more susceptible to international competition. in canada, however, the relatively high inflation of the 1970s and 1980s had distracted canadian firms : rather than focusing on product design and innovation, cost control, and productivity improvement, many of them had been looking for ways to take advantage of inflation. thus, they had tended to postpone the adjustments needed to respond to a changing world economy. meanwhile, u. s. companies that had earlier found themselves in strong foreign competition, especially against japanese firms, had already begun the process of adjusting to globalization during the mid - to late 1980s. so, by the beginning of the 1990s, they were better placed than most to respond to the intensifying forces of technological change and global competition. by the early 1990s, the realities of the new world economic order were becoming clearer to canadian companies too. only at that time, they were also coping with the fallout from the high - inflation years, especially the sharp drop in the prices of speculative investments and the burden of servicing large debts, as well as with declining world commodity prices. working their way out of these difficulties was disruptive and painful for canadian businesses. defaults, restructurings, and downsizings became the order of the day. with all this, unemployment took a long time to recover from the 1990 – 91 recession and, in many instances, wages and salaries were frozen or reduced. but whatever else one may say, through this period, our businesses responded to the challenge and did a remarkable job of restructuring their operations and adjusting to the new economic realities. canada's other major economic problem in the early 1990s was large budget deficits — federal and provincial. because of these deficits, public debt was accumulating at an unsustainable rate, and foreign and domestic investors were becoming very nervous about holding canadian government bonds. as a result, significant risk premiums were built into our interest rates. by 1994, it had become clear that canada could be facing a potentially very serious debt problem. if there was any doubt about that, it disappeared in early 1995, when canada was sideswiped by the mexican peso crisis. the canadian dollar came under strong downward pressure, and interest rates rose sharply across all maturities as investors demanded even larger risk premiums. just as i believe that the restructuring in our private sector in the 1990s was impressive, i also think that canadian governments ( federal and provincial ) responded forcefully and effectively in the mid1990s to the need to cut fiscal deficits and slow

gordon thiessen : canada's economic future - what have we learned from the 1990s? remarks by mr gordon thiessen, governor of the bank of canada, to the canadian club of toronto, toronto, ontario, 22 january 2001. * * * it was to the canadian club of toronto that i gave my first speech as governor of the bank of canada seven years ago. it is only fitting that i should be here again today, for my final public presentation before i retire. in early 1994, canada's economic situation was not that favourable — our economy was facing some rather serious problems. today, too, we face some challenges. but our overall economic and financial situation is much stronger now than it was seven years ago. what i intend to do today is to look back at canada's economic performance during the last decade of the twentieth century and, with the benefit of hindsight, look at the factors behind that performance. i would also like to talk about the changes that have taken place in our economy over this period, and what these changes mean as we look ahead. the problems of the 1990s let me take you back to the early 1990s. that is when the gravity of the problems that would dominate the canadian economic landscape for much of the decade became clear. by 1990, the persistent inflation of the 1970s and 1980s had pushed the consumer price index ( cpi ) to a level nearly four times as high as in 1970. inflation had come down through the first part of the 1980s, but, with an inflationary psychology still very much at work, it picked up again towards the late 1980s. during that whole inflationary period, many canadians sought to protect themselves from the effects of inflation through indexed wage contracts and by investing in the housing market. others saw an opportunity to benefit from high inflation by speculating in real estate or other assets. since many of these transactions had been financed by borrowing, debt had risen to high levels. when the bank of canada's anti - inflationary policy actions in the late 1980s finally convinced canadians that inflation would be brought under control, the inflationary excesses that had built up contributed to a severe recession in 1990 – 91. partly because inflationary pressures in canada were greater than in the united states, and the inflation psychology was more deeply entrenched, the recession here was more severe than in the united states. the effects of technological change, including a decline in communications costs, meant that, through the 1980s, national markets had become much