respond flexibly in order, for instance, to soothe financial market instability that might arise in the course of corporate and financial sector restructuring. as a result of the authority ’ s focus on stability, at the end of september, reserve money reached 22 trillion won, which was somewhat below the imf ’ s indicative limit. and the growth rate of m3 has slowed smoothly from 15. 9 per cent in last december to 14. 0 per cent this august. as financial markets have regained stability, the incidence of corporate failures has declined gradually. from this march onwards, the per centage of bills and checks dishonored, which had shot up to 1. 49 per cent toward the end of last year, has constantly receded. recently it has been running at around the 0. 3 per cent level. the monthly numbers for corporate insolvencies have shown a sharp decrease, from 151 this january to 42 this september. having said this, i must point out that the credit crunch has not yet eased. financial institutions are very prudent in lending to firms, mainly because of the heightened credit risk of enterprises in the course of structural adjustment. their need to maintain acceptable bis capital adequacy ratios is also, in part, a factor. accordingly, most small and medium enterprises, which mainly rely on indirect financing from banks, have been going through serious financial difficulties. iii - monetary policy response expected economic environment before i explain the thrust of monetary policy in the future, let me first sketch out the expected economic environment. the recession will be prolonged into the fourth quarter due to the ongoing slackness of private consumption and investment demand, and the substantial slowing of export growth. although the current account is likely to continue to run a surplus during the fourth quarter, its scale will be somewhat reduced. meanwhile, consumer prices seem likely to continue the stable trend of movements they have maintained since this march. in the foreign exchange market, the favorable supply - demand conjuncture will be sustained thanks to the continuing current account surplus and inflows of foreign capital both from inward foreign direct investment and the proceeds of overseas disposal of corporate assets. consequently, the foreign exchange rate should continue to move within a stable range for the time being. however, there are potential factors making for exchange rate instability including the unrest in emerging markets, such as russia and latin american countries. the overall demand for funds in korean financial markets is unlikely to be large given the deep - seated economic recession. nevertheless the steady worsening of

rates. looking ahead, in carrying out monetary policy, we will take into overall consideration the influences that risk factors at home and abroad exercise on business activity, prices and the financial market situation. we will conduct monetary policy in such a way as to help the economy maintain price stability, while sustaining sound growth under the accommodative policy stance. strengthening the economic fabric strengthening the economic fabric constitutes the second policy challenge. it is absolutely vital to strengthen the basis for domestic demand so that the korean economy can attain a well - balanced growth path without being excessively affected by changes in the external environment. toward this end, the role of households as consumers and that of small and medium - sized enterprises ( smes ) as the main source of job - creation are very important for balanced economic growth. but the current situation of both households and smes is only fragile. for households there is not enough capacity for spending because of the weight of their accumulated debts and lower saving rates. on the other hand, for smes, a large proportion are found wanting in terms of both efficiency and profitability. in particular, over the 30 % of smes registered an interest coverage ratio of below 100 % last year, which means that even their interest payments were not covered by their operating income. i think that monetary policy has some role to play in strengthening the economic fabric. as the central bank, we have a responsibility not to hit weak sectors such as households and smes too hard by raising interest rates. on the other end, we must also be on our guard against households and smes having an incentive to delay strengthening their fabric due to excessive dependence on low interest rates environment. structural reform, rather than being seen as just a negative concept involving the laying off of workers and the elimination of marginal firms, should be taken as a development concept : by shifting resources to sectors with high productivity it serves to heighten firms ’ competitiveness and bring a renewed expansion of employment and economic growth. global financial reform : themes and prospects as the last of the policy challenges i will address today, i should like to talk about the global financial reform presently underway. the current discussion worldwide concerning financial sector reform was precipitated by the latest global financial crisis. in wake of the present financial crisis, a variety of measures for financial reform have been discussed to prevent a future financial crisis and to bolster the stability of the financial system. while the financial stability board ( fsb ), the basel committee on bank supervision ( bc