Added to by large-scale imports for investment in the aluminium and hydropower sector, this development led to a significant current account deficit, the largest on record. One effect of the Central Bank’s tight monetary stance was an appreciation of the króna. From mid-2004 to the end of 2005, the króna strengthened by 15% and the real effective exchange rate reached a record value. Against this background, and with such a wide current account deficit, the Central Bank had repeatedly described the strength of the króna as unsustainable. It would have to depreciate eventually, but exactly when was uncertain. However, it was hoped that this would not happen until the domestic economy had begun to cool. Various factors which you are familiar with caused the króna to depreciate sooner and faster than was desirable. From mid-February to the second half of April it weakened by one-fifth. The trend then unwound and the króna regained some of its former value. The foreign exchange market calmed down and expectations have clearly taken a change for the better. However, further tremors cannot be ruled out, among other things due to changes in the value of other currencies, as recent examples have shown. The króna is presently 15% weaker than in the closing weeks of last year. Of course this is a fairly sharp change over a short time. But the fact remains that the exchange rate index is currently hovering around the average for the period 2001-2005.

Ladies and Gentlemen: The profound changes in the global economic and financial environment, has created a greater urgency for the Southeast Asian markets to achieve a greater degree of financial integration. This is so as to provide the scale and increased efficiency of the financial intermediation process. As the ASEAN economies move towards the formation of an economic-bloc by 2015, the pace of financial integration will need to accelerate, to better facilitate achieving this goal. The wide spread distribution of innovative hybrid financial products and regional cross selling activities will however increase the multi-dimensional dynamics of the markets and the risks across national borders. There will be increased complexity in identifying the risks which will in turn complicate the process of risk management. The increasingly integrated and liberalised markets will also expose our porous economies to greater external influences and to contagion risks. A higher level of vigilance is thus required to allow for pre-emptive policy measures in a timely manner. This will require adequate levels of cooperation among the regional regulators in addressing potentially contagion systemic risks and ensuring regional financial stability. The deepening of co-operation between the Nusantara's monetary and regulatory authorities is thus a key factor in the development of a robust integrated platform. Enhanced cooperation will promote greater resilience and reduce regional vulnerability to external developments. There are now various regional mechanisms in place to undertake regional surveillance, to facilitate the exchange of information, to enter into greater engagement on issues affecting the region and in developing regional financial markets.