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FITCH has once again given Finland the best credit rating possible. The company's statement seems strangely rosy compared to the grim reality of living day-to-day in Finland, but Fitch does have some good points which should give us hope for the future.

IT IS important to remember what these credit ratings companies are. They are independent, private, for-profit corporations who are hired by debt issuers. They give opinions on our credit worthiness. These ratings are only opinions, but have acquired a pseudo-regulatory blessing. For instance, central banks will only accept debt as collateral if they are given certain ratings and some investors will only purchase debt if it is of a specific quality.

WE TEND to love credit ratings companies when they give us good grades: witness the many articles which come out whenever we get a good rating. We also get very angry if the ratings companies give us poor marks or make a mistake. Some European politicians were furious that Fitch, Moody's and S&P gave some countries bad grades but missed the poor finances of those investment vehicles which went bankrupt. It is important to remember our relationship with these credit ratings companies.

FITCH praised Finland for a high-value-added economy and strong political and social institutions. They say our score on governance indicators is higher than even the average among AAA countries. Our strong track record of prudent fiscal management is cited as one of our strengths, as well as the robust financial position of our pension plans. Finland is one of only six OECD countries to have a government net asset position.

FINLAND has two different problems, according to Fitch. One is cyclical: our economy is in one of those periodic downswings. This could push our public finances out of control so we have engaged in the standard operating procedure of increasing taxes and cutting spending. Unfortunately, fiscal stimulus measures are almost impossible in the current political climate in Europe, but this may change.

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David J. Cord
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