Pension Funds It is estimated that the assets of the pension funds which are available to pay pensions, stood at 345 billion kronur at the end of 1997, an increase of more than 39 billion kronur, or 12.7 percent, in the course of the year. The composition of pension fund assets has change somewhat. Holdings of market listed securities expanded by 25.6 billion kronur while holdings of other securities declined by 3.7 billion kronur. At the end of 1997, the pension funds held 21.7 billion kronur worth of domestic shares. The pension funds’ holdings of foreign securities grew sharply in 1997, or by 12.6 billion kronur, about one-half of which was in shares. At the end of 1997, the pension funds held foreign securities valued at 22.2 billion kronur. Payment Intermediation Over the last two years, the Central Bank has increasingly turned its attention to payment systems, both to specific payment forms and to settlement systems. The Bank has released two reports on this subject, one on electronic payment forms and another on a comparison of payment intermediation in Iceland with international practice. In recent years there has been growing international concern that settlement systems do not adequately take into account settlement risks. Two responses have been adopted. First, strong conditions have been imposed on net settlement systems which lower risk, and plans have been laid for the contingency that a settlement party is unable to meet its obligations.
In January, the Bank forecast that inflation would average 2.6 percent between 1997 and 1998, and 2.3 percent in the course of the year. It seems clear that inflation during the first quarter of this year has been lower than expected in January. Government Finances In 1997, the Treasury recorded a welcome surplus of 1.3 billion kronur on a cash basis despite tax cuts, a rise in the wage bill and special interest payments associated with government bond redemptions. In order to compare the outcome with the budget it is necessary to exclude the special interest payments of 3.5 billion kronur. Thus adjusted, the Treasury’s surplus was 4.7 billion kronur. A Treasury surplus had not been recorded since 1984. On an accrual basis, which includes accrued interest and pension liabilities, the Treasury’s finances appear to have been close to balance in 1997. The Treasury repaid debt during the year. Amortization of foreign debt exceeded new borrowing by 6.5 billion kronur, or the equivalent of 5 percent of the Treasury’s foreign debt; this marked the first time since 1986 that amortization of foreign debt exceeded new borrowing. Domestically, new borrowing exceeded amortization by 3.4 billion kronur. While this turnaround in the Treasury’s finances is certainly to be welcomed, it is, nonetheless, a somewhat mixed blessing.