. in my view, three points are of importance with regard to government wealth management. first, investment must be based on the reason underlying government saving which, as i understand it, is to distribute petroleum wealth across generations and establish a foundation for maintaining important elements of the welfare state. second, the manager must seek to achieve a maximum return within duly considered risk limits. returns and risk must be monitored continuously. the return and the risk limit must reflect the government ’ s motive for saving. third, the management must be organised so that the manager pursues the objectives of the owner and does not develop its own goals. the government ’ s motive for saving resembles the motives underlying saving in pension funds and life insurance companies. among the government ’ s saving vehicles, investments in the national insurance fund and the government petroleum fund are best adapted to this motive for saving. for both funds, there is a clear division of responsibility between the manager and the government, with the ministry of finance as owner. in the case of the petroleum fund, norges bank ’ s mandate is to achieve the highest possible financial return in keeping with the strategy and risk limits established by the government. the fund ’ s investments are distributed among many countries and spread among a large number of equities and bonds. at end - 2000, the fund had invested nok 153 billion in about 1800 companies in 21 countries, while nok 234 billion had been invested in bonds in 18 countries. all ownership interests are now less than 1 per cent of the companies ’ total value. a turnaround in one country or a region, which in isolation may be pronounced, will not have a major effect on the total value of the fund. the value of the fund ’ s equity portfolio will therefore shadow developments in prices on international stock exchanges. there is a substantial element of risk diversification, although we are not immune to the risk associated with the uncertainty in global developments. along the same lines, the return on bond investments will reflect international interest rate developments. the government petroleum fund is built up through transfers of petroleum revenues that are not used domestically. in other words, the value of a natural resource is converted into a financial asset. the name of the fund was chosen to reflect this. however, one weakness that may be associated with the petroleum fund is that the objective of saving is not sufficiently highlighted. the future use of revenues could have been made clearer either by choosing another name or by earmarking the capital for specific future uses, even though this

, many international enterprises now have a poorer credit rating than earlier this has also affected borrowing in norwegian companies, which now have to place greater emphasis on their customers ’ ability to honour commitments. international financial and capital markets are characterised by uncertainty and unrest. this unrest is not found among economic agents in norway. as long as oil prices are high, the norwegian economy is fairly sheltered. many central banks are now reducing their key rates. as our economy is affected to a lesser extent, the differential between short rates in norway and abroad may widen. monetary policy the long - term objective of monetary policy is to provide the norwegian economy with a nominal anchor – domestic price stability, and thereby the basis for a stable krone. nominal stability is the best contribution monetary policy can make to economic growth and prosperity. a nominal anchor is also a necessary precondition for stable financial markets and property markets. high inflation and wide swings in the exchange rate impair the function of prices as an information vehicle. this leads to booms followed by busts and an arbitrary redistribution of income and wealth. inflation therefore poisons the economy. by linking movements in the krone to the euro, we have chosen to follow the same standard for nominal stability in the economy as set by the euro area countries. inflation 1990 - 2001 per cent norway euro area since 1997, inflation has been higher in norway than in the euro area. the difference partly reflects a period of strong growth in norway, while the level of activity in europe has been low. the higher level of inflation in norway cannot be sustained, however, as this would undermine the basis for stability in the krone exchange rate and confidence in monetary policy. short - term capital inflows and outflows are probably the most important factor determining movements in the krone exchange rate from day to day, from week to week and from one quarter to the next. they are governed by expectations concerning future returns. changes in expectations concerning the future value of the krone can trigger extensive capital movements. as a rule, norges bank does not intervene in foreign exchange markets with a view to influencing the krone exchange rate. the krone is floating, and the value of the krone fluctuates in periods by the same magnitude as exchange rates in other open economies. nevertheless, the prevailing stability of the krone is largely a reflection of confidence that inflation in norway will be kept at a low level. our experience is that changes in the norwegian interest rate level only have a predictable