Jayasundera in late 2006 and early 2007, to jointly decide on this all important priority. Based on such discussions, we decided that we would take the necessary initiatives to improve investor confidence so as to ensure the continuous investment via the Government and the local private sector, whilst specifically targeting new foreign investment. Accordingly, many initiatives were implemented, and over a comparatively short period of time, such efforts started showing results, and the country started to record a steady inflow of foreign investment through major government projects, investments in Treasury Bills and Bonds, and investments in international sovereign bonds. This regular flow of investments enabled the economy to record sustained high growth, even whilst the conflict was raging. As a consequence, Sri Lanka recorded an average growth of 6.7% through 2006 to 2012, which was one of the most difficult periods in our history. In fact, the growth levels of 2006: 7.7%, 2007: 6.8%, 2008: 6%, 2009: 3.5%, 2010: 8%, 2011: 8.2%, and 2012: 6.4%, were the highest ever in any seven year period in our history! That meant that our joint strategy had paid off, with sustained growth being recorded. With such sustained growth and with the pipeline of continuous investments, the economy was gradually transformed to a more stable level, and with that, all other key factors in the vicious cycle also began to change for the better. Initially, certain critics did not believe that we would be able to escape from the vicious cycle that had trapped the country for decades.

European governments have begun to take steps towards fiscal consolidation, and must convince markets that these steps are credible. Unfortunately, the private sector is not ready to take over the slack in public demand. Private sector debt-to-GDP ratios exceed 250% in the G3 economies. In the United States, where the household debt-to-disposable income ratio reached an unprecedented 135% in 2008, deleveraging is already underway with the recovery in private consumption well below historical rebounds. While Eurozone households are less leveraged than US households, disposable income is likely to grow more slowly in the Eurozone and hence be a bigger drag on consumption. A third source of deleveraging is the banking system. Banks in the Eurozone have to strengthen their capital adequacy position to meet new regulatory requirements as well as buffer against potential losses on their sovereign debt holdings. With uncertain prospects for raising fresh capital in equity markets and facing funding shortages in wholesale markets, some of them are looking to scale back their risk-weighted assets. The resultant crunch in credit could further exacerbate the slowdown in the economy. With governments, households, and banks all having to deleverage at the same time, we are looking at a prolonged period of sub-par growth in the advanced economies. In many advanced countries, debt-to-GDP ratios are not expected to stabilise until 2015 to 2020. BIS central bankers’ speeches  1  Asia: neither decoupled nor derailed What does deleveraging in the G3 mean for Asia? Asia is not immune to developments in America or Europe.