More articles on the oil fund and economic policy.
Original letter to the editor, Different money , 20 Nov. 2007
Editorial esponse, The Big Fund , 21 Nov. 2007
Translation into Norwegian
A whole people in the oil fog
By Arno Mong Daastøl,
Institute for Creditary Economics
The editorial criticism of me 21 Nov. deals with situation specific and complicated book keeping conventions. Financial principles are on the other hand general and simple. Our trade surplus gives us a payment surplus, and the payments are claims on the abroad.
Norway exports oil and for the payment received, we import things we are in need of. Our trade surplus results in a balance of payments surplus. It is that simple, and anything else would be silly. What is the use of selling our assets if we aren’t going to buy anything for that income? What is the use of exporting if we shall not import.
It is a democratic duty to go to the core of how a whole people has been misinformed and (self)deceived, economic experts and politicians included.
Geoffrey Gardiner is a retired finance manger and director of Barclays' financial services div., Great Britain’s largest bank, with a life time experience and responsibility for more than 8000 investment funds. Gardiner writes: ”Norway is not strong enough militarily to resist world demands. So in effect it gives most of the oil away, but pretends it is not doing so.” His comment to the risk report from the oil funds Strategy Council was, ”It is not worth the paper it is printed on”.
This misinformation has several sources: National economists are not educated to understand book keeping, and especially not international accounting. Money are legal relations, not things. The politicians have sought advice with financial institutions, who live off financial turnover, and who know little about real investment in infrastructure. The Parliament should have been critical when it asked the goat where the sack of oats was to be placed... DN’s editorial claimed 27. nov. regarding the Terra og Citigroup-scandal, that “almost all economic advisors are in reality salesmen”.
- And most interesting is the advice we have been given from the international financial advisors, who traditionally are close to international power centres. The passive ownership strategy of the oil fund, which does not buy any competence home, fits them perfectly. Out servile adoption of their politically infected advice, is therefore their role model for the resource rich countries in the third world. It would be naive to think that management of such strategic resources as Norwegian oil and capital only has been given professional advice, unaffected by political interests. The destiny of Russia’s oil industry after 1991 and Iraq’s after 2003 should come to mind, and 1940 showed clearly what a shuttlecock Norway is in the world power struggle.
Like a banana republic, Norway spends 120 billions yearly (2008) in short term export and oriented investments in the North Sea. The Politicians then scoop our enormous national wealth onto the world’s unstable capital markets, but do not even manage to maintain our infrastructure for future generations. Far lesser acts have been convicted for treason. The whole of the oil policy and its history must be investigated. Recall that Prof. Tore Jørgen Hanisch was stopped in his work with the history of oil policy.
The editorial claims that I am bewildered regarding the character of the oil fund and state; ”Here he confuses the pension fund with foreign exchange reserves”.
Of course the foreign exchange reserves and the oil fund are separate accounts in Norges Bank. Nevertheless, they have the deciding characteristics in common: Both are the result of trade abroad, both are the result of claims on foreign resources, and both can be used to influence Norway’s balance of payments. Most of the exchanges are actually done through the ”Petrobufferporteføljen” which is a part of the foreign currency reserve. Gardiner writes: “The distinction made by the editor is rubbish. All foreign assets are claims on foreign economic production. It … follows from that, that a rise in the N Kroner has no effect at all on the physical quantity of foreign goods which the foreign assets can be exchanged for. It is the inflation or deflation in the foreign countries which is relevant.”
The editor writes,
“If the State wants to get money from its crowns account, Norway’s bank must pay out of its crowns account, and sell stocks and bonds abroad for a corresponding amount.
If Daastøl had been right, it would not have been possible to collect several tens of billion crowns to cover (the oil and activity corrected) deficit on the national budget every year. As we all know, this is not only possible but a yearly occurrence.”
Reality is not as described by the editor. Nothing is today taken out of the oil fund.
The income from SDØE is most often not exchanged, but placed directly in the fund sand used for direct purchase of foreign securities.
The treatment of the tax payment from the oil companies is arranged as a long-winded process that invites misunderstandings.
First the oil companies change the earned foreign currency to crowns, which the Ministry of Finance, uses for current expenditures (according to the rule of ”anticipated yield”). This spending of oil revenue will pay imports, after being exchanged back to foreign currency. The “surplus” is sent to the oil fund and also exchanged back to foreign currency, which is used to buy foreign assets.
This is probably why the editor mixes together apples and pears, i.e. the State’s budget balance and Norway’s balance of payments (with foreign countries). The State’s budget balance is kept in Norwegian crowns in contrast to the currency based payments balance with the abroad.
Similarly, the editor forgets that a hypothetical sale of foreign assets abroad would be paid with foreign currency. This must be exchanged into crowns before being used in Norway.
After the exchange, this currency will be held by the abroad as compensation for former Norwegian import, or belong to Norwegians as Norwegian claims of foreign production, meaning future import.
The oil money is spent only when we buy something for them – claims and money does not disappear through exchange. When we do not buy anything (import foreign items), we will neither spend anything (foreign oil currency).
I repeat: The oil money can only be used for import – or given away abroad. Our first task is to prioritise value-promoting and strategic investments into infrastructure, health and research, - and to change the name of the fund to something sensible: Norway’s Development Fund.
 SDØE means the State owned holding company that has direct ownership to oil fields.