Norway unveiled on Sunday an 100 billion kroner (US$14.7 billion) lending package to help companies and individuals cope with economic crisis, but set strict salary limits for banks taking up cash injections.
The center-left government proposed the creation of two funds, each worth 50 billion kroner (US$7.35 billion).
The first is aimed at increasing banks’ core capital and the second is aimed at providing credit directly to companies struggling to obtain funds on the open market.
“We are doing this to boost employment, strengthen the Norwegian economy and help create jobs,” Norwegian Prime Minister Jens Stoltenberg told reporters.
Norway is the world’s fifth biggest exporter of oil and third biggest gas exporter, but despite its wealth from those revenues it still risks entering a recession.
The government has forecast zero growth for this year, though many analysts say the country is already in recession.
As a result of the slowing economy, unemployment jumped 0.6 points last month to 2.6 percent. While it is still one of the lowest levels in Europe, the jobless rate is expected to increase rapidly.
The package announced on Sunday comes with a set of strict conditions.
Any bank taking up the state on its offer must agree to freeze the wages and bonuses of executives earning an annual salary of more than 1.5 million kroner for this year and next year, as well as a restrictive dividend policy.
As in many other countries, debate has raged lately in Norway over bankers’ salaries and bonuses.
“We are putting the community’s resources at their disposal and are therefore making demands that they limit the salaries and bonuses of top management,” Finance Minister Kristin Halvorsen said. “The money must be used to increase lending, not salaries.”
Bankers earning less than 1.5 million kroner per year can receive bonuses of up to 20 percent of their salary, as long as the total sum does not exceed the ceiling of 1.5 million kroner.
The heads of Norway’s main financial institutions have already agreed to freeze their salaries this year amid pressure from public opinion.
The package unveiled on Sunday comes on top of a 20 billion kroner economic stimulus package announced last month, and a 350 billion kroner bank rescue and loan guarantee package launched in October.
The latter package helped strengthen the banks and they are now no longer in danger of collapse, but they have adopted a more restrictive lending policy in recent months, despite significant interest rate cuts, and that has choked the rest of the economy.
Since mid-October, the central bank has cut its key interest rate from 5.75 percent to 2.5 percent.
A 50 billion kroner core capital boost corresponds to an additional lending capacity of 400 billion kroner to 500 billion kroner, the government said.
The second fund will buy bonds from companies, enabling firms to turn to the state if they are unable to obtain bank financing.
The new package must still be approved by parliament, but that is seen as a formality as the center-left coalition holds a majority of seats.
The initiative was welcomed by at least one opposition party and Norway’s employers’ organization.
“It goes in the right direction,” Conservative Party leader Erna Solberg said.