REMARKS BY MR MARTTI AHTISAARI

PRESIDENT OF THE REPUBLIC OF FINLAND

AT THE LUNCHEON HOSTED BY

THE FINNISH AMERICAN CHAMBER OF COMMERCE

IN NEW YORK CITY,

18 November, 1994.

President Colliander,

Ladies and Gentlemen,

I was very happy to receive your invitation to speak at the monthly luncheon of the Chamber. It is good to see old and new friends in the audience.

As most of you know, I spent about one third of my formative professional years in New York in various tasks at the United Nations. Such an experience is bound to have a lasting effect on one's life. I will always be fond of New York. Part of my family stayed here, my son prepares his Ph.D at Columbia University.

The United States is Finland's largest trading partner outside Europe, and fourth overall. Recent developments are promising, during the first eight months of 1994 our exports to the United States increased by one third. Nokia's telephones, and cruise liners built in Finland appear on television advertisements almost daily. There are no significant pending trade disputes, although by saying this, one should knock on wood. Finland's view about the US anti-dumping practices is one issue where we differ.

I have every reason to trust that the relationship continues to develop rapidly, if only Finland sees to it that its industry remains competitive. There is room in the American market. For the time being, half of our exports to the United States is carried out by our 10 biggest exporters. These companies are global operators and are able to handle themselves well. The challenge is bigger for a medium-sized or small company, where initial investment is big, and the sheer perspective of a small producer and a big importer may be very different.

Those of you who are fly-fishermen may remember the story of the original contact between the Finnish company which makes Rapala lures and the American consumer. The story is the following: A young trade officer at a Consulate of Finland received a phone call from a customer. The Rapala lure had made the front page of a national fishing magazine. The customer wanted to have a small sample of the lures to test the market. "How many?", asked the trade officer. "Let's say 5000", answered the customer. The trade officer, exited by the perspective of being actually able to accomplish something early on in his diplomatic career, called the Rapala company and presented the offer. Mr Rapala, who answered the phone, said: "No way can we do this, my brother just broke his wrist." This was 30 years ago. NowRapala lures are a well-established product in the upscale sporting goods market in this country.

The lesson of the story is that the path from an idea to a product, and from a product to a strategy, and from strategy to sustained sales takes years in the best of circumstances, and sometimes longer. A country, such as Finland, which has chosen an export-driven development strategy, must take a very hard look at assessing where the competitive edge might be in the long run. In the years of abundance between the late '70s and late '80s this may not have been all that necessary, but when the economy turned and took a free fall, indeed, a hardnosed approach could not be avoided.

Finland looked at its relative strengths and found them in the area of the forest industry or the forest industry cluster, as the word goes. Other clusters with demonstrated or prospective success were found to be telecommunications, environment technology, energy technology, and transportation. All those clusters happen to be important in countries in transition, not only east and south of us, but in the entire world. The conclusion is that the structural basis at the Finnish industry makes an export oriented strategy possible. Economies of scale and competitiveness are of course additional requirements.

It was pointed out by Secretary Brown, during my visit to Washington, D.C. last week, that the United States has come to similar conclusions. Information technology, telecommunications, environment and transportation are areas of concentration in their export strategy. Such was your research which revealed a choice of emerging markets world-wide and clusters of demand in those markets.

Geography being a reality, your concentration was in South America, ours was east of our border. But since production has become increasingly global, whoever bases his production methods in modern technology is able to produce his products virtually anywhere. Finnish and American conclusions, arrived at independently, may well produce opportunities for even ambitious cooperation.

This view is supported by two further developments:

One is that Finland embarked on a road of increasing the role of high technology in exports activity over 10 years ago. The proportion of high-tech products in our exports as measured by the OECD, rose from four per cent in 1980 to 16 per cent in 1993. We are not yet in the leading group of Japan, the United States and the United Kingdom, which have over 20 per cent, but we are in the next group with Germany and Sweden, between 15 and 20 per cent.

Another is the Finnish purchase from the United States of F/A-1 fighters. This 3,5 billion dollar decision, which incidentally equals one and a half years defence allocation in Finland, carried with it an offset agreement requiring purchases by a comparable amount by American companies, purchases not only in terms of products but of economic cooperation in general, not only between the United States and Finland but in the third countries as well. The off-set commitment has forced the American parties to the Agreement, McDonnell Douglas, General Electric, Hughes and Northrop, to take a closer look at our comparable strengths, it thus offered us an opportunity to perform. So far, the result is good, perhaps one fourth of the off-set requirement has been fulfilled in two years.

