svein gjedrem : norwegian monetary policy speech by mr svein gjedrem, governor of the norges bank, held in copenhagen on 17 november 2000. * * * introduction i am happy to have this opportunity to speak to you here in copenhagen about trends in the norwegian economy and about norwegian monetary policy. norway ’ s choice of monetary policy regime is closely linked to the structure of the norwegian economy. norway is a welfare society with a large public sector, a high level of transfers to households and enterprises and high direct and indirect taxes. our economy is also characterised by the great significance of petroleum activities. we have a growing aquaculture industry, and our manufacturing is also partly resource - based. the engineering industry - which is substantial - is partly based on petroleum activities. the exposed sector of the mainland economy has been fragile and vulnerable. a key concern in economic policy since the 1970s has been to avoid undermining the exposed sector too much, in view of our desire to avoid becoming too dependent on petroleum revenues. in this address i will discuss the relationship between the special structure of the norwegian economy and norwegian monetary policy. i will attempt to shed some light on certain differences between the norwegian and danish economies, and how these differences have influenced the formulation of monetary policy. background oil production started in the early 1970s and has gradually increased. forecasts show that production will peak in 2002, and thereafter decrease gradually. gas production is expected to continue to increase in the years ahead, and will account for a growing proportion of total petroleum production. the long - term forecasts for oil and gas extraction are highly uncertain, and future price movements for oil, market opportunities for gas and production and extraction costs in the petroleum sector are shrouded in uncertainty. the revenues from the petroleum sector are of great significance to the norwegian economy as a whole, and to the public sector in particular. in the 1990s, the export value of oil accounted for roughly one third of total exports excluding ships and oil rigs. government revenues from petroleum activities are currently extremely high, due to high oil prices coupled with high production volumes. current projections indicate that petroleum revenues will peak in 2002, and thereafter decline in pace with the production volume and lower oil prices. government revenues from petroleum activities have contributed to substantial government budget surpluses in recent years. as can be seen from the chart, considerable surpluses are also expected in the next few years. the amount of petroleum revenues used to finance public expenditure varies from one year to the

is it possible to make the boards responsible for appointment of ceos, and make the board appointments less discretionary on the part of the government in power? i don ’ t want to express a view, but these are real issues. as the resolution of these issues will take considerable time, our task is to see what can be done within the present public sector structure. something can be done – better internal checks and balances, better auditing, better transparency, better enforcement of policies, better action over npas, timely action against frauds. i hope you will give consideration to these in the interim, while we debate the larger issues. as regards the “ insider ” model, there is a tremendous variation both in terms of risk as well as corporate governance structure. by and large, the structure is very weak in co - operatives and nbfcs for historical reasons, local practices, and multiplicity of regulators and laws. old private banks also have very poor auditing and accounting systems. new private banks – generally good on accounting, but poor on accountability. more modern and computerised, but less risk conscious, one thing which is common to all is that corporate governance is highly centralised with very little real check on the ceo, who is generally also closely linked to the largest owner groups. boards or auditing systems are not very effective. so, in all the segments, and all different sizes of institutions, we have a great deal of work to do in the area of corporate governance. rbi has been working on new accounting, auditing and disclosure standards. work is also in progress in setting better internal auditing and better system of checks and balances. a committee of ind. dir. has also been set up under dr. ganguly, member of the bfs to learn from the past experience. rbi and other regulators would do their best to bring about better standards, but ultimately it is upto the individual institutions, and the people managing them to ensure what actually happens on the ground. let me conclude. corporate governance has never been more imp than now. it is not only the business of an individual bank or entity, but of all of us. 5 or 10 years down the line, you would not be able to operate unless we have corporate governance of the best standards. in many areas, we have made progress in laying down what needs to be done. the important task now is to put appropriate mechanisms in place to enforce accountability, asset liability management, early warning and