posed an operational challenge, which i will return to later. in 2006, the name of the fund was changed from the government petroleum fund to the government pension fund – global. but the name change did not imply any operational changes and the return ( the 4 per cent ) continues to be a general support to the budget, not ear - marked for any specific purpose. this reflects that the fund has no formal link to a liability side. let me turn to the management of the fund. the fund is formally owned by the ministry of finance, while operational management is delegated to norges bank. this arrangement is formalised through a management mandate given to the bank by the ministry. the ministry submits an annual white paper to the norwegian parliament where the management of the fund, both strategic allocations as well as active management, is reviewed. the office of the auditor general performs independent reviews of the management. there is a clear division of responsibilities between the ministry and the bank. the owner decides on the long - term strategic allocation, represented by a benchmark portfolio, and this choice of strategic allocation for the fund is the main determinant of the expected absolute return of the fund. the bank's main responsibility is to maximise expected return relative to the benchmark – within risk limits formulated in the mandate. hence, norges bank has a mandate to engage in active portfolio management in addition to providing a cost - effective conversion of incoming petroleum wealth into financial assets. the bank ’ s mandate has increasingly been adapted to the " future generations " - objective of the fund with a stronger focus on tracking error as the sole risk limit. some earlier restrictions on credit quality have been lifted, in light of the increased investment horizon of the fund. important decisions are presented to the norwegian parliament in a white paper before decisions are implemented. a recent example of such a decision is a proposal to increase the share allocated to equities from 40 per cent to 60 per cent, again reflecting the transition to an endowment fund with a very long horizon. note that the absence of a formal liability side has an impact on how we go about constructing the strategic allocation. the fiscal guideline, that is how much of the fund that should be used every year, is what most closely resembles liabilities. however, since the guideline is formulated as a percentage of the fund itself, it yields little guidance to the risk characteristics of the allocation. thus, the process of establishing a strategic allocation is still more similar to that of

period of strong economic expansion after 1997. until 2000, this was counteracted by the depreciation of the krone. companies with income in foreign currency could cover the higher labour costs with the increased revenues which were a result of the weaker krone. when the krone began to appreciate, however, it did not take long before relative labour costs measured in a common currency rose sharply. despite this development, the strong wage growth continued. this contributed to a deterioration in the exposed sector ’ s competitiveness. despite a pronounced downturn among many of our trading partners last year, annual wage growth in norway increased to 5¾ per cent. wage drift remained surprisingly high through the autumn of 2002, especially in some manufacturing sectors, partly as a result of local settlements. due to the depreciation of the krone this year, it now appears that competitiveness is improving somewhat compared with last year. wage growth has also slowed to a more sustainable level. however, cost competitiveness is still weaker than the average for the past 30 years. the global downturn started in 2000 and through 2001, the interest rate in the us was sharply reduced to stimulate growth. for a long period, a relatively rapid recovery was expected. during the autumn of last year, it became clear, however, that growth would remain subdued for a longer period. changes in the economic outlook are clearly expressed in implied forward rates. in the us, these expectations have been adjusted downwards considerably since summer 2002. last summer, market participants expected the key rate in the us to be increased to about 4 per cent towards the end of 2003. the interest rate is now believed to have reached its lowest level and is expected to remain at 1 per cent until the end of 2003, with only a gradual rise after that. the lower projections for growth reflect the effect on the world economy of a number of negative shocks, such as the war in iraq and the sars virus. it took longer than first expected to correct imbalances created by an overoptimistic outlook in sectors such as the it industry. high oil prices may also have contributed to curbing the growth rate. gdp growth in important european countries has been low or negative for some time. in the netherlands, gdp has fallen for three consecutive quarters, and germany has recorded a contraction over the last two quarters. france ’ s gdp showed growth in the first quarter and a decline in the second quarter of this year. for the euro area as a whole, preliminary figures