Swedes face economic curbs

Press, 15 May 1985, Page 10

Swedes face economic curbs

NZPA-Reuter Stockholm Sweden’s Social Democratic Government took an election-year risk yesterday by unveiling a package of stiff economic restraints. It blamed them partly on a Civil Service pay strike which has hit foreign trade. The Finance Minister, Mr Kjell-Olof Feldt, said that the Government was virtually doubling the sales tax on new cars, imposing tighter restrictions on the use of credit cards, and limiting the purchase of goods on instalment. In a parallel move, the Central Bank boosted interest rates by. a full two percentage points and curbed bank lending to try to stem a huge currency

outflow and ease concern about Sweden’s economic performance caused by the Civil Service dispute. Mr Feldt said the measures were necessary to curb private consumption which had risen sharply in the first quarter of the year, leading to a surge in imports and a serious worsening of the balance of payments. “This means inflation will be above the level we had hoped for this year (3 per cent) but 1985 could still be a very good year for the Swedish economy,” Mr Feldt added. s

He cited the strength of the United States dollar and higher oil imports due to an exceptionally cold winter as

key factors affecting the balance of payments. He also blamed the stoppages by 20,000 Civil Servants, now in their second week, for causing significant damage to foreign trade. The Government has refused union demands for an extra 3.1 per cent on top of a 5 per cent pay rise for 1985 agreed two years ago, saying this would jeopardise its anti-inflation strategy. It has responded to the selective strikes, which have closed all airports, by imposing a lock-out on 50,000 teachers and other public employees which started to bite yesterday. More than 100 Government agencies closed yesterday and many schoolchil-

dren were sent home, although primary schools were exempted after union concessions over postal services.

The Central Bank boosted the discount rate, its normal lending rate for banks to 11.5 per cent and lifted the rates banks must pay for short-term funds, the “penalty rate,” 2.5 per cent to 16 per cent.

Its governor, Bengt Dennis, said that this was to stem a massive flow- of funds out of Sweden and to counter a worsening balance of payments. He, too, cited the Civil Service strikes as a serious factor making urgent measures necessary.