BIS Review 20/1999  8  Division of responsibility fails Stabilisation policy is a very demanding task in an economy like Norway, with occasional major exogenous shocks. The question that must now be asked is how our system functions when exposed to pressure. Oil prices were high in 1996, 1997 and into 1998, which resulted in large surpluses on the current account and the government budget. Domestic activity was also rising, with strong growth in employment. Deliveries to the petroleum sector generated a strong and uncontrolled growth impetus to the mainland economy. During the budget deliberations in the Storting (Norwegian parliament), major changes were made. Compared with the large surpluses generated by petroleum revenues, the changes to the budget may have seemed small, but these changes were important for economic developments. I will illustrate this by means of an example. Assume that the oil price temporarily increases by NOK 10 per barrel, or a little less than USD 1.50 per barrel. This is a small change in the oil price, well within normal variations from one year to the next. Government revenues – and thereby the budget surplus – would then increase by about NOK 9 billion in the first year and NOK 11–12 billion the next year. This corresponds to about 1% of Norway’s GDP. The assumption is that all the revenues from such a minor increase in oil prices will be transferred to the Government Petroleum Fund and that fiscal policy will remain firm.
Our experience in Malaysia shows that a more diversified and sound financial sector, a more efficient and competitive financial industry and all the structural enhancements made, have evolved a more effective and resilient financial system. This has enhanced the tolerance level to withstand the more difficult and challenging environment. Such fundamental changes, however, cannot be expected to be achieved within a short period of time. Enhancing the tolerance level in the financial sector of the East Asian economies is one of the important elements in strengthening the growth prospects for the region. The overall economic and financial transformation that has occurred has resulted in an Asia that is a mutually reinforcing region of growth; an Asia that has an increasing role in the creation of wealth; and an Asia that will be an important region in promoting and supporting global stability and global growth. BIS Review 40/2003  7