I believe this new law will rapidly improve the soundness of Turkey’s banking system, which is crucial for the conduct of monetary policy. Just as the monetary authorities cannot achieve medium-term price stability without appropriate fiscal policies, they cannot pursue a price stability target without a sound banking system. BIS Review 109/1999  2  The banking law approved by parliament was a big step forward, but further action is also needed. One important additional issue is to restructure the state banks and reduce their role in the banking system. These banks not only operate in a competitive banking market, but also undertake operations on behalf of the government, such as providing preferential loans to the agricultural sector and to small and medium-sized businesses. Since it is intended to eliminate preferential credits in the medium-term, these banks can be commercialized by privatizing them. Another reform that the Turkish government has recently undertaken is social security reform. Let me give you a brief summary of Turkey’s social security system, which has caused major budgetary problems in recent years. The Turkish social security system includes three pension institutions. The first and largest, the SSE, is for corporate employees, the second is for civil servants, and the third is for the self-employed. All three operate on a “pay-as-you-go” basis, which means that pensions are paid out of the current contributions of the working population and not of the past contributions of the retirees.

Reports from the regional network indicate that capacity utilisation is high in the construction industry and in manufacturing, particularly among suppliers to the petroleum industry. There were reports of shortages of engineers and project managers. Many of our contact enterprises in corporate services also reported increasing skills shortages. On the other hand, idle capacity is reported in retail trade and in household services. There are limitations to how much the supply of Norwegian labour can increase ahead. Labour participation rates are at a historically high level, particularly when taking into account demographic developments. Developments in the labour market are similar to the profile observed ahead of the period of accelerating wage and cost inflation that started in 1998. Several factors can explain why wage growth has been moderate so far during this cyclical utpurn. An increase in inward labour migration and the opportunities provided by an international labour market may have resulted in greater emphasis on the high wage level in Norway relative to our trading partners. Inward labour migration has also contributed to reducing bottlenecks in some industries. Developments in region North are fairly similar to the situation in the other regions of the country. Region North reported prospects of solid growth in most industries. Manufacturing, retail trade and the local government and hospital sectors expected moderate growth in investment. The service sector expected zero growth in investment. There were reports of moderate employment growth in all sectors, with the exception of the local government and hospital sectors where growth was unchanged.