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To: mozek who wrote (24600)	3/21/1999 11:59:00 PM
From: Boplicity	Read Replies (2) \| Respond to of 152472

Nokia Puts Luster on Finnish Economy By Adam Jasser Reuters HELSINKI, Finland (March 21) - If Finland's ruling coalition does well in Sunday's general election, it should know whom to thank for making sure the country's economic boom did not peter out in the run-up to the vote. The man deserving the plaudits is Jorma Ollila, head of mobile phone maker Nokia, the only Finnish company that ranks among the world's 50 largest firms. With sales worth billions of dollars and growing more than 30 percent annually, Nokia truly is to Finland what General Motors could only symbolize for America -- an industrial powerhouse propelling a nation toward greater prosperity. Some commentators worry Finland's fate is linked to Nokia's just a bit too much, given that fortunes in the global hi-tech market can change rapidly. But due to a seemingly insatiable global appetite for mobile phones and the growing convergence of computers and wireless communications, economists say the future looks bright for both Nokia and Finland. ''For now, Nokia is a blessing and it's hard to see it negatively in any way,'' Katharina Hoyland, an economist at J.P. Morgan in London, said. Analysts estimate the Finnish economy would have been in stagnation or even mild recession since the third quarter of last year if not for surging output at Nokia and its subcontractors. Last week's official figures showed industrial output rose 7.6 percent year-on-year in January, but whereas most major industries stagnated or contracted, production of telecommunications equipment jumped 81 percent. No wonder Nokia will contribute up to half of this year's gross domestic product growth, forecast at between 2.5 percent and 3.6 percent. Its share of Finnish exports is seen at 15 percent. ''Nokia's contribution to annual economic growth is between one and 1.5 percentage points,'' Catherine Reilly, economist at the Finnish think-tank Etla, said. ''Its share of total GDP is 3 percent.'' Prime Minister Paavo Lipponen, a pro-business Social Democrat, said Nokia's meteoric rise is what Finland had set out to achieve in the early 1990s -- to reduce its exposure to the paper and wood industry, which were always at the mercy of cyclical swings. ''We may be dependent on Nokia, but this is what we have been aiming at -- getting a third foot for the economy in addition to paper and metal (industries),'' Lipponen said in a recent speech. He points out decision-makers take a huge credit for the boom, transforming a small nation that once lived off the forests into a post-industrial ''information'' society at the cutting edge of the technological revolution. Nokia and the whole hi-tech industry have benefited from the government's generous spending on research and development, a well-educated labor force and economic reforms spurred by the deep recession at the start of the decade. Public spending on research and development, at 0.4 percent of GDP, is second only to France among the 11 members of the European economic and monetary union, European Union statistics show. Nokia, which only 20 years ago was a conglomerate producing rubber boots, tires, paper and electronics, led the way in refocusing its businesses on core activities. Its choice of wireless communications proved prophetic, but other industries, including paper companies, also revamped their operations and are now in the vanguard of efficiency in Europe. Lipponen's five-party coalition defied skeptical public opinion and won membership in EMU on the grounds it would give Finland stability, save billions of markka (dollars) in exchange rate and credit costs and open up new markets. Despite warnings from the opposition that Finland was not ready and should stay out with Nordic neighbor Sweden, the government slashed debt to qualify for EMU and came within a whisker of balancing the budget for the first time since 1991. A measure of flexibility was introduced to the tightly regulated labor market and taxes were cut modestly to spur domestic demand. The price for a leaner public purse was paid by pensioners and other groups relying on the social security safety net as the government slashed almost 25 billion markka ($4.58 billion) from spending over the period. But the tough policies paid off as economic growth soared to an average of 5 percent annually and unemployment, at 15 percent of the labor force when the government took office in 1995, fell to the current level of about 10 percent. Consumer confidence is riding high, untroubled by the gloomy world outlook and fulfilling official hopes domestic demand will keep the economy going. Analysts expect the broad industry to be back on the growth track in the second half of the year, making major policy adjustments by the next government unlikely, especially as EMU restricts the scope for maneuver. Policy differences between the three main parties running in the elections are not great, and financial markets are shrugging off uncertainty over who will form the next government. Opinion polls show Lipponen's Social Democrats, his coalition partners the Conservatives and the opposition Center Party are even with support at around 22 percent each. Any two of the parties can form a government, but markets root for the Social Democrats and the Conservatives staying in power, mainly because of their proven track record. They see Lipponen's plan to hike capital gains tax from the current 28 percent as a rather harmless way of pleasing his blue-collar electorate, with negligible impact on business. They say the Center Party's plans to further liberalize the labor market would serve Finland well, but doubt they can be implemented without a major clash with trade unions that would in the end do more harm than good to the economy.