Øystein Olsen has a lot to celebrate this week. He beat out all competition to keep his job as Norway’s central bank chief for another six years, and then could celebrate the 20th anniversary on Tuesday of arguably the bank’s most important operation that’s made Norway a financial powerhouse worldwide.
It was on May 31, 1996 that Norway’s Finance Ministry made its first deposit of money from oil revenues into the country’s newest state pension fund that immediately became known as the Oil Fund. The idea was to invest oil revenues in international stock markets and thereby stash away the vast majority of the country’s oil wealth for the benefit of future generations.
From a zero balance in 1996, the fund has since grown to a dizzying 7,079 billion kroner at the end of the first quarter of this year (around USD 853 billion at current exchange rates). That has made it the world’s largest sovereign wealth fund, and catapulted Norway into a position as one of the world’s most powerful investors. Not only have the oil revenues and deposits kept coming, the fund has also kept growing because of the returns on its investments in stocks, bonds and, as of a few years ago, real estate. The size of the fund has more than doubled just since the end of 2011.
This year marked the first time the finance ministry withdrew money from the fund to balance the state budget at a time of lower oil prices. The state does spend some of its oil revenues every year, limited to 4 percent of the value of the fund so as not to overheat the economy. The fund is so large now, however, that despite its withdrawal, the state is still only spending around 3 percent of the fund’s current value, or a total of around NOK 216 billion.
Olsen, along with most Norwegian politicians over the years, has been cautious about using too much oil money and told newspaper Aftenposten on Tuesday that “we’re saying enough is enough. The top should be reached. The use of oil revenues shouldn’t increase further, in relation to the mainland economy.” He noted once again, however, that there can be good reasons for tapping into the fund more than usual in a period of economic restructuring, such as what Norway is undergoing at present.
For the most part, though, Olsen was putting aside his “luxury problem” of overseeing Norway’s wealth to join Oil Fund employees for celebrating with cake and coffee. There are now more than 500 employees in the central bank’s unit that oversees the fund, Norges Bank Investment Management (NBIM). When the fund was set up, the finance ministry didn’t think the fund would need its own employees. That outlook had to change quickly.
Olsen is candid in believing that the years of the fund’s huge growth are behind it now. “The growth the fund has had the past few years won’t come again,” Olsen told Aftenposten. “We will still have many decades of oil revenues from the offshore fields, but we will have much more moderate growth in the fund itself.” And he stresses that the more Norway saves now, by stashing away its oil wealth, the easier it will be to pay pensions, health and other welfare benefits when the portion of the country’s elderly population increases rapidly.
He’ll have much of the control over the fund for another six years, after Finance Minister Siv Jensen re-appointed him to his job for a second, and final, term. The 64-year-old central bank chief, who’s also the boss for oil fund chief Yngve Slyngstad, had two other serious contenders for his job: Svein Harald Øygard, a 55-year-old analysis chief for consulting firm McKinsey, and Knut Anton Mork, a 69-year-old professor and longtime chief economist for Handelsbanken. Newspaper Dagens Næringsliv (DN) reported that neither were even called in for an interview, though. Jensen of the conservative Progress Party made it clear she was more than satisfied with the work done by Olsen, who was initially appointed during the previous Labour Party government. She nonetheless gave Olsen her own vote of confidence, royally confirmed on Friday at the Council of State.
Bank bicentennial, too
Olsen will also be busy celebrating another milestone for the central bank (Norges Bank) itself in June, when events marking its 200th anniversary reach a climax. The bank is even inviting to an “Open Day” on June 19, when members of the public lucky enough to win slots in the bank’s online selection process will be able to get a rare guided tour of the bank’s innards.
Bank officials are also offering a lecture series about the central bank’s history and purpose, publishing a book about the bank’s first 200 years on June 10, hosting a symposium on June 16 and backing various exhibits connected to the bank. Norges Bank has also issued a new 20-kroner commemorative coin in connection with its bicentennial.