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Prime Minister needs to build confidence

Harper could take some tips from Obama about how to convince people he has a viable plan to aid economic recovery

From Monday's Globe and Mail

OTTAWA — Prime Minister Stephen Harper's decision to run a deficit of more than $60-billion fighting the recession was only the beginning of what it will take to stop Canada's economy from shrinking.

Now, former officials and economists say, Mr. Harper and his ministers must convince the populace they know what they are doing with all that money.

That delicate task begins today, when Parliament reconvenes for the Throne Speech.

Beyond politics, the tone Mr. Harper sets is vital to the success of an economic stimulus program that his office said last week will result in a deficit of $34-billion in the fiscal year beginning April 1, followed by a $30-billion shortfall the year after. That's because the promise of a huge injection of public money is only part of the equation for sparking economic growth, experts say.

The other part is confidence. If business owners and consumers doubt the government has an effective program for boosting the economy, they are unlikely to match the government's spending, muting the potential benefit of any stimulus program.

Canadian consumer confidence is the weakest since the recession of the early 1980s, according to the Conference Board of Canada. And business sentiment is at the lowest since 1997, according to the Bank of Canada's latest Business Outlook Survey.

Mr. Harper's political opponents see this gloomy mood as a vulnerability in the Prime Minister's bid to keep his minority government in power.

During the campaign for October's election, Mr. Harper characterized plunging stock markets as a good buying opportunity. That remark now has an echo of U.S. President Calvin Coolidge, who before leaving office in early 1929 - the year of the worst stock-market crash in American history - said that shares "were cheap at current prices."

Faith in Mr. Harper's seriousness about reviving the economy was shaken again at the end of November, when he included a handful of blatantly partisan measures in an economic update that Finance Minster Jim Flaherty had said would be nothing more than a simple statement of the government's fiscal prospects.

"They have a bit of problem," said John Curtis, a distinguished fellow at the Centre for International Governance Innovation and a former senior official at Canada's Trade Department. "The current economic situation has a heavier dose of confidence and psychological issues than most since the Second World War."

Lessons in the importance of credibility - and how it might be regained - may be had from the recovery effort in the United States.

After winning Congress's backing to spend hundreds of billions removing toxic assets from the balance sheets of banks, then-president George W. Bush's administration changed course, and used much of the money to buy shares in financial institutions.

The mixed signals, and a lack of transparency, have undermined the U.S. government's efforts to restore confidence, according to some economists.

In response, President Barack Obama and other Democrats took great pains to emphasize that their own massive fiscal stimulus plan, the American Recovery and Reinvestment Act, includes what they are calling "unprecedented accountability" to ensure that Americans see the results of the investments.

For example, Mr. Obama will create a special website that will detail how the money is spent, and will post the announcements of all contracts and grants that are awarded.

With a report from Tara Perkins

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