rundheersing bheenick : review of the year gone by and reflections on the present and future outlook statement by mr rundheersing bheenick, governor of the bank of mauritius, port louis, 7 october 2011. * * * as i settled down to write this, it struck me that what i had described as “ stressful and extraordinary times ” in my previous statement seem set to last for quite some time. the global economy has become even more unpredictable and much of the traditional thinking is being put to the test as longheld paradigms are thrown overboard. hopes of a quick and easy recovery faded away rapidly. new threats have emerged. persistent eurozone sovereign debt concerns have thrown markets into turmoil, driving bond - yields of vulnerable economies to record highs. the situation has been no less alarming on the other side of the atlantic where standard & poor ’ s downgraded the credit rating of the us, a debt default was averted in extremis, and financial markets plunged. business sentiment and consumer confidence have nosedived as businesses and households postpone spending and consumption. all these, together with jittery markets hungry for good news that, when they come, prove all - too - fleeting, make this super - cycle one of the most volatile ever witnessed. in most advanced economies, the global recession had a negative impact on budgetary conditions, with many governments gradually adopting austerity measures. under the pressure of market sentiment, fiscal consolidation and structural adjustments have become the order of the day. emerging economies could not long survive unscathed. so it has been for mauritius. as we engaged to deal with these snowballing challenges, the bank remained alert and nimble, taking decisive and timely action to protect the interest of the mauritian economy. as in years past, let me recapture the highlights of the year gone by and briefly comment on the present and future outlook. the financial health of our banks was at the top of our agenda. they remained resilient and profitable, with aggregate pre - tax profits standing at rs13. 3 billion in 2010 / 11, as against rs13. 9 billion in the preceding year. a sure sign of the fine health of our banking sector was the entry of additional operators on the banking scene, with ( i ) the conversion of a non - bank deposit taking institution into a full - fledged bank in june 2010 and ( ii ) the first islamic bank starting operations in march 2011. the monetary policy committee

attracted hateful criticisms. the tendency of some groups, like a special - forces warrior, to fight every new regulation had reached a vexing point. despite resistance from pressure groups to resist, the bank had proceeded with its regulatory reforms and soldiered on effectively. it took quite some time for players in our economic system to fully realise that banking is a different kind of business and financial systems are not and will never be totally free market systems. over the years much has been achieved in terms of the health improvement of deposit - taking institutions in the country. effective banking supervision is an evolving discipline. free flows of capital in a globalised world marked by all kinds of disruptions, unleashed by economic and non - economic forces, the quests for high returns by investors and quick profits by speculators, fraudulent practices, excessive risk - taking and violent economic cycles, amongst others, have made regulation and supervision of financial institutions an unprecedentedly challenging task. the regulator ’ s job has become increasingly complex and demanding in terms of skills and clairvoyance, more so after the august 2007 international financial crisis. as regulators, we need to constantly bear in mind that any capitalist economy inevitably progresses from conservative finance to reckless speculation. the economy has financing regimes under which it is stable and financing regimes under which it is unstable. in other bis central bankers ’ speeches words, over a period of prosperity, a capitalist economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. we also need to bear in mind that it ’ s in the personal interests of the ceos of banks to show profits, often by any means, for the benefit of their shareholders. and it is simply not true that the pursuit of their individual interests will lead to financial stability. what ’ s good for an individual ceo may not be necessarily good for the banking industry as a whole. the self - interests of bankers and levered investors do occasionally lead to economic contractions and a loss of human welfare. i need not emphasise to a crowd like this one that financial stability is an indispensable precondition for economic growth and human welfare. there is every reason for regulatory authorities to act proactively in order to prevent financial crises from developing in the first place. with the recent experience that the bank of mauritius had with regard to an ailing bank, i cling to the view that regulators must broaden their scope and take initiatives to prevent the development of practices that favour financial