Structural and balance sheet weaknesses, inappropriate exchange rate regimes as well as inconsistent macroeconomic policies must be addressed openly, and without hesitation or delay, to avoid market reaction. In some cases, a loss of confidence may fuel a snowballing effect that can easily lead to fullblown capital account crises with high economic and social costs and serious risks of a contagion. By changing the rules, globalization forced the international community to change the framework of surveillance itself. This came under the general heading of reforming the architecture of the financial system. It is an ongoing, very ambitious project with many ramifications. Switzerland strongly supports it as well as all the related initiatives. I think we can safely say that a lot has already been achieved. The structure of the international financial system is today more robust and in a better position to withstand future challenges. Part of this project was to provide more information about countries and their policies to help investors make the right judgments. A number of standards and codes were  2  BIS Review 69/2004  defined to include data dissemination, fiscal transparency, and monetary and financial policy transparency. Another aspect of the reform was strengthening Fund surveillance through its renewed focus on financial markets. Much more attention is today paid to the structure of national financial systems and the institutional preconditions that have to be in place for countries to fully benefit from capital account liberalization.
With large and, to some extent, varying budget revenues, the basis for determining central government expenditure and taxes from one year to the next may easily be impaired. If budget spending is allowed to vary in step with oil prices, the Norwegian economy may experience abrupt shifts and instability. Changes in oil prices may then quickly influence wage and price expectations, the exchange rate and long-term rates. In addition, short-term rates would have to be changed frequently and sharply. BIS Review 19/2001  9  In recent years, central government real underlying spending growth has accelerated somewhat. In 2000 and 2001, spending growth has been higher than 2 per cent, which is higher than normal growth in the mainland economy. At the same time, direct and indirect taxes have increased. Fiscal policy has thus had a virtually neutral effect on domestic demand for two years while wage growth has been substantially higher than in other countries. A possible interpretation of this development is that it is more demanding to use the government budget to dampen cyclical fluctuations during an upturn than during a downturn. The willingness and ability to pursue a counter-cyclical policy may in itself be cyclical. Another interpretation is that a neutral fiscal stance this year, with a strong increase in government financial wealth, is a balanced approach to using the budget to stabilise the economy while phasing in an increase in financial income in the economy. Conclusion The Norwegian economy is fragile and vulnerable.