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Secession Defeat in Quebec Averts Crisis, But Uncertainty Lingers

October 31, 1995

TORONTO (AP) _ The Quebec referendum vote that preserved Canada lifted stocks and the Canadian dollar Tuesday. But the federalist victory was so narrow, and long-term prospects so cloudy, that investors and executives remained wary.

The outcome was ``a reprieve, not a pardon,″ said Desmond Morton, director of the McGill University Institute for the Study of Canada.

``The Canadian dollar may go up, but not as far as if the issue had been put in a box and buried,″ he said.

The Toronto Stock Exchange composite index was up 85.34 points to 4,465.10 at late afternoon after opening with a staggering leap of 132.60 points. The Canadian dollar hit 74.46 U.S. cents, up 0.88 of a cent from the close Monday.

In response, the Bank of Canada lowered a key interest rate used to set consumer rates. Analysts predicted it will also slash up to 1.25 percentage points off the bank rate. Standard and Poor’s and Dominion Bond Rating Service reaffirmed Quebec’s bond ratings.

``In the short term, it’s good,″ said Steven Polidoro, president of a Quebec-based bag manufacturing. ``Now, we’re worried about the long term.″

The vote Monday gave those opposed to Quebec independence a mere 50.6 percent to 49.4 percent victory.

Maurice Marchon of the University of Montreal School of Advanced Business Studies said the markets may be relieved by the separatists’ defeat but that the message remains clear: ``Accept radical change in Canada, otherwise next time it will be 60 percent Yes.″

He is pessimistic about political change because Prime Minister Jean Chretien, a federalist, and Quebec Premier Jacques Parizeau, a separatist, are ``not the right people to make it.′

Without such evolution, Quebec and the rest of Canada will continue ``on a collision course″ that will continue to make the economic climate uncertain, Marchon said.

However, Marchon was optimistic about the economy, predicting growth at 2.2 percent for this year and 2.7 percent for next. He believes interest rates will decline, although not as much as if the No vote had been more decisive.

The Toronto Star said the slim victory was ``not the win the markets wanted.″ Despite ``initial applause by world markets,″ the economic dividend could be ``quite small,″ the paper said.

Lloyd Atkinson, an economist at MTA Investment Counsel, told the Toronto Globe and Mail that the ``this kind of victory, if you can call it that, just opens a Pandora’s box.″

He anticipates that the federal government will have to pursue further deficit and debt reduction and that Quebec, also heavily indebted, will be forced to follow suit.

Analyst Mario Angastiniotis of MMS International expressed faith in a higher Canadian dollar and lower interest rates.

``The uncertainty may still be there but it’s a different kind of uncertainty,″ he said. ″You’re not on the brink of breaking up the country.″

Sherry Cooper, chief economist for investment dealer Nesbitt Burns, said the referendum’s close result should spur the federal government both to make constitutional changes for Quebec and to ``continue on the train of deficit reduction.″

McGill’s Morton said the federal government faces intense political pressure, even if it decentralizes power, as most of the provinces insist, and recognizes Quebec as a distinct society.

``What Canada would agree to do that Quebec would find acceptable is mysterious,″ Morton said. ``We’d know better what to do with a Yes victory.″

Emile Vallee, political advisor for the Quebec Federation of Labor, sees no indication that the political issues will be resolved in the next few years. But he predicted the No victory will reassure investors and markets.

He anticipates labor-business confrontation throughout Canada over debt and deficit reduction at the federal and provincial levels.

``There is pressure in the rest of Canada and from business to get rid of the deficit. On the Quebec side, the political mood is to protect social programs,″ he said. Labor unions, which openly favored Quebec sovereignty, demand that budget cuts be made in a ``human fashion.″

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