Having learned by experience, however, economic agents will not believe this kind of promise unless the authorities commit themselves to delivering what they promise. In order to function, policy must therefore be timeconsistent and credible. In Norway, the devaluation decade from 1976 to 1986 may be an example of economic policy that did not fully recognise the role of expectations and the significance of credible policy rules. During this period, the krone was devalued ten times if we also include “technical adjustments”, which also implied devaluation. The many exchange rate adjustments in this period were in part aimed at remedying the deterioration of Norway’s relative cost level, which in turn was related to the government’s attempt to take responsibility for employment also when the social partners failed to do so. Gradually, expectations of a continued exchange rate policy that would maintain manufacturing’s cost competitiveness became widespread. This weakened the incentives for the social partners to keep wage and cost inflation at a reasonable level. The devaluations contributed to high inflation. When it finally became clear that this could not continue, it took many years before inflation was brought under control and interest rates in Norway could be reduced to the level of interest rates in other countries. The other lesson drawn from economic theory and economic policy in the 1960s, 1970s and 1980s was that in the medium and long term it is not possible to reduce employment by accepting somewhat higher inflation.
The general improvement in the availability of foreign exchange necessitated the Bank of Zambia’s participation in the market. In this regard, the Bank recorded a net purchase of US $ million compared with net purchase or sale of US $ million in the third quarter. Balance of payments 35. Preliminary data show that Zambia recorded an overall balance of payments (BoP) deficit of US $ million during the fourth quarter of 2010, compared to the surplus of US $ million recorded in the third quarter of the year. This was largely due to the unfavourable performance in both the current account balance and the capital and financial account. 36. During the period under review, the current account surplus declined to US $ million from US $ million recorded the previous quarter, largely on account of a decline in the merchandise trade surplus and widening of the net income deficit. 37. The merchandise trade surplus declined by 9.2% to US $ million in the fourth quarter of 2010, from US $ million recorded in the third quarter, following an increase in imports, which outweighed the rise in exports. Merchandise export earnings, rose by 5.2% to US $ million from US $ million recorded in the previous quarter. This was due to an increase in metal exports earnings by 7.3% to US $ million from US $ million in the previous quarter. 38.