framework, we issued regulations that limited credit to the public sector and currency mismatches, which were two key sins of the past. as a consequence, a de - dollarized financial system currently relies on a lender of last resort in pesos and its exposure to the public sector diminished to 31 % of the assets, after reaching levels of more than double during the crisis. in other words, strict limits on exposure to the public sector have been set up in order to leave behind the “ crowding out ” of previous decades, when loans were mainly heading for the government and welcome the “ crowding in ”, providing the right incentives to finance private projects. this development is entirely consistent with the goal of minimizing the “ fiscal dominance ” that has historically characterized the region. but, central banks in the region have also progressed towards ensuring financial stability through deeper and better regulated and supervised financial systems. in argentina, the central bank achieved sustained progress towards the definite resolution of pending issues which have held the financial system at risk, by means of a proactive regulatory and supervision policy. these developments include adequate regulatory incentives aimed at strengthening risk management, greater transparency and the safeguarding of consumers ’ rights, as well as the recovery of solvency in a framework that encourages medium - and long - term lending. in this context, financial institutions managed to obtain positive earnings in 2005 for the first time since the 2001 - 2002 crisis. both public and private financial institutions also received capital contributions for more than 1. 2 billion pesos in the second half of 2005 for a total of 12. 5 billion pesos over the 2002 - 2005 period. in a process that is expected to continue, foreign banks accounted for more than two thirds of total capitalizations, which is a clear indicator of the renewed confidence of the international community on the domestic financial system. this favorable development, along with the ongoing dynamics of banking capitalization, is consolidating the soundness of the financial system : argentina today has a much smaller, better matched, deeper and less riskier financial system than in the past. therefore, a combination of fiscal solvency, external sustainability, a sound financial system, and a prudent monetary policy ensures that recent price behavior by no means poses a threat of spiralizing inflation, because – unlike prior episodes – there is no uncontrolled expansion of domestic credit, whether through the financing of public sector deficits or by unrestricted assistance to the financial system. inflation processes in argentina have in

for the first time after the crisis, money supply is growing below the nominal gdp, reflecting the prudential bias of our approach. • second, a managed floating exchange rate regime that enables us to weather financial stress situations – that is, a regime that prevents excessive volatility and provides predictability. • third, countercyclical insurance policies to be prepared against shocks. these include the accumulation and active management of foreign reserves and a sound and well - matched financial system that buffers turmoil, instead of spreading it. in this regard, the past few months have provided a valuable opportunity to stress - test the current system. and, in this case, the flexibility of our monetary and financial system has proved to be adequate. the central bank took several steps to mitigate the adverse effects that could be anticipated, including buy - backs of our securities in auctions and the secondary market ; and the optimization of auctions, according to prevailing liquidity conditions. in this sense, the current managed floating exchange rate regime has been a key factor to our strategy. on the one hand, it does not provide a “ foreign exchange insurance ” that favors the inflow of hot money. on the other, it aims to prevent short - term volatility from affecting spending, savings and investment decisions. we do not want to prevent variables from converging to their long - term values, but we would rather avoid excessive volatility as a source of unnecessary disturbances in economic decisions. from the outset of this international crisis, the nominal peso - dollar exchange rate has changed by around 2. 5 percent. to put it in perspective, in the same period of time, the brazilian real changed by 10 percent ; the colombian peso, by 13 percent ; the russian ruble, by 2 percent ; the thai baht, by 12 percent ; and the korean won, by 6 percent. there is no point in mentioning other examples. clearly, the argentine exchange market has recently behaved in a normal way from an international viewpoint. under a free float, the exchange rate would have reached much higher levels, running serious risks of going back to the devaluation - inflation dynamics that has been so recurrent throughout argentine economic history. this foreign exchange market evolution was due to the central bank's prudential foreign reserve accumulation policy pursued during the favorable phase of the international financial cycle. by definition, countercyclical policies should start in the cyclical upturn, and thinking that such a favorable phase