SWEDEN Key Economic Indicators (Billions Swedish Kronor (Skr) Current Prices Unless Noted) Sources: Swedish Ministry of Finance, Economic Research 1/ Value added at factor cost, 1985 prices. 2/ Per capita gross national product in kronor, 1985 prices. 3/ Year end and 08/31/90. Includes treasury discount notes held by public plus accrued monies in deductible national savings scheme. Central Bank does not compile Ml. 4/ Industrial bonds, 30-month adjusted rates, percent. averages and average for first 7 months of 1990. Annual 5/ Ratio of personal saving to disposable personal income. 6/ Ratio of gross investment to GDP. 7/ 8/ Change between annual CPI averages. Product prices for total industry excluding shipbuilding. Swedish kronor (Skr). Average annual market exchange rate for U.S.$1.00. Estimate for 1990. 9/ SWEDEN 10/ Central government position at year end and 06/30/90 at prevailing exchange rates. 11/ Interest and amortizations on central government external funded debt. For 1990, a forecast. 12/ Year end and 10/15/90. 1. General Policy Framework Sweden is an advanced, industrialized country with a high standard of living and an extensive social services system. With the exception of coalition governments 1976-82, the country's Social Democratic Party has been in power since the early 1930's. Sweden has a modern distribution system, excellent internal and external communications, and a skilled and educated work force. Timber and hydroelectric power are the traditional resources of the economy. Approximately one-third of GDP is exported; consequently Sweden is a strong supporter of liberal trading practices. Privately owned firms account for nearly 90 percent of industrial output, with the engineering sector which includes the production of electrical and transportation equipment, machinery, and metal goods accounting for nearly half of all industrial production and exports. Approximately 640 manufacturing firms in Sweden were wholly owned or controlled by foreign entities in 1989. They employed around 121,000 people, or 14 percent of jobs in the manufacturing field. The largest foreign direct investors in Sweden are Switzerland, the United States, Finland, the United Kingdom, and the Netherlands. Sweden ranks high among the industrialized countries in R&D expenditure as a percentage of gross domestic product (GDP). Swedish firms are prospective customers for U.S. companies that can offer new technology, as well as quality goods and services, in a number of growth industries. These include automation (robotics, process control equipment, computer software), health-related industries (pharmaceuticals, biotechnology and medical equipment), and information technology (telecommunications systems, data processing equipment, and peripheral systems). The country is a signatory to the General Agreement on Tariffs and Trade, a member of the OECD and the European Free Trade Association (EFTA), and its industrial products enjoy duty-free access to the European Common Market (EC). Like other EFTA countries, Sweden hopes the creation of the European Economic Space (EES) between the EC and EFTA will bring close harmonization with the EC. Actual membership in the EC has until now been ruled out by Sweden because of longstanding neutrality considerations, but developments in Europe may result in a Swedish application for membership in the near future. The Parliament, at year-end 1990, expressed an "ambition" to join the EC once it is clear that favorable developments continue. Domestic economic policy goals are aimed at maintaining a high level of employment, generating economic growth, promoting a more even distribution of income, and striving for a reasonable degree of price stability. The policy instruments used to achieve these goals are the traditional SWEDEN monetary and fiscal ones, as well as an active labor market policy (retraining and structural adjustment) and regional development policy (subsidies to economically weak areas). These policies, together with considerable aid to ailing sectors of industry over the past ten years or so, inflated the country's national debt from approximately 20 percent of GDP in the early 70's to a peak of almost 70 percent in the mid-80's. Since then, the debt has declined somewhat, standing at 48 percent in mid-1990. Roughly one-sixth is financed by foreign loans, the remainder by government bonds, treasury notes, a national savings scheme, and so forth. In late 1990, clear signs of a downturn in economic activity were apparent in Sweden. The official outlook for 1991 reflected that trend and there was little expectation of any growth at all. Spiraling wage costs and the full financing of a tax reform will keep inflation around 10 percent during the year. In other words, Sweden is suffering from stagflation, compounded by a rapidly deteriorating deficit in its current account balance. 2. Exchange Rate Policies In 1973, Sweden linked its currency with those in the European Common Market's monetary "snake" system. During the mid-1970's, however, Sweden experienced price and wage escalations that far outstripped those in West Germany, Sweden's largest trading partner. This led to several devaluations of the krona against the deutsche mark within the snake. These proved insufficient, however, and Sweden unhooked from the system in 1977, simultaneously devaluing the krona by 10 percent, and established its own currency benchmark. This pegged the krona to a trade-weighted "basket" of 15 foreign currencies (the U.S. dollar is accorded double weight because of its importance for international trade in such commodities as oil, pulp, and paper). This system, too, proved to be imperfect. Pressures built up in the early 1980's and brought two successive Swedish devaluations of 10 and 16 percent, at which time the "basket value," set at 100 in 1977, moved to 132 (with 130 and 134 being the Central Bank intervention points). Sweden applied a battery of foreign exchange controls until the international deregulation process, particularly that occurring in the EC, forced it to follow suit in the latter half of the 1980's. As of mid-1990, the only remaining restrictions of this legacy involved the requirement that Swedish government bonds acquired by interests outside the country be deposited in a Swedish bank or with an authorized stockbroker, and