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Finland Balance of Payments
Finland's external balance reflected the country's
status as
a late-industrializing economy needing large infusions of
foreign
capital as recently as the 1970s. The resulting foreign
debt
peaked at the end of 1977 at about 20 percent of GDP. Over
the
following decade, the Finns reduced their debt, which
stood at
about 16 percent of GDP in 1987. Even at this lower level,
however, debt service required payments amounting to over
2
percent of GDP, a permanent drag on the balance of
payments.
Although the country ran trade deficits up until the
1970s,
Finland's trade performance was generally satisfactory
during the
1980s, despite developments in world markets that posed
special
challenges, such as the need to shift exports rapidly from
Eastern to Western markets after the collapse of oil
prices in
the mid-1980s. The balance of trade showed a surplus after
1980,
which rose to about US$1.6 billion by 1986 as a result of
strong
foreign demand for Finnish goods (see
table 20, Appendix
A). The
services account, however, showed growing deficits during
the
decade, which reached more than US$2.2 billion in 1986.
The
deficit on services grew out of increased Finnish tourist
expenditures abroad, the decline in shipping earnings, and
the
continued service payments on the national debt. The
transfers
account likewise showed a deficit, mainly the result of
Finland's
growing official foreign aid to the Third World. Thus,
despite
the strong performance of Finland's export sector, the
country
had generated a deficit on the current account that
reached
almost US$900 million in 1986.
Over the long term, Finland's ability to continue to
finance
current account deficits and to service the national debt
was
limited primarily by the country's ability to maintain
export
earnings. Some analysts pointed out that after 1984,
Finland's
surpluses were in fact earned in exchanges with the Soviet
Union
(producing a surplus on a blocked account), while
hard-currency
trade was in deficit. Many observers noted, however, that
Finland's debt was low by OECD standards, and they
suggested that
the country's external imbalances could be sustained for
many
years.
Data as of December 1988
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