Note: This article appeared on the Globe and Mail on March 22, 1997. See copyright notice at the bottom. See The Globe and Mail web site for more info.

Premier reveals Saskatchewan flirted with bankruptcy

Undisclosed federal bailout averted crisis in 1993

Saturday, March 22, 1997

The Globe and Mail

Saskatchewan was on the brink of declaring bankruptcy in early 1993 and might have done so if the prime minister, Brian Mulroney, had not stepped in with emergency financial assistance, Premier Roy Romanow revealed yesterday.

One day after his New Democratic government tabled its fourth consecutive surplus budget, Mr. Romanow disclosed just how precipitously close the province came in early 1993 to being unable to pay creditors during the debt crisis that then faced the nation's most impecunious provinces.

"I think The Globe and Mail ran a story on the front page of one of its editions around that time about an unnamed province being rumoured to be on the verge of bankruptcy," Mr. Romanow said in an interview.

"The Bank of Canada was very chilled by this, as was the federal government. At that time it was Mr. Mulroney's government. We had one budget in which we just simply--and this is going to be in my memoirs if I ever write my memoirs--where the cabinet and caucus [were] gridlocked in ideology and coming to the cliff in making some of these decisions.

"And I must pay a little tribute to Mr. Mulroney here, because he was able, through his minister of finance, to grease some payment from the federal government to the Province of Saskatchewan."

Mr. Romanow said Saskatchewan Finance Minister Janice MacKinnon met secretly in Ottawa with her federal counterpart, Donald Mazankowski, to try to explain the province's dangerous fiscal position and how the province was close to defaulting on its debt payments on more than $15-billion.

"She was able to meet with Mazankowski to help us put the [1993] budget together and help us get over this little crisis.

"It would have been quite an embarrassment for Canada--let alone Saskatchewan--had that ever taken place. It's just a little inside story about how grave it was."

Mr. Romanow did not reveal the terms of the federal bailout, but in March of 1993, The Globe published a story disclosing that federal officials were quietly canvassing the country's financial community to draw up contingency plans in the event some provinces were no longer able to raise money in foreign bond markets.

A plan was discussed whereby the Bank of Canada would arrange emergency borrowings for unnamed hard-pressed provinces which, as a result of their indebtedness, might be shut out of international capital markets.

The federal government was preparing to step in to manage on an emergency basis the financial affairs of any province requiring such help--a form of trusteeship--while its borrowings would be provided by the central bank. Both Mr. Romanow and federal officials denied the reports at the time.

"It's just not going to happen in Saskatchewan," the Premier said then.

But this was at a time when the International Monetary Fund had issued sharp warnings to Ottawa and the provinces about the level of public indebtedness, which had reached unprecedented levels.

"It was a crisis for us in 1993," said Mr. Romanow, who discovered when he took office late in 1991 that his government had inherited a financial strait jacket after a decade of deficit spending by the previous Tory government of Grant Devine.

"Statistically, I think it was a race between Newfoundland and ourselves as to which of the provincial governments had a more critical fiscal picture on their hands," Mr. Romanow said. "I really think it was Saskatchewan. Our per-capita deficit was the highest of any province, as was our per-capita debt. And our lending sources had shrunk from over 100 to about 20 or 22, based on a series of bond-rating downgrades."

Meantime, in something akin to another untold story, Saskatchewan has managed significantly to reverse its fiscal fortunes this week with a two-percentage-point sales-tax cut and a $370-million 1996-97 budgetary surplus, thanks to a buoyant economy, sharp program cuts and taxation hikes. Newfoundland remains in very difficult fiscal shape.

The two provinces, fiscal basket cases just four years ago, delivered very different budget forecasts on Thursday.

While Saskatchewan's medium-term outlook appears reasonably healthy, with talk of further surpluses and possible tax reductions, Newfoundlanders are still biting the bullet with the announcement of more deficit spending, strict government cutbacks and civil-service layoffs.



