By Bengt Dennis, Member of NIB's Board of Directors in 1976 (read more here)
Bengt Dennis at NIB in December 2015. Photo: Marjo Koivumäki
Nordiska Investeringsbanken started its operations in 1976; just 18 months after the Nordic prime ministers had switched on the green light for its foundation. Five governments stood firmly behind the decision to establish the bank, paving the way for a smooth and efficient negotiation process to hammer out all the necessary modalities.
The idea to create a Nordic investment bank surfaced in the 1950s within the framework of establishing a Nordic customs union. However, the customs union never materialised, scuppering the plans for the bank. A second attempt was made in the late 1960s when the governments aimed to form a Nordic Economic Union (Nordek). However, in March 1970, the project collapsed as the Finnish government announced its withdrawal. The reason was its relations with the Soviet Union, although this was never explicitly stated.
Testing the ground for a new attempt
The third attempt to launch the bank was made in late 1974 and early 1975, and proved successful. I remember it as a cautious and gradual process. It was brought to the political decision making level through some small but important steps taken by high officials in government administrations. A breakthrough was achieved on 11 January 1975, when officials met in Copenhagen to prepare for a meeting of the Nordic prime ministers at the end of the month.
From notes taken at the meeting, we know that the Danish representative initiated a discussion about the bank; the prime ministers were to take a decision to launch a new study of the bank. However, there was only a caretaker government in Copenhagen, and the Danish representative had not been able to clear his proposal on the political level. Norway expressed support and Finland abstained. As a representative of Sweden, I spoke guardedly about the implications of launching a new round of studies; it would be interpreted by the public as a political endorsement of setting up the bank.
Prime ministers give the green light
However, the cat was out of the bag; a Nordic investment bank was once again on the governments’ agenda. The prime ministers were to meet in Oslo on 31 January 1975, and the preparations were now in full swing in all the Nordic capitals. The bank was the main topic, and the issue quickly progressed, so when the prime ministers met, they were ready to act decisively. They instructed the Council of Ministers to draft a proposal—as soon as possible—to set up a Nordic investment bank, operating in accordance with regular banking practice.
The prime ministers saw the creation of a Nordic investment bank as a valuable supplement to existing credit institutions in financing investments and exports of Nordic interest. In addition, such a bank might facilitate the coordination of major investment projects, thereby achieving a better utilisation of existing resources.
It is interesting to note that the prime ministers made no reference to the high oil prices and the deteriorating current account balances of the Nordic economies. These factors entered into the debate later.
The prime ministers’ decision was operational; the objective was clear and there was no need for further studies on the pros and cons of a bank. It was a clear call to go ahead.
Negotiations on the modalities
The Council of Ministers set up a working group of high officials to draft an agreement and statutes for the bank. The chairman was Hermod Skånland, a director at Norges Bank. The working group delivered a unanimous report to the ministers as early as May 1975. I remember the group as being disciplined under able chairmanship. Its members worked closely with political decision makers at home.
The working group drew on studies on the bank made for the Nordek negotiations in the 1960s, inspired by the European Investment Bank, established in 1958.
The purpose of the bank had already been decided by the prime ministers and required no further action by the working group; to make loans and to give guarantees in accordance with regular banking practice.
However, should the bank take into account socioeconomic considerations when providing loans and guarantees? Sweden said no, fearing that non-viable investments would be approved due to regional and other socioeconomic preferences. The other four countries said yes. The issue caused lengthy discussions and proved to be the most controversial part of the negotiations. Sweden had to yield and the compromise was a watered down language and accompanying clarifying comments.
The working group agreed that the bank’s capital was to be denominated in SDRs (Special Drawing Rights). Gold was quickly dismissed, and a Nordic currency was also rejected as it might indicate that the bank was more closely linked to a specific Nordic country (read Sweden). A basket of Nordic currencies was discarded as it would be deemed unknown in international capital markets. The US dollar was a strong candidate, but was considered too unstable and politically coloured, causing emotions in certain political circles in Finland. SDR, therefore, was partly chosen by elimination, as Hermod Skånland put it.
The amount of capital—the authorised stock—caused lengthy negotiations in the working group. Finland suggested SDR 1,000 million, Norway and Denmark opted for 400-500 million and Sweden for 300-400 million. The working group agreed on 400 million.
The composition of the bank’s board was an issue that triggered a sensitive question. Should Iceland, with a population of 220,000, have the same voting weight in the board of the bank as the other Nordic countries? The question was new, as Iceland had not been part of the bank in the Nordek framework. The question soon fell off the table, and Iceland got two seats on the board, just as the other members did.
Mixed reaction from stakeholders
The Ministers welcomed the report from the working group and, after some minor editing, sent it to the Nordic Council, the parliamentary body for Nordic cooperation. The Council, in its turn, asked for comments from a great number of stakeholders in the Nordic countries.
The reaction was mixed; in Iceland there was unanimous support for the bank, in Finland and Sweden broad support, and in Denmark and Norway a not insignificant resistance. Business organisations and related interests were mainly opposed or neutral.
