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 &lt;PARI.PA> and glass
  maker Cie de Saint-Gobain SA &lt;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.
   REUTER...
  

