Ladies and gentlemen, honourable guests:

It is a great pleasure for me to have the opportunity to talk to this important assembly about the economic position of the local government sector in the Nordic countries, and in particular the financial arrangements relating to their investments, and the importance of having an institution that guarantees the existence of good competition in the area of municipal financing.

Without a doubt Japan is becoming increasingly important for local authorities in Norway and the other countries in the Nordic region. Over 60 per cent of the Norwegian Kommunalbanken’s borrowing is conducted in yen and I know that the share of borrowings on the Japanese capital market from the other Nordic countries is also very high. The terms these public banks obtain from you has a direct effect on how much we have to pay for our investments in new schools, kindergartens, nursing homes and other welfare-related enterprises - and I have yet to meet a single tax payer who is willing to pay more tax than is strictly necessary.

In many parts of the world there are banks that exist solely for the purpose of finding the most favourable financial solutions for such local government sector investments - in the Nordic countries and in most countries in the rest of Western Europe, in many of the States of the USA and Canada, to name just a few examples. Even if the governments in these countries have been formed by different political parties, they have, for years, been in agreement that the public sector is best served by arranging the funding of its investments itself. The reason for this is obvious. It is difficult to find borrowers that are more solid and reliable than a state, or a union of municipalities and county councils, with their reciprocal obligations towards each other. And consequently they can command the finest terms in the market. This subject will, as I am told, be discussed in greater detail by the Swedish ambassador in Tokyo, Mr. Kumlin.

These loans are, in many ways, part of a closed loop. They are taken up by the public sector of the economy, paid for by the public sector and used by the public sector. It is, therefore, not a question here of unreasonable interference in private enterprise or any other form of distortion of competition-type activities - and this also means that these lending institutions stand politically solid, independent of the political standpoint of the reigning political party. As I said, no voters want to pay more in taxes than is really necessary.

The actual borrowing arrangements themselves, however, vary from country to country, also within the Nordic region, the focus of my speech.

In Denmark, all the local authorities are members of KommuneKredit. This is one of the world’s oldest local government lenders and has been in operation for more than 100 years. KommuneKredit has, therefore, become an integral part of the local government system in Denmark with a 60 per cent market share of local government lending. KommuneKredit has 306 members and they all jointly and severally guarantee for all of its obligations. This gives KommuneKredit an AAA/Aaa rating and thus access to favourable funding.

In Finland Municipality Finance is the body that acts as the municipal funding agency of the local governments and this lending institution’s funding is jointly guaranteed by almost all of Finland’s local authorities via a special fund. This fund was established by way of a dedicated law for the purpose of safeguarding and developing joint municipal funding - to the advantage of local community inhabitants. Municipality Finance has a sustained market share of 50 per cent and is thereby clearly the largest lender to Finnish municipalities.

In Sweden, the company Kommuninvest is the leading lender to the local government sector. This company is jointly owned by 121 municipalities and three county councils and the owners guarantee for all loans jointly and severally. Kommuninvest was founded in 1986 with the aim of providing the local governments with the most favourable funding and, by doing so, reducing their costs. Over the past few years there has been a vast increase in the number of member municipalities and this total is expected to rise even more following the rating upgrade Kommuninvest was granted by Moody´s to Aaa in April this year. The company expects that the majority of the municipalities in Sweden will be members within just a few years. At the moment it covers about 30-to-40 per cent of the population, and a survey has also shown that Kommuninvest members produce better results than those averaged by the total of all Swedish local governments.

In my country, Norway, the law does not allow one municipality to act as guarantor for the financial obligations of another. Joint and several funding arrangements between municipalities such as those found in Denmark, Sweden and Finland can therefore not be used in Norway. Ensuring reasonably-priced loans for the public sector is, however, also perceived in Norway as a matter for the authorities. The Norwegian central government maintains, therefore, 80 per cent ownership in what has been, throughout the years, the leading lender to the public sector, Kommunalbanken. The remainder is owned by the municipality-owned insurance company, KLP. As a consequence of the high state involvement and commitment for Kommunalbanken this institution has been assigned the highest ratings possible for international borrowing and, as such, this means that Kommunalbanken sets a benchmark for all local government lending. Anyone else wishing to enter this considerable market, i.e. lending to Norwegian municipalities, has to operate at the same low levels as Kommunalbanken, in order to even enter, let alone be more competitive. In the same way, local government borrowers who take up loans from other funding sources are also ensured low-cost financing. This is, of course, the whole point of public-owned funding bodies: - as they exploit their good creditworthiness to push down the price of borrowing, this means that all local government borrowers are ensured low-cost loans. The loans we take out with you, here in Japan, are therefore an important element of ensuring the welfare of local government authorities in our Nordic region.

To sum up, I want to highlight some of the features shared by public sector funding agencies that will illustrate their position as solid and reliable borrowers and important social institutions:

• They are all premier providers of funds to local governments
• Their operations are restricted solely to local government lending. Their customer base is hence characterised by very strong credit qualities.
• Their over-riding objective is to guarantee competitively priced funding for the sector. This allows them to be very focused on precisely this task and operate very cost-effectively. They have all considerably lower operating costs than private financial institutions, which means they can also get by with lower profit margins.
• They all have long experience in lending to this particular market and, in a way, they are all part of the local government sector

Having said all this, there is another very important factor I want to point out. All these institutions find themselves, constantly, in a competitive situation. The local governments in all four countries are required to hold competitive bids before accepting offers in order to ensure that the most advantageous is selected.

For us politicians, it is, however comforting to have players in the market whose sole purpose is to keep down and reduce public sector costs. The public owned local government lenders are therefore strategically important for us and, not least, for the tax-payer. This should, at the same time, be a reassuring signal for you as lenders.

Thank you very much for your attention.