As shown in the chart, the risk premium in capital markets on long-term credit to enterprises has increased. In addition, many international enterprises now have a poorer credit rating than earlier This has also affected borrowing in Norwegian companies, which now have to place greater emphasis on their customers’ ability to honour commitments. International financial and capital markets are characterised by uncertainty and unrest. This unrest is not found among economic agents in Norway. As long as oil prices are high, the Norwegian economy is fairly sheltered. Many central banks are now reducing their key rates. As our economy is affected to a lesser extent, the differential between short rates in Norway and abroad may widen. Monetary policy The long-term objective of monetary policy is to provide the Norwegian economy with a nominal anchor – domestic price stability, and thereby the basis for a stable krone. Nominal stability is the best contribution monetary policy can make to economic growth and prosperity. A nominal anchor is also a necessary precondition for stable financial markets and property markets. High inflation and wide swings in the exchange rate impair the function of prices as an information vehicle. This leads to booms followed by busts and an arbitrary redistribution of income and wealth. Inflation therefore poisons the economy. By linking movements in the krone to the euro, we have chosen to follow the same standard for nominal stability in the economy as set by the euro area countries.
At the same time, it is reasonable to assume that spending on other programmes, which are today financed over government budgets, will increase as a share of total GDP. With the current tax level, in conjunction with the challenges that increased trade and globalisation pose to the tax system, there would hardly be scope for increasing taxes. It would therefore be reasonable to assert that the value of the right to tax is lower than the value of commitments taken on by the government when the intention is to develop the welfare state. Without substantial government saving in the years ahead, promises to preserve the welfare state will lose credibility. The government thus has a clear motive for saving. At the same time, the high level of petroleum revenues, as mentioned, provides scope for accumulating substantial government financial wealth. In my view, three points are of importance with regard to government wealth management. First, investment must be based on the reason underlying government saving which, as I understand it, is to distribute petroleum wealth across generations and establish a foundation for maintaining important elements of the welfare state. Second, the manager must seek to achieve a maximum return within duly considered risk limits. Returns and risk must be monitored continuously. The return and the risk limit must reflect the government’s motive for saving. BIS Review 14/2001  9  Third, the management must be organised so that the manager pursues the objectives of the owner and does not develop its own goals.