A Swedish Investing Giant Is Sick of His Country's Policy Misses

(Bloomberg) -- Swedish interest rates are stuck below zero, the central bank owns nearly half the government’s bonds and excessive state saving has created a dysfunctional debt market, despite the need for investment across the country.

According to Hans Sterte, who oversees $90 billion as chief investment officer at pension giant Alecta, the most important corners of Swedish policy are deeply flawed. He’s lobbying for a major rethink in monetary and fiscal policy.

The 58-year-old, who has worked at the Finance Ministry and central bank, has some radical medicine in mind. He wants to do away with the central bank’s independence and have monetary policy fully coordinated with fiscal policy.

A Swedish Investing Giant Is Sick of His Country's Policy Misses

“It’s a pity that Sweden is still being run by a regulatory framework that’s adapted to the problems of the 70s,” he said in an interview at his office in Stockholm. “At the time, we had problems with public debt. But we are still following the same framework slavishly.”

After a decade of extreme monetary stimulus following the financial crisis, a debate is swirling around the world over the interplay between monetary and fiscal policy, the effectiveness of inflation targeting, deficit spending and the value of central bank independence. In the U.S., both sides of the political spectrum are to a large degree now advocating for deficits while the progressive economic doctrine of Modern Monetary Theory is gaining acolytes.

A Swedish Investing Giant Is Sick of His Country's Policy Misses

Sterte said he expects this debate to hit Sweden in about five years. He blames fiscal policy rather than the central bank for Sweden’s economic difficulties. The Riksbank is only following its inflation mandate, but reducing its independence would allow for a broader debate on how different levers are used to serve the needs of the economy and reduce imbalances, he said.

He said he would “like” higher rates to help cut household indebtedness. He also wants looser fiscal policy to increase investments and keep pace with rapid population growth.

“But that’s only up to the parliament to decide,” he said. “The powers of the Riksbank should be taken back by parliament so that both fiscal and monetary policy should be managed from there.”

For now, though, such changes seem far away. Sweden’s finance minister, Magdalena Andersson, has stuck to the nation’s surplus target even as debt has sunk to about 35 percent of gross domestic product. The 0.33 percent surplus target also has support in parliament, though more and more politicians are starting to question the need to save.

Pressure was ratcheted up on Thursday. The Riksbank once again backtracked on plans to lift rates above zero and extended its bond purchases into the end of 2020 as it struggles with slowing growth and inflation.

The announcement triggered a violent selloff of the krona, which hit its lowest in almost two decades against the dollar. Sweden’s monetary policy environment has turned the krona into the year’s worst performing major currency.

A Swedish Investing Giant Is Sick of His Country's Policy Misses

Sterte said the development is hurting Sweden. “Our purchasing power is eroding and that is not the way for a country to grow rich,” he said. “In reality, Swedish assets are on sale. We see that in the property market, where foreign investors are bargain hunting.”

He also called for an end to the Riksbank’s bond purchases since they are distorting the market.

“I hope they stop buying, mainly because it would strengthen the krona,” he said. “The most overvalued market is the market for government bonds.´´

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