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The Petroleum Fund of Norway

From Academic Kids

The Petroleum Fund of Norway is a government controlled fund owned by the people of Norway. Also called The Petroleum Fund.

The purpose of the fund is to invest parts of the large surplus generated by the Norwegian petroleum sector (mainly taxes of companies, but also payment for license to explore). It is predicted that revenues from the petroleum sector have reached their peak and will decline significantly over the next couple of decades. The Petroleum Fund was established in 1990 after a decision by the Norwegian Parliament to counter the effects of the forthcoming decline in income and to smooth out the disrupting effects of highly fluctuating oil prices.

The fund is administred by the Norwegian Central Bank. It reached a portfolio value of over NOK 1 trillion ($170 billion) in the first quarter of 2005.

Since 1998 the fund was allowed to invest up to 50% of its portfolio in the international stock market.

Debate

Due to the large size of the fund relative to the low number of people living in Norway (4,5 million people), the Petroleum Fund has become a hot political issue. The three major themes of discussion are:

  1. If one should use more of the current oil revenues to solve current problems instead of putting the wealth into financial "gambling" through The Petroleum fund.
    1. Con: No one shouldn't, investing money from outside the regular economy will drive inflation.
    2. Pro: Yes one should, it will not affect the inflation if one invests in the right places
  2. If the high exposure (around 40% in 2003) to the highly fluctuating stock market is financially safe.
    1. Con: Banks are safer
    2. Pro: Evidence show that stocks generate more value over time than money.
  3. If the investment policy of The Petroleum Fund is ethical.
    1. Con: It is not possible to control.
    2. Pro: It is possible to control.

Part of the investment policy debate are related to the discovery of several cases of investment by The Petroleum Fund in highly controversial companies, involved in businesses such as arms production and tobacco. The Petroleum Fund’s Advisory Council on Ethics was established 19th November 2004 by Royal Decree. Accordingly, the Ministry of Finance issued a new regulation on the management of the Government Petroleum Fund which also includes ethical guidelines.

See also

External link

  • Official site (http://www.norgesbank.no/english/petroleum_fund/)
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