My main themes today are:
- first, the Finnish Government's political and economic strategy in the changing world; and
- second, the outlook of Finnish economy in the light of the Government's economic policy.
Finland is a small partner in the interdependent world. Finland's future depends on how we can influence our political and economic environment and adapt ourselves to it.
Today's Europe looks different, and more unpredictable, than the divided Europe of yesterday. The most recent example is Russia. Like most other nations, Finland supports the process of reform in Russia in which President Jeltsin has a central position. For us it is vitally important that the reform process in our eastern neighbour continues and that it is based on a functioning democracy.
The whole eastern half of Europe is suffering from ethnic conflicts, growing environmental problems and, in some areas, grave social and economic distress. Western Europe, for its part, is facing bleak economic prospects, unemployment and negative attitudes towards foreign
The situation cannot be expected to improve soon. The period of instability and unpredictability will probably continue for a long time to come. In this situation we should be able to assess the real prospects for change and to identify feasible ways and means to promote positive development.
Finland, due to her geographic location, will have to face the consequences of insecurity and possible instability of eastern Europe. But on the other hand, we are also in a position to benefit from the possibilities opened by enhanced exchanges.
It is therefore very much in Finland's interest to try to promote peaceful change and stability in our continent.
How do we advance this aim?
Finland's application for membership of the European Community, the central player in Europe, must be seen as an effort to adapt ourselves in the best possible way to a rapidly changing environment. Our aim also is to secure our influence on objectives of particular importance to us.
Economic considerations are the foundation of our membership application. Our companies must be able to operate under the same rules as their competitors. The basic function of the EC is to foster growth and promote prosperity among its members. These interests, however, are inseparably linked with the overall situation in Europe. Thus, the most central endeavours of the Community outside its own area are related to supporting stability and positive development in the eastern parts of Europe.
Security understood in a wider sense is still very much on the European agenda. Therefore, Finland's decision to apply for the EC membership is based not only on economic reasons but also on security considerations, although we do not feel ourselves threatened in any way.
But we also need other multilateral fora to work for improved international security. Even if the Cold War threat of military confrontation no longer prevails, there is a long way to go towards true peace and stability. All institutions, the CSCE, NATO, the Western European Union and the Council of Europe are needed in this work. We must avoid a new division of Europe into zones of stability and insecurity, into economic areas of have's and have-not's.
In our economic strategy too, Finland has had to find solutions on the basis of participation and adaptation. And I believe that, as painful as it has been, this strategy has started to work and get us out of the recession.
This audience certainly knows that in the 1980's the Finnish economy expanded rapidly. GDP growth was the highest in OECD Europe. Towards the end of the 1980's, however, the economy got overheated. It started to suffer from weak external competitiveness and large current account deficits. The economic slow-down in our Western export markets and the virtual collapse of our trade with the former Soviet Union further contributed to the downturn. It was thus little surprise that Finland's GDP fell in the past two years.
This led to a major reassessment of the economic strategy of the Finnish Government. Competitiveness and efficiency became issues of first priority. A number of major measures have been taken in this respect:
- First, the Finnish markka was devalued in late 1991. The currency was further left to float about a year ago. This resulted in a further depreciation of the markka.
- Second, public sector expenditure is being curtailed. The Government has committed itself to freeze the volume of public expenditure in the years 1992 - 1995 at the level that prevailed in 1991, when the present Government took office.
- Third, indirect taxation has been geared more towards a pure VAT system, and a major reform of capital income taxation was undertaken. The 25 percent general rate of corporate income tax is the lowest in Europe today.
- Fourth, labor market organizations agreed last autumn to a wage freeze for this year, after a similar freeze in 1992. Discussion aiming at a moderate wage settlement for 1994 are currently under way.
- Fifth, foreign investment has been fully liberalized at the beginning of this year. Foreign and domestic ownership are treated equally.
As a result of these measures, our price competitiveness has increased considerably - in fact to a historical high. Inflation is low, 3 percent in the current year, and expected to slow down further in 1994. A modest GDP growth is forecast for next year.
Exports are increasing rapidly. In the first seven months of this year the value of total exports rose 25 percent overall - to the United States by 34 percent. Exports to the Far East are growing even more rapidly.
The trade balance shows a growing surplus. The current account is also expected to turn to surplus as of next year. Interest rates have fallen dramatically. For instance the Helsinki Interbank rate peaked at over 18 percent last autumn. Now the rate is around 6,5 percent.
The Helsinki stock market is very buoyant. Trading volumes are already now approaching the record of 1989. Especially export-oriented hi-tech companies are doing well. Gains on the Helsinki Stock Exchange have been among the highest in the world this year - overall a 70 percent increase since the beginning of January.
Still, high unemployment remains a problem. The rapid increase in exports has not alone been able to create enough new jobs to off-set a weak domestic demand and sluggish investments. Our roughly half a million unemployed are a heavy financial burden. The rising public debt is due to high unemployment on the one hand and to the support of our banking system on the other. There are some signs, however, that we might have reached a turning point for the better as regards both unemployment and the banks.
Ladies and gentlemen,
The economic environment of Finland is undergoing rapid and thorough changes:
- First, the European Economic Area, which should enter into force by the end of this year, will lead to a single West-European trading market with free movement of goods, services, capital and labor.
- Second, Finland's accession to the EC would, according to the optimistic scenario, materialize at the beginning of 1995, naturally provided that there is a successful outcome of the negotiations and a "yes" vote in the subsequent referendum in Finland.
- Third, despite the political turmoil in Russia there are reasons to believe that the markets of Russia and the other CIS countries, as well as the Baltic States, are gradually shaping up.
Of course, I cannot fail to mention our fifth largest trading partner and number one outside Europe, the United States. As all of you know, about seven percent of our merchandise trade is with the U.S. Today there are some 300 Finnish companies operating in this country. The
United States' importance in our economic relations has been steadily increasing, not least because of the off-set arrangements related to the fighter-aircraft deal.
Our industry sees the U.S. as a promising market for new hi-tech intensive exports and a base for expanding productive investments from Finland. The U.S. financial markets are a growing source of equity and direct investment capital for our companies.
Ladies and gentlemen,
To conclude I would like to sum up the following about the Finnish economy:
First - Although Finland's present difficulties are not to be under-estimated, the resource base of the Finnish economy is strong. We have a high standard of education, a modern productive capital stock, sizable share of hi-tech in our exports, large forest resources and a well
functioning and stable social infrastructure.
Second - Among all economic decision makers, political parties, employers and trade unions there is a widespread consensus on main policy objectives - that is to maintain a strong manufacturing base and export-led growth.
Third - Our fiscal policy framework and the Government's budgets for the years 1993 and 1994 meet the requirements of public expenditure restraint and fiscal consolidation.
Fourth - Through her active participation in European integration Finland is becoming a part of the world's largest internal market.
Fifth - Our geographic location close to Russia, particularly the St. Petersburg area, and close to the three Baltic States guarantees Finland an
unparalleled access and role as a gateway to these areas.
These factors, taken together, will be conducive to sustainable economic growth and a full participation by Finland in international economic cooperation. I also believe that the conditions exist for further strengthening of the relations between the Finnish and the US economies.
Thank you for your interest, Ladies and Gentlemen.