BANK OF CANADA GOVERNOR DODGE RETIRING NEXT JANUARY

UNCLAS OTTAWA 000761

SIPDIS

SIPDIS

STATE PASS FEDERAL RESERVE
STATE FOR WHA/CAN AND EEB/IFD/OMA
TREASURY FOR OFFICE OF INTERNATIONAL AFFAIRS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV CA
SUBJECT: BANK OF CANADA GOVERNOR DODGE RETIRING NEXT JANUARY



1. (U) Summary: The Governor of the Bank of Canada (BOC),
David Dodge, will step down at the end of January 2008 at the
end of his seven-year term. The news was a surprise. Dodge
is widely regarded as an extremely effective Governor who has
kept Canada's inflation under control while presiding over
one of Canada's longest periods of economic expansion since
World War II. Dodge has also been seen as more public than
his six predecessors as Canada's central banker, giving
numerous speeches to business and economic groups in Canada
and around the world. He has been as visible in Canadian
financial markets as was Alan Greenspan in U.S. markets
during his tenure as Fed chairman. Senior BOC and government
officials and economists at Canada's top banks are seen as
possible successors. The new Governor will be chosen by the
Bank's board of directors, with the approval of the Finance
Minister and the Cabinet. End Summary.


2. (U) Dodge, 63, announced on April 25 that he would not
seek another seven-year term. He said he was revealing his
plans well in advance to "facilitate the selection and
appointment of his successor." Although the announcement
gave no reasons for Dodge's unexpected decision, there was
speculation that his age was a factor in his not seeking
another seven-year term. The last Bank Governor to serve two
full terms was Gerald Bouey between 1973 and 1987.


3. (U) There has been no indication of any philosophical
disagreements or personal issues between Dodge and
Conservative Finance Minister Flaherty. Indeed, Flaherty
praised Dodge's tenure in a press release: "Governor Dodge
has served Canada in the finest tradition of central bankers,
and his influence has been felt not only here, but around the
world. In particular, his strong leadership during the
turbulent post-9/11 period has helped Canada lead the Group
of Seven countries in economic growth."


4. (U) A Toronto native and Princeton graduate, Dodge joined
the BOC in 2001 after having been Deputy Finance Minister and
Deputy Minister of Health. At Finance, he convinced then
Minister Paul Martin to combat Canada's huge budget deficit
in the mid-1990s. Martin became Prime Minister in 2003, in
part because of popularity he won in balancing Canada's books
while GDP and employment sustained healthy growth.


5. (U) Governor Dodge may be a hard act to follow. He has
helped steer the Canadian economy through one of its longest
expansionary periods after World War II, cutting interest
rates when exports weakened in 2001 to lift Canada out of a
possible recession and helping keep the inflation rate within
the BOC's one- to three-percent target range. Canada's
mortgage rates and unemployment rate have also fallen to
their lowest levels in decades since Dodge became governor in
February 2001. However, there was criticism of Dodge's
relative inaction against the phenomenal appreciation of the
"loonie" (Canadian dollar) between January 2002 and May 2006,
which slowed Canada's exports and hurt manufacturing.


6. (U) Analysts believe that BOC Senior Deputy Governor Paul
Jenkins may have the inside track as the logical replacement
since most past Governors got their appointments after many
years as understudies to the job. Dodge, on the other hand,
was the rare outsider to head the Bank. BOC Deputy Governor
Tiff Macklem has also been mentioned as a candidate to
replace Dodge. Outside candidates may include Senior
Qreplace Dodge. Outside candidates may include Senior
Associate Deputy Minister of Finance Mark Carney, who is a
former BOC Deputy Governor and Goldman Sachs Group investment
banker, and Toronto-Dominion Bank chief economist Don
Drummond. The Globe and Mail mentioned Clerk of the Privy
Council Kevin Lynch as a possible Governor. Currently
Canada's top bureaucrat, Lynch has been Canada's
representative at the IMF and also served, like Dodge, as
Deputy Finance Minister.


7. (U) The BOC board of directors said that it would soon
form a special committee to recruit a successor. Governors
are appointed by the independent directors, subject to the
approval of the Finance Minister and the Federal Cabinet.
The selection process for the new governor is expected to be
completed by fall.



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