Italy Restructures Economy, but Confidence Is Still Scarce

THE Italian government, which has been pushing through economic reforms this fall, is beginning to reap appreciation for its efforts.

In a letter to the government last week, the International Monetary Fund (IMF) gave a vote of confidence to Prime Minister Guiliano Amato's economic policies. IMF officials said they found a very different climate in Italy this year. The Amato government seems ready to abandon past policies, they added.

"The economists who are watching the macro scene say ... [the government's program] does represent a break from the past and does represent a step forward," says a Western official based here. "It takes some political courage and vision to do these things."

"The economy is responding well," adds Erminio Bugliosi, accounts director of the Banca d'America e d'Italia. "But we're involved in a slow process."

The government wins praise for reducing inflation to about 5 percent, abolishing the escalator clause that linked wages to inflation, and starting the privatization of enormous public companies. But problems remain, analysts say.

"The worst thing is the strong cutback in consumer spending," says Pasquale Capretta, a researcher at Confindustria, Italy's employers' federation.

"In the last months, people have been very afraid of what was happening," says Mr. Bugliosi. "They have kept their money in their pockets."

The Italian economy has indeed had difficult moments in recent months. Discount interest rates soared, reaching 15 percent before dropping back to its present 13 percent, still the highest rate among the seven most-industrialized nations. The lira was devalued and then removed from the European Monetary System (EMS) after being severely battered in international currency trading. New taxes have been enacted.

As a result, Italians are rather bleak about the future, according to a survey this month by Censis, the national center for statistical information. The top worry was unemployment, Censis found, with 67 percent worried about joblessness. As of July, the unemployment rate stood at 11 percent, up from 10.6 percent in July 1991; 202,000 Italians lost their jobs. Union leaders predict 150,000 to 200,000 more lost jobs in the coming year.

"Industrial sectors have thrown a lot of workers out of work and unfortunately we don't see improvement for the next year," says Mr. Capretta. Production and investments are down 2 or 2.5 percent.

"For 1993, we expect a resumption of investments," Capretta says. Meanwhile, "everyone is expecting [inflation] to go up."

But the government's determination to fight inflation impressed the IMF officials. The quality of the responses to economic problems and the speed of their approval represent two important signs of change, their letter said. "What the IMF was really doing with this letter was giving the government a little support to defend itself from its domestic critics," says a long-time observer.

Privatization, a key element of the government's reform, is not expected to find smooth sailing. Mr. Amato's privatization plan, presented earlier this month to the Parliament, has not yet been approved. "People are going to look at this very long and very hard before they give approval to these tough changes that Amato has asked for," says the Western official.

As far as the lira is concerned, Amato has expressed the hope that it can return to the EMS some time before Christmas. The IMF, in its letter, however, recommends that the Italian government reenter only when the economy is on a sounder footing.