Canada: A Remarkable story is Unfolding.(economic performance - analysis)(Statistical Data Included)

In the past few years, Canada's performance has taken a near 180-degree turn. Indeed, as few as seven years ago, Canada was regarded as a near-pariah among foreign and domestic investors--and for several good reasons:

Years of fiscal mismanagement that caused Canadian government debt--federal as well as provincial--to soar from about 40 percent I the early 1980s to more than 100 percent of GDP in the mid-1990s

An external indebtedness position--the equivalent at its peak in 1993 of almost 46 percent of GDP--that was proportionately five times greater than the US, which is the world's largest debtor nation.

A productivity growth record that was one of the worst in the industrialized world.

Potential political and economic instability arising out of the possible separation of Quebec.

Under these circumstances, the risk premium demanded by investors was huge. Although no single statistic can fully capture this premium, one measure does come close--real interest rates.

Thus, whereas real interest rates (interest rates adjusted for inflation) exceeded comparable US real interest rates by only one-quarter to one-half of a percentage point over most of the post Second World War era, in the later part of the 1980s and early 1990s, those real interest rate spreads soared to more than 300 basis points, which was an outcome that by itself served to aggravate the already dreadful economic and debt/deficit records of performance that produced the higher real interest rate spread in the first place. This unenviable record is being sharply reversed; and therein lies much of the newly found optimism about Canada and its prospects.