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Secession Defeat in Quebec Averts Crisis, But Uncertainty Lingers

November 1, 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 shot up 130 points Tuesday and settled back to close up 79.40 points, or about 1.8 percent, at 4,459.16. The Canadian dollar ended its North American trading day at 74.35 U.S. cents, up 0.77 cents from 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 company. ``Now we’re worried about the long term.″

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

Maurice Marchon of the University of Montreal School of Advanced Business Studies said that, though the markets may be relieved by the separatists’ defeat, 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. He predicted growth of 2.2 percent for this year and 2.7 percent for next. He believes interest rates will decline, though 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 the federal government will have to pursue further deficit and debt reduction and says 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 motivate the federal government 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.″

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