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Oslo’s Price Explosion A Sign of Wider Problems

March 19, 1988

OSLO, Norway (AP) _ High prices have always made it tough for visitors to Oslo, but now even well-paid Norwegians are finding it hard to cope.

Fashion clothing shops, often used as barometers of consumer spending, rarely see customers, and newspapers are carrying going-out-of-business ads from well-known furriers. Only a few years ago, they shared the bonanza of Norway’s oil boom.

Kaupang’s Bokhandel, a leading Oslo bookstore for more than 60 years, closed its doors after Christmas, one of several family-owned shops that apparently succumbed to sharply rising rents.

The price explosion in this seaside capital is a sign of nationwide problems.

Until recently, Norwegians were cushioned by high wage increases and easy credit. They emptied their savings accounts, which were taxed, took tax- deductible loans and spent freely, while the government used its North Sea oil revenues to cover the public’s debt from overspending.

Norwegians also benefit from a welfare state, which provides free hospitalization and other social services, making savings less important. Education also is free, but high school books can cost 200 kroner - about $31 - each.

They barely noticed that their capital had become one of the most expensive cities in Europe, which is how it ranked in a survey of 103 countries by Business International published in December.

Taking New York City as a standard of 100, Oslo was rated 139, the highest in Europe and eighth in the world.

″We have been living like some big oil country in the Middle East,″ said Egil Bakke, director of the Price Control Agency.

But now the spending spree is over. The government has declared war on an inflation rate that reached 8.7 percent last year, more than twice the European average.

Prime Minister Gro Harlem Brundtland’s Labor government introduced a stiff wage regulation bill this month limiting pay hikes over the next year to one krone per hour, or about 15 cents.

The bill was the most severe economic package since a 15-month-long wage- price freeze was imposed 10 years ago.

Mrs. Brundtland heads a minority Labor government against an array of non- socialist opposition parties that criticize her interventionist policies and blame her for creating the problem by letting government spending get out of hand.

But everyone agrees urgent action is required, and the bill is likely to sail through with little opposition.

″There is a need for a breathing space to steady the situation,″ former Conservative Prime Minister Kaare Willoch told the Associated Press.

Norway’s problems would make most other countries envious. The country has virtually no unemployment, and despite falling oil income, it is expected to have a budget surplus of 9.3 billion kroner - $1.45 billion - this year.

But wealth brought complacency. Wages and prices rose swiftly for two years, until Norway found it had priced itself out of some European markets.

In 1987, a year when the normal work week was reduced from 40 to 37 1.2 hours, wage costs per unit produced rose by more than 13 percent in Norway, compared with a 5 percent average in Norway’s trading partners, according to the Finance Ministry.

Poor management became endemic. The state-owned oil company, Statoil, is now overrunning its budget for a new refinery by 100 percent. The scandal caused the resignation of company president Arve Johnsen, who built Statoil into a world leader.

Even more embarrassing, the cost overruns were almost as high for the new headquarters of the central bank, Norges Bank.

A major step toward recovery came on Feb. 26, when the main trade union federation reached an agreement with employers for a 5 percent ceiling on wage increases.

Mrs. Brundtland moved swiftly to declare a freeze on further negotiations, imposing the wage package on the rest of the economy, until a wage regulation bill could be legislated.

The measures are coming late for Oslo, a city of 450,000 that curls around the tip of a clear-watered, 60-mile-long fjord. Traveling businessmen know it as a pleasant place to stop - as long as the company is paying.

A double room at a major international hotel costs 1,505 kroner, or $237, and a beer at the bar costs 35 kroner, or $5.50. A short cab ride can run about $11.

Norwegians themselves find living costs outstrip their salaries. A double- meat hamburger at a fast-food restaurant costs more than $4, and a pair of jeans is close to $80. A kilogram of pure ground beef at the supermarket costs the equivalent of $10.65 per pound.

″I always have to shop around and look for the daily specials,″ said housewife Randi Hoel, who says she patronizes as many as 10 different food stores in a week to look for bargains.

Like other Scandinavian countries, Norway has put a high tax on alcohol to discourage drinking.Sales for home use are made only through the state-owned liquor monopoly, where a liter of average quality scotch whisky is a whopping 290 kroner, or $46.

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