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To: Enigma who wrote (19319)	9/19/1998 7:41:00 PM
From: Alex	Respond to of 116759

Government debt to blame for dollar's woes, bank says Eric Beauchesne The Ottawa Citizen High government debts must share the blame with depressed commodity prices for the dollar's plunge, says the chief economist at the Royal Bank of Canada. While Canada has done a better job than the U.S. in cutting its debt burden since 1996, foreign investors have yet to appreciate the improvement, said John McCallum. In an analysis of Canada's currency crisis, Mr. McCallum calculated that the dollar should be worth 70 cents to 72 cents U.S. Even depressed commodity prices don't explain why it's trading in the mid-65 cents U.S. range, he said. Over time, with continuing low inflation and steady debt reduction, the dollar will recover, he said. "In the short run, our best guess, and certainly our hope, is that the markets have begun to realize that the Canadian dollar has been oversold and that the dollar will trend upwards during the coming months," Mr. McCallum said. "A gradual up trend in our currency should permit a gradual decline in Canadian interest rates, which is precisely what this economy needs." But other analysts say there's no shortage of blame to go around for the currency's crisis. They also point to Canada's relatively poor long-term productivity gains, a widening deficit in the trade of goods, services and investment flows, and political uncertainty surrounding Quebec. Whatever the reasons, the dollar's short-lived rally of the past two weeks was reversed this week by the fading of hopes that U.S. interest rates would soon be eased. The dollar fell yesterday to almost 65 cents U.S. before closing at 65.52 cents U.S., up from Thursday's close of 65.34 cents U.S., and two cents above its all-time low three weeks ago, but still down more than a cent from early in the week. The dollar got little help from news of a continuing better inflation performance than the U.S. and that Ottawa paid off nearly $9 billion in marketable debt in the first third of this fiscal year. Inflation remained dormant at a near-record low of less than one per cent last month, although there are still fears that the devaluation of the currency will soon start to push up prices as Canadians are forced to pay more for U.S.-priced imports. Consumers in August were paying only 0.8 per cent more for goods and services than a year earlier, and no more than they were in July, Statistics Canada reported. August was the second straight month there was no increase in consumer prices and inflation was no higher than 1.1 per cent for 10 months now. The U.S. inflation rate is 1.6 per cent and has been higher than Canada's through most of this decade.