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Posted Tuesday May 19, 2020


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Crises Management

Financing bridge needed to protect at-risk sectors as Canada faces a long, hard road to recovery

Governments must work alongside private lenders to provide sustained support to bridge companies through the crisis, paying particular attention to sectors most likely to suffer a prolonged period of low demand even as the economy re-opens, according to a C.D. Howe Institute working group.

At its latest meetings on May 5 and May 12, the Crisis Working Group on Business Continuity and Trade discussed the risks and headwinds for economic recovery and the action that is needed to prevent “scarring” in key economic sectors – notably air travel, agrifood, petroleum, and tourism and accommodation.

The group of industry experts and economists noted if businesses face distress and a disorderly wave of insolvencies, the ability of the economy to rebound will be impaired and the recovery slowed. Without an effective “bridge,” the disruption of productive capacity will further slow the recovery – even as restrictions on workplace activities are lifted.

The group, co-chaired by Dwight Duncan, Senior Strategic Advisor at McMillan LLP and former Ontario Minister of Finance, and Jeanette Patell, Vice-President of Government Affairs and Policy for GE Canada, recommends:

• Governments must carefully consider how to structure the sustained support required to bridge companies through a protracted period of depressed demand in various major sectors.

• With headwinds facing recovery in many sectors for likely years to come, governments will need new and creative channels to provide economic stimulus.

• The private sector must remain the primary source of credit; however, governments should identify where impaired access to liquidity could disrupt key productive capacity and complement private lending where credit access is bottlenecked and disorderly insolvencies would hinder economic recovery.

• The air travel, agrifood, petroleum, tourism and accommodation sectors represent significant shares of the Canadian economy and each face a likely protracted plunge in demand. Without credit support to “bridge” companies these sectors, a large portion of production capacity might be lost, resulting in knock-on effects in the wider economy.

• Governments must clearly identify the particular market failures that policy is targeted to address, and interventions should not displace market forces. Government backstops should not displace private creditors, impair efficient, pro-competitive consolidation or forestall restructuring of distressed companies.

• Although awaiting details for eligibility and structuring, the federal government’s Large Employer Emergency Financing Facility (LEEFF) appears a good measure with broad availability across sectors and appropriate conditions to help large companies access bridge financing.

• With increasing risk of a shift towards protectionist policies internationally, Canada must remain a champion of open borders and integrated trade. However, Canada may need an “elbows up” defence to ensure key Canadian industries survive amid restructuring of global value chains.

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