( diagram 1 ), it is apparent that the deficit has varied between about 3 1 / 2 per cent and 6 1 / 2 per cent of gdp, with an average of 4 3 / 4 per cent. most importantly, there has been no on - going trend deterioration - the trade account has improved at a rate sufficient to offset the increase in net income payable abroad. the widening in the current account deficit that we expect in 1998 / 99 will be the fifth such cyclical widening in the past 20 years, and i think that people now accept this as a part of our economic cycle. you will note that i am only talking about cyclical movements in the current account. the broader issue of whether we should accept an average current account deficit of 4 3 / 4 per cent of gdp in the long run would require another paper as long as the one i am presenting today. it would focus on our national savings performance, both in respect to governments and to the incentives that are provided to the private sector. but that is for another day. on previous occasions, the cyclical widening of the current account deficit usually reflected a mixture of external influences, such as a fall in the terms of trade, plus some significant internal imbalances or policy deficiencies. as examples of the latter, domestic demand in the earlier widenings ran at unsustainably fast rates, usually in excess of 7 per cent per annum for a time. similarly, in all but one of the earlier widenings, australia ’ s inflation rate was higher than the world average, and again on two occasions, we were running a significant budget deficit. on this occasion, we have none of these imbalances. the widening of the current account deficit will be essentially the result of an external contraction of demand, with domestic demand running only slightly faster than trend. the foreign debt situation is not as threatening now as the most pessimistic people in the mid - eighties feared. looking at a graph of the ratio of foreign debt to gdp ( diagram 2 ) shows that it nearly tripled between 1982 and 1986 ( from 12 per cent to 33 per cent ). many people feared that it would continue to rise at this rate, but it has not. in the nineties, it has averaged a little over 40 per cent, where it currently is. another widely used measure of debt sustainability - the ratio of debt servicing to exports ( diagram 3 ) - showed a somewhat similar pattern. it rose from 6 per cent to 22

that point to the pitfalls facing a country that suddenly discovers large natural resources. certainly, the norwegian manufacturing sector has undergone substantial changes over the past 30 years. on the other hand, this period has also been marked by substantial productivity gains in parts of the sheltered sector, for example in retail trade and the banking sector. petroleum activities have contributed to technological developments in the shipbuilding industry and the offshore sector. the current cost level in the norwegian business sector is adapted to an expansion of the petroleum sector and a steady phasing - in of petroleum revenues into the mainland economy. in the long term, the exchange rate tends to adjust so that both the domestic economy and the current account are in balance. after a period, we will be able to cover a smaller share of our imports using current petroleum revenues and by drawing on the petroleum fund. competitiveness will then have to be improved. it may have to be brought back to around the level prevailing at the end of the 1960s prior to norway ’ s emergence as an oil nation. rough estimates3 suggest that the real exchange rate that ensures balance in the external account when petroleum wealth no longer has the same significant role in the economy is more in line with the real exchange rate that we started with. this is shown in the chart, where the real exchange rate in the very long term will revert to the level prevailing before petroleum extraction began. in conclusion, the petroleum fund and the fiscal rule shield the economy from fluctuations in oil prices and extraction rates. with an inflation target, inflationary pressures are steered using the interest rate, while the value of the krone fluctuates. consequently, when decisions on the use of petroleum revenues are taken, weight must not only be given to long - term considerations and the distribution of wealth across generations, but also to developments in the real exchange rate and the competitiveness of the exposed sector over the short and medium term. thank you for your attention. see e. g. j. d. sachs and a. m. warner ( 2001 ) ” the curse of natural resources ” in european economic review 45, – 838. see akram, farooq q. ( 2003 ) : “ reell likevektsvalutakurs for norge ” ( real equilibrium exchange rate for norway ), in norsk økonomisk tidsskrift 118, pp 89 - 112. pp 827