The Nordic Council had a heated debate about the bank. Ivar Nørgaard, chairman of the Council of Ministers, highlighted the need for capital import to all the Nordic countries in the coming years. However, his foremost argument for setting up the bank was the incentives it would bring for “thinking and acting in a Nordic way,” as he put it.
The arguments against differed. MPs from Denmark and Norway, on the right side of the political scale, argued that the Council of Ministers had not proven that there was any need for a Nordic investment bank. Existing financial institutions were adequate. In addition, it was doubtful whether a Nordic bank would add to the supply of external capital to the Nordic area. There was also a political dimension to the issue, well spelled out by Ib Stetter, the Danish conservative leader, who saw the bank as a socialist and centralistic endeavour.
On the left, the bank was generally welcomed, but was considered to be given too narrow a mandate. Too much emphasis was on profitability, too little on socioeconomic considerations.
The final vote in the Nordic Council was overwhelmingly in approval; 59 votes in favour, 10 against and 5 abstentions. Conservative MPs from Denmark and Norway voted against and so did the Finnish SKDL representatives (left).
On the whole, the political parties negative or hesitant to setting up the bank had taken the same position when the Nordek plan was on the table. Adding to the political heat and flavour in the deliberations at the Nordic Council was most likely the fact that the bank was seen as a baby of the political left; four of the governments behind the proposal to set up the bank were led by social democrats. For them, it was pure joy to see the bank opposed by the conservatives in Denmark and Norway.
Signing and choice of Helsinki and MD
After the vote in the Nordic Council, the sailing was smooth, and on 4 December 1975, the Council of Ministers signed the agreement for the establishment of the bank. The same day, Helsinki was chosen as headquarter for the bank. The NIB had a birth date and a home.
The choice of Helsinki was controversial as Norway and Sweden favoured their own capitals. No one was in favour of Helsinki; a place not deemed attractive for spoiled finance people, with poor international communications and with Finland’s particular relations with the Soviet Union. After a lot of political haggling behind closed doors, Helsinki was nonetheless chosen. Perhaps once again a choice by elimination; Finland was the only country without a weighty Nordic institution. For the Swedish government, under Prime Minister Olof Palme, the choice of Helsinki had a political dimension; it brought Finland closer to the Nordic community, and a little further away from Moscow.
A great number of practical issues had to be settled before the bank could start its operations, and an organisational committee was set up under the chairmanship of Pentti Uusivirta, a director of Bank of Finland. The Finnish government was helpful and a lot of trivial issues were swiftly sorted out, but one major issue was left to the board of the Bank; selection of the managing director. The organisational committee had 15 applicants for the job after the position had been advertised in major newspapers in the Nordic countries.
The board of the Bank met for the first time on 9 June 1976, and selected Hermod Skånland as chairman. Bert Lindström was chosen as managing director. Bert had held a number of high positions in Swedish industry, inter alia managing director of Göteborgs Bank. At the time of the decision, he held a high position at the UNDP.
Why did the third attempt succeed?
With that decision, the bank was operational—after 25 years of efforts to establish a Nordic investment bank. The politicians looked back and asked themselves: why did we succeed this time? Why did we fail on earlier occasions? Did the oil crisis and its effect on the external balances of the Nordic economies act as a trigger?
A general answer is that the political and economic environment was more favourable than on earlier occasions, and that the governments chose a different political decision making process.
- The most important factor was the firm commitment by all the Nordic governments to establish the bank without further studies.
- All the governments were aware that this third attempt to launch the bank could not be allowed to fail; the political costs would be too high.
- After the prime ministers’ policy decision in January 1975, there were no ifs and whens, but only how to implement the bank as soon as possible.
- The timetable for negotiations and preparations was compressed.
- The bank was easy to sell to the public as it was not part of a complex framework like a customs union or Nordek.
- European integration was not a complicating factor as it had been in the Nordek negotiations.
The situation in the oil market is often seen as the driving force behind the launch of the bank project in 1975. My view is that it was supportive but not driving. The third attempt to launch the bank might very well have happened without any turmoil in the energy sector. The prime ministers did not even refer to the oil markets and the effects on the balance of payments for the Nordic economies when they took the decision to launch the bank. The need for external financing, however, came in handy, when the governments argued the case for setting up the bank.
All in all, the bank met with little opposition in the national parliaments during the ratification process, and any remaining political resistance evaporated rather quickly.
Bert Lindström started his missionary work as MD to establish a friendly working relationship with all the Nordic business organisations, a number of which had been hostile or hesitant about establishing a Nordic investment bank. He succeeded, and Nordiska Investeringsbanken is today an integrated and recognised part of the Nordic Baltic financial community. The controversy surrounding the bank, when it came into being, is history.
When NIB came into being, Bengt Dennis was under-secretary of state at the Ministry of Trade, Stockholm, and participated in all the meetings and negotiations leading up to the establishment of the bank. In addition, Bengt became a member of the board when the bank commenced its operations in 1976.
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