, the timing of the implementation and the magnitude of the secondary effects. central bank estimates have indicated that for each 10 % rise in domestic oil prices, overall inflation would at first increase by 0. 2 %, then leading to a further increase of 0. 36 %. taking into account the likelihood of higher oil prices, inflation in 2005 is targeted to be 6 % + 1 %. anticipating pressure on inflation, monetary policy would be directed to achieve the medium term inflation target while maintaining the momentum of growth. to enhance the effectiveness of monetary policy, bank indonesia is planning to use interest rate as its operational target in mid of 2005. ladies and gentlemen, banking industry environment, problems and challenges ahead looking ahead, it is envisaged that sustained macroeconomic stability will pave the way for the banking system to strengthen the bank intermediary function. investment credit, which began to pick up in 2004, is predicted to expand further particularly as infrastructure projects get under way. as i mentioned earlier, the banking system can play a key - financing role in the government plan to accelerate the construction of infrastructure. in this regard, i call on banks to keep a close watch on their funding structure and experience and capacity in project financing. in the consumer sector, credit expansion is predicted to remain strong and will be the first choice for private banks and foreign banks as more banks enter into cooperation with multifinance companies. in the property sector, banks need to exercise greater caution in lending because of the higher risk of default on loans for purchase of apartments and office premises. in the sme and microenterprise sector, lending soared in 2004 and this trend can be expected to continue in the years to come. going forward, the banking industry need to examine and develop innovations to assist the development of smes. these innovation could extend the scope of financing to smes and at the same time reduce the risks of extending credits to the sector. in this connection, it may be noted that since recent time, we have launched a pilot project in cooperation with local governments and askrindo to explore the possibility of creating a guarantee scheme for credits extended to smes. it is our hope that the pilot project could be expanded to more regions. ladies and gentlemen, as i have mentioned, our goal is to develop a banking industry that would be strong and proactive in order to be able to support a sustained growth of our economy. in the years ahead despite the progress we have achieved, we are fully aware that we will

added value for the economy, such as toll roads, ports, telecommunications and transportation, and the rail network is a key factor sustaining our optimism for improvement in sources of economic growth and especially investment. alongside this, non oil - gas exports are predicted to maintain their heartening trend, consistent with the favorable conditions in the international economy, a competitive exchange rate for the rupiah, and expanding access to international trade financing. our estimation is that non oil - gas export will continue to be driven by primary products, such as coal, nickel, and rubber, and some manufacturing sectors such as electronics and the food and beverages industry. 3 / 12 looking ahead, improvement in export performance will be contingent on none other than improvement in export competitiveness. global imbalances that could potentially push china towards revaluation of the yuan will indeed create new opportunities for indonesian exports through substitution. however, given china ’ s high productivity and low labor costs, we will be able to avail this opportunity only if we succeed making improvements in productivity and efficiency. the challenges in penetrating export markets will become significantly harder in 2005 with the elimination of textile export quotas, while so far, almost 60 % of our textile and textile products have been sold to quota countries such as the united states and the european union. with the abolition of quotas, china and india, the world ’ s leading competitors in the textile industry, are predicted to control a 60 % share of the global market. distinguished guests, fellow bankers, ladies and gentlemen iv. performance of the banking industry improved macroeconomic condition and stability and growing momentum in growth has had a positive impact on the banking sector. extension of credits, which is the mainstay of banking activities has gradually increased and it has now reached a significant level. moreover, what is even more gratifying is the increase in investment credits, which during the crisis had been lagging behind. it is reasonable to expect that bank intermediation will further improve in the years ahead. on the more microeconomic side, the banking industries have achieved some significant progress in many fronts. a number of measures and programs for internal consolidation and restructuring which have been implemented since a few years ago have continued to show satisfactory progress. this can been seen from the strengthening in the capital structure of banks and from the reduction of credit risks as well as increase in profitability. the capital adequacy ratio of banks [ car ] has arrived at a more satisfactory level, stabilizing at 20 %. problem