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 <PARI.PA> and glass maker Cie de Saint-Gobain SA <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...