimulus, peer supervision, social responsibility, controlled capital liberalization, private-sector burden-sharing and debt relief for the poorest. Structurally, it often made more than proportional contributions as a G-7 member to the supplementary support packages for South Korea, Thailand, and Brazil, and provided its share of the GAB/NAB, IMF, IBRD, IDB, and ADB packages. It was also prepared to finance debt relief for the poorest (along with prospective financial packages for Mexico and other endangered economies) and a Balkan Stability Package for the reconstruction of Kosovo and its neighbours.

Canada often acted against American preferences, notably on capital account liberalization, social responsibility, the precautionary CCL facility, and delayed NAB repayment. It assembled issue-specific coalitions from an ever changing array of G-7 partners, and its distinctive positions were substantially reflected in collective outcomes. Above all, its diplomacy was effective, as the action of the G-7 ultimately contained the looming Asian and then global financial crisis.²⁴

Canada's diplomacy during the 1997-9 financial crisis thus calls into question some traditional interpretations of Canadian foreign policy. First, the crisis did not demonstrate that the new openness brought about by globalization had created a world where 'a change in the sentiments of financial market players will easily overwhelm the capacity of the Canadian government to resist the effects of foreign crises.'²⁵ Rather, Canada's leadership in adopting and managing flexible exchange rates and other open economic policies, its NAFTA bastion, its G-7 membership, and its move to deficit elimination made it no more proportionally vulnerable than its other G-7 partners, and allowed it to take a lead in mounting a reactive, and proactive, systemic response.

Second, Canada's leadership was centered not on broad multilateralism, but on restricted membership plurilateralism, with an overwhelming emphasis on the concert that the G-7 represented.²⁶ More generally, multilateral solutions proved to be insufficient, given the magnitude of the crisis, the lack of IMF resources in the wake of American failure to authorize its quota share increase, and, most importantly, the unwillingness of markets to take comfort and confidence from programmes not backed directly by the major industrial democracies. In the end it was concerted G-7 governance, and not the heavily bureaucratized, long established, rules-bound multilateralism that beat the mania of the marketplace.

Third, the crisis demonstrated that Canada remains a global player, rather than one forced by diminishing relative capabilities in the 1990s to turn to a more restricted, niche-based, regional focus.²⁷ Canada was able to use its geographically expansive set of regional responsibilities to reinforce a foreign financial policy that was inherently systemic.²⁸ Indeed, Canada's global network and secure place in the G-7 enhanced its position as a principal financial power in a world where the intense speed and broad spread of globalization meant that no regional bastions - in Asia, Europe, the Americas, or even North America - were left.