Ladies and Gentlemen,

A global reach in export performance requires a similar reach toward capital markets.

Let me first tell you a piece of Finnish-American financial history. Already in 1926 the Republic of Finland took a 6 1/2 per cent 15 million US dollar Gold Bond loan, which was arranged by The National City Company of New York, the predecessor of Citibank. The prospectus document included a most flattering statement about Finland and Finns: "The people are law abiding, thrifty and industrious, and the standard of education is high."

This is a valid statement even today. When we entered the "Yankee market" in 1976 we gained very high credit ratings, AAA from Standard & Poor's and Aa from Moody's. Finland's unblemished reputation as a reliable borrower provided the basis for our dialogue with the capital markets.

Today, after four tough years, an adjustment process has been adopted and growth oriented strategies designed. External balances are being restored and budget deficit reduced. The cyclical upturn has now proceeded to a stage, where investment activity and private consumption are picking up. Unemployment is easing, albeit slowly, and the EU membership is expected to give a boost to the economy.

In this environment domestic financial market has calmed down. Interest rates have fallen substantially and "markka", our currency, strengthened.

Against the background of these developments it is important that Finland has approached the capital markets in a balanced way. No single currency sector has been unduly pressed as external funding has been raised in some 15 currencies. We have no short term foreign debt. Finnish government's total foreign debt is equivalent to 40 billion US dollars and some 10 billion has been raised from the dollar markets. We are predominantly European driven economy, therefore the bulk of our debt is in European currencies. We keep, however, about one quarter of the debt in US dollar and Japanese yen.

Dollar represents the most important capital market worldwide. Therefore in 1992, in the year of our highest foreign borrowing activity, it was in this market where we really convincingly had to establish ourselves as a household name among the investors.

This target was achieved by a global dollar operation. Finland became the first sovereign borrower to offer a global bond issue simultaneously in the US, Euro- and Japanese markets.

The markets responded constructively and we were able to raise the necessary funding to bridge ourselves over the recession. In this process, Finland's public debt reached a level of 70 per cent of GDP, not an enormous figure by international comparison. With the cyclical upturn we must now show restraint and make every effort to stabilize the growth of government debt and turn it to a declining path again.

Ladies and Gentlemen,

In this country the Finnish government thus began borrowing already after World War I. We later gained fame by continuing to repay our debt after World War II. In addition to being sensible, this decision was probably the best PR decision made by Finns.

After deregulating the financial market and the decision to privatize gradually state-owned companies, the close contacts with the U.S. capital markets increased in importance. Many American banks represented in this room have assisted in this process with the result that the American investors are now among the most important foreign investors in the Helsinki stock exchange. Of the Finnish companies, Nokia, our flagship in the electronics sector, was the first to be listed on the New York stock exchange last summer.

In order to succeed in the international capital market Finland's public economy and industrial sector simply must elicit trust. In that respect the referendum on joining the European Union, carried out a month ago, is important. People voted in favour with a significant margin, 57 - 43. By joining the European Union Finland will participate in the single market of goods, capital and services among 16 European countries, if the remaining Scandinavian candidates also join. As we know, the Swedes have already said "Yes" in their referendum. Obstacles lifted by the EU membership decision affect over two thirds of our foreign trade. By joining the European Monetary Union we subject our decision making essentially to the same rules as the other Western European economies, thereby enhancing the predictability in the eyes of foreign investors.

And finally, this decision involves an element of security. Participation in common foreign and security policy identifies us more clearly with our group of reference. It allows us to bring a contribution which others may appreciate and it allows us to make clear that we are not demandeurs, consumers of security guaranteed by others, but rather producers and contributors to, for instance, crisis resolution in the trouble spots in Europe, which are unfortunately too many.

Our objectives are ambitious. They require a fair amount of determination. In the past Finland has always been able to rally behind a common cause when circumstances turned difficult. Today such a rally is not an option but a necessity. If we are to cure our remaining economic ills, the imbalance in the public sector and the unemployment which is unacceptably high, many matters must fall in place. Competitiveness by our industry and confidence by the international financial market are among the most important of them.