the stipulation that Swedish individuals (and some Swedish firms) may not make deposits in foreign banks or pay unlimited life insurance premiums to insurance companies outside the country. Various transaction requirements remain in place to maintain statistical coverage and ensure satisfactory tax control. There are no restrictions on remittances of profits, of proceeds from liquidation of an investment, or of royalty and license fee payments. Similarly, a subsidiary or branch may transfer fees to a parent company outside of Sweden for management services, research expenditures, etc. In general, SWEDEN yields on invested funds, such as dividends and interest receipts, may be freely transferred. A foreign-owned firm may also raise foreign currency loans both from its parent corporation and credit institutions abroad. The Swedish tax burden is the highest in the OECD, with government receipts (direct/indirect taxes and social security) equivalent to about 62 percent of GNP, versus an OECD average of 37 percent. Since 1982, approximately nine-tenths of Sweden's economic growth has been taken by increased taxes. The marginal tax rates levied on personal income inched up over the years to levels which are now recognized as detrimental to the efficient working of the economy. The general tax reform of 1990-91, by reducing marginal income tax rates, is increasing the real disposable income of most Swedes. On the corporate side, effective taxes are comparatively low and depreciation allowances on plant and equipment are generous, though social security contributions for the work force add a further one-third or so to employers' wage bills. Most goods and services for domestic consumption are subject to a value-added tax. A temporary increase in the rate was implemented in mid-1989 to an effective 25 percent of retail price. The rate is scheduled to return to the old level of 23.46 percent at the end of 1991. Trade in industrial products between Sweden and EC and EFTA countries is not subject to customs duty, nor is a significant proportion of Sweden's imports from developing countries. Import duties are among the lowest in the world, averaging less than 5 percent ad valorem on finished goods and around 3 percent on semi-manufactures. Most raw materials are imported duty free. Two areas of the economy are particularly heavily affected by government regulation agriculture, and clothing and textiles. In order to maintain a high level of self-sufficiency, the country provides direct and indirect support to farming through a target price system protected by import levies. Following the agricultural agreement reached in the spring of 1989 within the GATT, the Swedish government has given assurances that agricultural export subsidies will be, at the least, reduced and other regulations in the area reviewed for decontrol. Proceeding in this direction, the Swedish Parliament decided in mid-1990 that farm gate prices should no longer be guaranteed after June 30, 1991 but instead be determined by both domestic and export demand. Moreover, funds for the subsidization of exports may no longer be raised collectively from producers after June 30, 1991. It has not been decided how to deal with possible commodity surpluses with the exception of meat, exports of which will receive an appropriation of budgetary funds over a three-year transitional period beginning in mid-1991. Exportable surpluses of Swedish agricultural commodities remain large in the fiscal year ending in mid-1991, among them about two million tons of grain. SWEDEN As to clothing and textiles, Sweden hopes to have removed all barriers by the time the current Multi-Fiber Arrangement (MFA) expires in mid-1991. But domestic support will be provided to allow the domestic industry to adjust. There is very little regulation of exports apart from control of arms exports and a law governing the reexport of certain high technology products. The latter control was introduced in 1987 to stop Sweden being used as a transit point for the transfer of foreign high-technology equipment. The government has substantially deregulated telecommunications in Sweden and restructured the industry to promote competition and encourage efficiency. 4. Debt Management Policies Sweden's external debt was incurred chiefly by the central government in the aftermath of oil price hikes in the mid-1970s in order to buttress ailing industry. Shipbuilding, iron ore mining, and forestry, once Swedish industrial staples, received support over a ten-year period to retrench and restructure. Current debt policy is to incur no further debt of this kind, which as of mid-year 1990 was the equivalent of around 6 percent of GDP. Management of the debt is posing no problems to the country and has no implications for the United States. To help ensure free Swedish access to foreign markets, Sweden has opened its own markets to imports and foreign investments, and campaigns vigorously for free trade in GATT and elsewhere. Import licenses are not required in Sweden, except for restricted items such as munitions, dangerous chemicals, etc. Sweden enjoys certain licensing benefits under Section 5(k) of the U.S. Export Administration Act. Sweden makes wide use of EC and international standards, labeling, and customs documents, in order to facilitate its own exports. Service exports to Sweden face some barriers. Swedish financial markets have been largely deregulated in recent years. As of mid-1990, foreign banks are now allowed to open branches in Sweden and to some extent purchase into Swedish banks. On the insurance front, neither domestic insurance agencies nor foreign agencies with a license to operate in Sweden are allowed to sell policies underwritten by foreign firms. Although a government commission had recommended abolishing this restraint, the government decided in late 1989 to review the subject again. Foreign investment is welcome in Sweden, except for the few restrictions noted below. Foreign acquisitions are more difficult, particularly if these are to be made in broadly-defined strategic areas of the economy or where their failure could result in severe local unemployment. Foreign ownership is not permitted or is severely restricted in air transportation, the merchant marine, manufacture of war materiel, publishing, mining, and forestry. In addition, a |