are : how does one define an economic crisis? are we in one? if so, what is the way out? global financial crisis whatever is the definition of crisis, everyone knows that the world is in the middle of the deepest financial crisis since the great depression. the magnitude is amazing. the rescue packages are unbelievable. they are in trillion of dollars and still counting. interestingly, those that study these closely say that these financial crises come in cycles of around 10 or so years. we had the asian crisis in 1998. before that we had the mexican crisis and so forth. this implies that we should be expecting another financial crisis in 2018. but i will leave that to those lucky ones that would be around then to worry about. the cause of this global turmoil is well known and i would not repeat them here. more interestingly, i will try to define how i see it affecting fiji. they affect us in three ways – financial, economic and the exchange rate. i do not expect any significant effect of the crisis on our financial system for the following reasons : • firstly, our commercial banks are some of the highly rated banks in the world. • secondly, commercial banks do not borrow money from overseas. their sources of funds are domestic deposits. • thirdly, they do not lend money overseas. all their lending is local. • fourthly, we have exchange controls which insulate our financial system from the rest of the world. • fifthly, our liquidity is more than adequate. • finally, the effects of the crisis on australia, new zealand, papua new guinea and india are small. four of our commercial banks are branches of foreign banks in these countries. the fifth is a subsidiary of an australian bank. i would therefore like to again reassure you that our financial system remain sound. however, one financial impact would be that those planning to borrow money from abroad may find that the money will not only be hard to find but they would be dearer as well. while we are insulated from the financial effects of the crisis, we will not be so lucky from its economic fallout. the major economic fallouts for us are : • lower demand on our exports as recession begins in many of our major trading partners like the us, europe and japan. we export about 19 percent of our total exports to the us and japan. our exports to the us are mainly water and garments and to japan it is mainly fish. the demand for these commodities may be affected by the recession in

yields have now dropped. oil price remains at around us $ 60 a barrel. the trade deficit continues to widen. it is therefore essential that the reserve bank do all it can to safeguard the external financial position of fiji. since may 2004, we had progressively raised interest rate and tightened liquidity. we had also highlighted back then the need to lift our exports. unfortunately, exports have yet to respond. in fact, with gold production and the sugar reform uncertain, there is still no light in the tunnel. we have tightened monetary policies progressively. some say that we should have moved more aggressively at the start. i do not agree with this view. introducing harsher measures at the beginning would have discouraged growth which was the last thing we need. it would have been an over kill. it makes more sense to tighten progressively and as much as possible allow room for investment and the economy to grow. in december last year, we had to introduce a ceiling on private sector credit. we also reduced the delegated limits given to foreign exchange dealers on selected overseas transactions. recently, we announced changes to borrowing guidelines for non - residents individuals and companies. there have been some concerns on higher interest rates particularly from individual borrowers and investors. we understand these concerns. but again we ask that you appreciate the seriousness of our financial situation. when things are tough, we must safeguard the bigger picture. we cannot be reactionary. if we do not take care of the bigger picture, the smaller picture will suffer even a lot more than what we are facing now. there are lessons from around the world that we should heed. when we compare the interest rates in fiji with countries like australia and new zealand as well as some of our pacific island neighbors it clearly reveals that they are relatively low in fiji. for example the lending rate in new zealand is 12. 25 percent, in papua new guinea 10. 7 percent and samoa 11 percent. this compares with 9. 34 percent in fiji. while these are the weighted average lending rates and the rates will obviously differ for individual borrowers they are the best gauge of the general level of interest rate between countries. this comparison of interest rates throws up two interesting observations. first, all the countries that i have mentioned are performing better than fiji including samoa and papua new guinea. yet their lending rates are higher than us. it implies that there are other factors that are important for investment and growth than interest rates alone. second and perhaps more pertinent, these countries do not face the