IMF urges Finland to carry out reforms before imminent ageing of population

By 2010 majority of voters will be 50 years or older

Subhash Thakur

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International Monetary Fund (IMF) experts are pressing Finland to rapidly take action to prepare for the imminent ageing of the population. According to the IMF delegation leader Subhash Thakur, Finland only has a couple of years left to make crucial decisions, as the effects of ageing will impact on Finland earlier than any other country in the EU.
      By the year 2010, the majority of voters in Finland will be 50 years or older.
      At a press conference held on Thursday, Thakur emphasised that by 2010, the greying of the population will already have a considerable effect on Finland's budget and public economy. In a democracy it may be difficult to carry out financial decisions disadvantageous to the majority.
      After 2010, it may be too late to try to implement reforms, Thakur warns.
     
According to the four-person IMF delegation a move towards a more decentralised wage bargaining arrangement is also desirable. Even if the centralised wage determination regime has served to moderate inflation and preserve competitiveness, it has also solidified wage rigidities.
      In the IMF's opinion, a greater correspondence between wage and productivity differentials would help reduce structural unemployment.
      "The coming wage round will be a test of the ability of social partners to move beyond the old "solidaristic" mindset to a broader concept of solidarity that would encompass all Finnish citizens and would be in consonance with Finland's future prosperity in a globalized world economy", the IMF says in its concluding statement.
     
The IMF does not regard the Finnish government's target to raise the employment rate to 75 percent as realistic under the present policies.
      This aim can only be achieved if young people start working at an earlier age, while the effective retirement age is raised.
      With tax policy changes that reduce the burden of labour taxation, work could also be arranged to those with a lower level of training.
      In addition to these, drastic taxation and benefit reforms are required both in the goods and labour market.
     
Finland's policy on taxation is stricter than in most other countries, and in the IMF's view taxation should be relaxed but not at the expense of public economy.
      Thakur's advice is to prune public spending in order to create room for a durable reduction in labour taxation.
      The IMF delegation also emphasised the importance of maintaining a surplus in public finances.
      Instead of the current two-percent surplus, surpluses at around four percent of GDP would be required for the rest of the decade to prevent an unsustainable build-up of public debt later on, the IMF recommends.
     
Thakur does not see globalisation as a threat to Finland. Finland's advantages lie in its skilled work force and the tradition of innovation. In Thakur's view, Finland will be one of the survivors of globalisation.
      Though Finland has done very well in recent years when set against many other countries, there is no room for complacency and the postponing of difficult decisions. The usual tendency is to tackle problems only when things get out of hands, but Thakur hopes that Finns, who have already gone through one major economic crisis in the 1990s, now know better.


Links:
  IMF: Finland-2004 Article IV Consultation Concluding Statement of the Mission

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