[It's probably a blinding stroke of naivete on my part, but I was flabbergasted at how bald this IMF report is. Everything is going swimmingly in Sweden right now, and they think it's a golden opportunity to shrink the welfare state because . . .well because improving people's welfare is bad on principle. It "reduces the incentives to work and save." Meaning, I think, that if you're not terrified of being sick and old and poor or losing your job, you don't need to make or save as much money. But what really floored me was that they said a "fundamental rigidity" is the "limited amount of wage differentiation." Up until now I thought decreasing inequality was an absurdly low priority for the IMF. But this seems to say they are actually *trying* to increase it! Normally there's some kind of obvious fault in the economy they can point to and assert that these things would fix. But in this article it seems clear that even if everything were perfect they would still praise austerity and recommend cutting social services & weakening the safety net. That's just what they're for, come hell or high water, and just they pretend it's got something to do with the crisis du jour.]
[Okay. I *said* I was being naive.]
Financial Times ; 22-Jun-2000
WORLD NEWS: EUROPE: Swedish tax cut urged to fuel expansion IMF
By CHRISTOPHER BROWN-HUMES and NICHOLAS GEORGE
Sweden was told yesterday it must not waste a "golden opportunity" to lower its taxes sharply and sustain its economic expansion.
The International Monetary Fund also highlighted a number of problems that it said were preventing the dynamism of the country's telecoms industry spreading to other parts of the economy.
In a report on the country's economy, the fund said Sweden had no need to cut its debt any faster than already planned, adding that all further surpluses should be channelled into tax cuts.
The report said: "There is a real risk that if not fully used for tax cuts, the initial gains for expenditure restraint would soon lead to policy slippages on current expenditure and possibly to political pressures for new expenditure programmes. Sweden would then have wasted a golden opportunity."
The report was a reminder of the structural problems facing the country, despite the economic upswing and progress in cutting debt. Sweden could afford to cut taxes by the equivalent of 4 per cent of gross domestic product between 2001 and 2003, the IMF believes
"Notwithstanding the sharp reduction in the ratio of government expenditure to GDP in recent years, the role of government remains large in comparison with other industrial countries.
"This is financed by numerous taxes which piled on top of each other considerably weaken and distort the incentives to work, save and invest.
"Other prominent rigidities include the limited amount of wage differentiation and weak job search incentives."
But the IMF praised Sweden's austerity measures in the 1990s.
"The elimination of the long-term interest rate differential vis-a`-vis Germany from a peak exceeding 500 basis points in 1994 is a clear sign that Swedish macroeconomic policy is now fully credible."
The fund predicts the Swedish economy will grow by nearly 4.5 per cent this year and 3.5 per cent in 2001, with unemployment falling below 4 per cent next year.
The IMF also praised the Swedish central bank for not raising interest rates too aggressively too early to choke off the boom. But it warned that a less accommodating stance would be needed soon.
Central bank to drop cheap loans for directors
The Swedish central bank was yesterday forced to abandon its policy of giving its directors cheap loans after revelations of the practice prompted sharp criticism from politicians and newspapers, writes Nicholas George in Stockholm.
The bank's directors, who set the country's key interest rates, have been able to borrow at the discount rate plus one percentage point, a rate considerably cheaper than offered by commercial banks. The discount rate is 2.25 per cent compared with a housing loan rate of just over 7 per cent available to most Swedes.
Yesterday the daily newspaper Dagens Nyheter reported that four of the six directors had taken loans. Within hours of publication the bank said it was to end the scheme.
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