Early 1990s recession in Finland
Encyclopedia
Early 1990s recession in Finland beginning of the 1990s was one of Finland's history's worst economic crises from its economy effects, worse than the depression of the 1930s in Finland.
The depression of 1991-1993 had a deep effect on the economy of Finland of the whole 1990s (especially to the employment), to culture, politics and the atmosphere. During it the gross national product decreased 13% and the unemployment rose to 18,9% from 3,5%.
The big devaluation that was made in November 1991 raised the currency debts of the ones which had raised foreign loans. The loans that were taken in foreign currencies did not agree at all together with the devaluation which the Kouri – Porter model had shown as early as in 1974. This model was not followed in Finland in connection with the freeing of money market. However, the number of the foreign currency loans was only 15% of the whole loan stock.
The Soviet Union trade had been 15 –20 per cent of Finland's foreign trade so its collapse at the turn of the 1990s cut export distinctly. Rising of the price of oil during the years 1973 and 1979 the quick becoming of Finland motorised had and raised the level of the bilateral trade which is gone with the Soviet Union. In the trade the commodities produced by the industry were changed into an equivalent from the oil a lot.
Furthermore, the competitive ability of the industry weakened because of the strong mark politics, among others. The paper industry also contained a worldwide overproduction on.
The budget deficit of the state of Finland was several per cent of the GNP. Furthermore, Finland's credit classification declined.
To save banks the deposit insurance fund of state which divided loan-type bank support on the banks was established. The biggest recipients were Säästöpankkien keskusosakepankki and Suomen Säästöpankki. All the other banks also got bank support. The savings bank group as mostly was collected in Finland's savings bank which was divided between a Osuuspankki group, KOP, Postipankki and Yhdyspankki. KOP had to combine in 1994 with Yhdyspankki as the Merita bank.
The expenses of a country and municipalities were strongly cut so that it would have been possible to guarantee the liquidity of the country. This weakened, among others, social services. Collected I in 1995 the government of Lipponen continued tightly after the depression years the economic policy which had restricted government expenditures.
From the middle of the 1990s the economy began while to grow since gradually. The depression of the beginning of the 1990s was mainly local, the Nordic countries and the economic crisis which has touched most Finland from them. In other parts of the world the economy, however, drew in an ordinary way and Finland indeed got especially export-led economic growth fairly fast to the visit after Finland's local financial matters had been repaired. In the rising of the depression of the beginning of the 1990s the mobile phone giant was as a guiding star Nokia which pulled upwards other economy also with it.
The depression of 1991-1993 had a deep effect on the economy of Finland of the whole 1990s (especially to the employment), to culture, politics and the atmosphere. During it the gross national product decreased 13% and the unemployment rose to 18,9% from 3,5%.
Reasons
The economic policy of the 1980s was an underlying factor of the depression. In the 1980s in Finland the strong economic boom which lasted the whole decade dominated. One reason for the dragging on and overheating of the boom was the liberation of the foreign credit searching for. Earlier it was subject to licence to search for credit from the foreign countries but Finland's bank freed the searching 1986 and this led to the large-scale loan search of companies from abroad. The foreign loan was cheaper than domestic money considerably. Also the credit granting of banks to the private persons was released and the loan portfolio at the most increased by more than 100% per year. The above mentioned points led to the strong growth in turn which raised the prices of the apartments and business premises strongly the amount of money in the national economy. The real estate bubble and stock exchange bubble during time of which big properties were fast created with the debt financing was created. The term casino economy represented getting rich with the loan and with the placing.The big devaluation that was made in November 1991 raised the currency debts of the ones which had raised foreign loans. The loans that were taken in foreign currencies did not agree at all together with the devaluation which the Kouri – Porter model had shown as early as in 1974. This model was not followed in Finland in connection with the freeing of money market. However, the number of the foreign currency loans was only 15% of the whole loan stock.
The Soviet Union trade had been 15 –20 per cent of Finland's foreign trade so its collapse at the turn of the 1990s cut export distinctly. Rising of the price of oil during the years 1973 and 1979 the quick becoming of Finland motorised had and raised the level of the bilateral trade which is gone with the Soviet Union. In the trade the commodities produced by the industry were changed into an equivalent from the oil a lot.
Furthermore, the competitive ability of the industry weakened because of the strong mark politics, among others. The paper industry also contained a worldwide overproduction on.
Results
The consumption and the investments fell in the both public and private sector as a consequence of the depression. The amount of the bankruptcies of companies rose strongly and the falling of them and the weak economic situation caused the mass unemployment. The unemployment was –1997 during the years 1992 as much as 12 per cent and as high as 36,7 in construction industry during year 1994. The banks ended up in big ones, because of the profitability difficulties in the operations which are risky among others and companies of difficulties and the consequence were bank crisis.The budget deficit of the state of Finland was several per cent of the GNP. Furthermore, Finland's credit classification declined.
Economic policy which has followed crisis
The liquidity of the banking system of Finland weakened as a consequence of the bank crisis. The government answered here by guaranteeing in 1991 the debts taken by the Finnish banks. To help the export industry Finland performed devaluations during the years 1991 and 1992. At the same time the entrepreneurs who had taken foreign currency loans got into an extremely difficult situation.To save banks the deposit insurance fund of state which divided loan-type bank support on the banks was established. The biggest recipients were Säästöpankkien keskusosakepankki and Suomen Säästöpankki. All the other banks also got bank support. The savings bank group as mostly was collected in Finland's savings bank which was divided between a Osuuspankki group, KOP, Postipankki and Yhdyspankki. KOP had to combine in 1994 with Yhdyspankki as the Merita bank.
The expenses of a country and municipalities were strongly cut so that it would have been possible to guarantee the liquidity of the country. This weakened, among others, social services. Collected I in 1995 the government of Lipponen continued tightly after the depression years the economic policy which had restricted government expenditures.
From the middle of the 1990s the economy began while to grow since gradually. The depression of the beginning of the 1990s was mainly local, the Nordic countries and the economic crisis which has touched most Finland from them. In other parts of the world the economy, however, drew in an ordinary way and Finland indeed got especially export-led economic growth fairly fast to the visit after Finland's local financial matters had been repaired. In the rising of the depression of the beginning of the 1990s the mobile phone giant was as a guiding star Nokia which pulled upwards other economy also with it.
See also
- Finnish banking crisis of 1990sFinnish banking crisis of 1990sThe Finnish Banking Crisis of 1990s was a deep systemic crisis of the entire Finnish financial sector that took place mainly in the years 1991–1993, after several years of debt-based economic boom in the late 1980s. Its total taxpayer cost was roughly 8% of the Finnish GNP, making it the most...
- Early 1990s recession