ECONOMIC SPOTLIGHT -FRANCE AWAITS ECONOMIC LIFT
A year after squeezing to power with a
narrow bare coalition majority, Gaullist Prime minister Jacques
Chirac has swept away a cobweb of controls and regulations
choking the French economy.
    But France is still waiting for a promised industrial
recovery the government says will follow from its free market
policies. Company profits and the stock market are rising. But
so is unemployment. Growth is stagnant at about two pct a year
and the outlook for inflation, held to a 20-year low of 2.1 pct
in 1986, is uncertain.
    Forced last month to cut the government's 1987 growth
target and raise its inflation estimate, Finance Minister
Edouard Balladur ruled out action to stimulate the economy. But
some government supporters say they fear time for an economic
miracle may be running out.
    The political clock is ticking towards Presidential
elections due by April next year.
    France's economic performance, led by a mixed cast of
right-wing ministers and a socialist President, has won mixed
reviews from non-partisan analysts.
    For Michel Develle, Director of Economic Studies at
newly-privatised Banque Paribas, the government's outstanding
achievement has been to launch "a veritable intellectual
revolution" breaking the staid habits formed by centuries of
state control.
    "The figures may look mediocre -- neither good nor bad --
but set in their context of structural reforms, they are
excellent," Develle said.
    But some analysts say they fear that Balladur, chief
architect of the government's free market policies, may be
pursuing a mirage.
    "The belief that economic liberalism will produce an
explosion of economic forces is ideological" said Indosuez chief
economist Jean Cheval. "Personally I think it's an illusion.
Dirigisme (direction) is a basic fact of the French system,
from school onwards. Ultra-liberalism is impossible."
    Illusion or not, the government has pushed its vision hard.
Over the past year foreign exchange and consumer price controls
have been largely abolished, labour regulations have been
pruned to ease the sacking of redundant workers and a hugely
popular programme has been launched to sell state-owned banks
and industries to private investors.
    Since December, nearly five mln French investors have
bought shares in Cie Financiere de Paribas <PARI.PA> and glass
maker Cie de Saint-Gobain SA <SGEP.PA>, the first two state
companies brought to the stock market under the 300 billion
franc five-year privatisation plan.
    Encouraged by an amnesty for past illegal exports of
capital, and the lifting of most currency controls, money has
flooded into the Paris stockmarket from abroad, helping to lift
the market 57 pct last year and another 12.5 pct since
December.
    At the end of last year the government abolished price
controls that had existed for 42 years on services such as car
repairs and hairdressing, freeing from state intervention small
businesses which account for some 60 pct of the French economy.
    The immediate result was a 0.9 pct rise in consumer prices
in January, partly responsible for a forced revision in the
official 1987 inflation forecast, to 2.5 pct from two pct or
less.
    "But even 2.5 pct would be a fantastic result, when you
consider that prices are now free for the first time since
1945," commented Develle of Paribas.
    Other achievements include a major reduction in the state's
foreign debts, and a cut in the state budget deficit to 141.1
billion francs last year, 2.5 billion francs below target and
down from 153.3 billion in 1985.
    But despite a healthy balance of payments surplus and a
gradual improvement in industrial productivity, the French
franc was forced by speculators in January into a humiliating
three pct devaluation against the West German mark, its second
since Chirac took power.
    A recent report by the Organisation for Economic
Cooperation and Development pilloried French industry for
failing to produce the goods that its potential customers
wanted.
    Outside the mainly state-controlled high technology
sectors, French industrial goods were "increasingly ill-adapted
to demand" and over-priced, the report said.
    French economists, including Cheval at Indosuez, agreed
with the report. "One of the assumptions of the government is
that if you give them freedom, the employers will invest and
modernise....But nine out of ten will say yes, they like
freedom, and then wait to be told which way to go," he said.
    And despite rising industrial investment and the
introduction of special incentives to boost youth employment,
the end-1986 number of jobless was reported at a record 2.7
million, some 300,000 more than a year earlier.
    The problem for the government is that there may be little
more it can do to prod the economy into faster growth.
    French producers failed more than most to take advantage of
last year's oil price falls and growth hopes now rest on the
shaky prospects of expansion in other industrial countries like
West Germany and Japan, they say.
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