As Chile’s concern for growth has intensified, many ideas about public policies have emerged that could help enhance productivity, with proposals coming from the government, private agents and the National Productivity Commission. In particular, policies have been developed that have permitted to diversify the energy matrix, increase supply reliability and reduce costs. There have been other factors, however, that pose a risk to productivity, including initiatives that may overburden corporate costs, generate new trading costs or reduce savings. Last, but not least, any discussion about productivity must necessarily cover technological development and innovation, which in Chile is limited by low private and public investment in R&D and by discontinuity in long-term policies aiming at economic diversification. 27. A third key challenge for the Chilean economy is to strengthen its institutions and making them more trustworthy. Even though Chile enjoys a substantial advantage in this respect over other emerging countries, trust in public and private institutions has suffered from a series of scandals in recent times and rebuilding such trust would require consistent action over a number of years. Such effort, however, would be well justified since a low-trust economy is likely to suffer from high transaction costs, free-riding behavior and low policy effectiveness. 10  28. The former three elements—investor expectations, potential growth and institutional trust—are certainly not part of the conventional agenda of central banks. However, even a narrow focus on stable and low inflation requires monitoring the key developments affecting the future path of the economy.

The offensive component of a comprehensive Swiss strategy must be an unequivocal commitment from politicians, regulators and financial sector representatives to competition and free markets. Such a commitment will foster innovation which will ensure the long-term viability of Switzerland as a leading global financial center. A commitment to competition includes a firm commitment to an effective regulatory system based on transparency, proportionality, predictability and an uncompromising fight against abuse. Such a regulatory framework does not stand in opposition to a commitment to free markets. To the contrary, it strengthens free markets by upholding the integrity of markets. Regulatory authorities must not loose sight of the primary aim of regulation: to uphold the integrity of markets and not to impede the functioning of markets. Let me conclude my brief formal comments with a specific example of how innovation in the face of global competitive pressures can foster the viability of the Swiss financial center. In recent years, hedge funds have become an important segment of the global asset management industry. Recent figures indicate that total assets invested in hedge funds are approaching the USD 1’000 billion mark. In comparison, the total size of the open-end mutual funds industry in the United States is USD 7’500 billion. According to industry figures, the annual growth rate of the hedge fund industry appears to have accelerated to a level in excess of 15% in recent years. These figures suggest that investors increasingly look for largely unconstrained investment activities with a focus on absolute return.