of a sector that it intends to finance. this revitalization process gained added validity when we all agreed that the sme and microenterprise sector would become the future of our future expansion. financing in this sector literally demands an in - depth understanding for the potential and productivity of the sector to be developed to the full extent. third, take steps to strengthen the financial system infrastructure a sound, efficient banking system requires adequate infrastructure. in this regard, it is essential to have an adequate financial safety net ( fsn ). to move towards the establishment of an adequate fsn, bank indonesia and the government have jointly completed the formulation of the policy framework for the fsn that also encompasses the soon - to - be - established deposit insurance agency ( lps ). with the establishment of this agency, the responsibilities for management of the guarantee program and resolution of insolvent problem banks will be defined more clearly. to provide assurance of the maintenance of financial system stability in regard to the banking system, implementation of the lps guarantee will be phased in so that deposit funds will ultimately be guaranteed only to a maximum of rp 100 million. in addition, bank indonesia has worked untiringly to promote the application of good corporate governance ( gcg ) at all levels of bank management. bank indonesia is currently upgrading the provisions relevant to gcg in the banking system and the new gcg regulations pertaining to the functions of the board of commissioners and board of directors should be ready in the near future. at some point in the future, bank indonesia will also consider an intensive study of possibilities for changes to the regulations governing ownership of bank shares. 9 / 12 because the implementation of gcg requires very strong cooperation and commitment from all parties involved in the banking industry, bank indonesia will facilitate the establishment of a banking gcg forum in the near future in cooperation with banking associations and the national committee for gcg. this forum is expected to discuss and set out a regular program for the issues related to governance in the banking system. in this context, i would like to emphasize once again that the responsibility for implementing gcg and management of operational risk does not rest solely with the compliance director. all line management and members of the board of commissioners must play their part in strengthening and upholding gcg. in the coming year we must also take stronger action against irresponsible parties who have besmirched our image. prevention of acts of bad faith

. below the threshold, workers and producers do not raise their wage and price demands very often because the impact of inflation is not too visible. by contrast, they respond very quickly above the threshold because they are worried that high inflation will rapidly erode their living akerlof, g. a., dickens, w. t. and perry, g. l. ( 2000 ), “ the near - rational wage and price setting and the long run phillips curve ”, brookings paper of economic activity, 1 : 1 – 60. palley, t. i. ( 2003 ), “ the backward bending phillips curve and the minimum unemployment rate of inflation ( muri ) : wage adjustment with opportunistic firms ”, the manchester school of economic and social studies, 71 ( 1 ) : 35 – 50. palley t. i. ( 2008 ), “ the backward bending phillips curves : a simple model ”, working paper no. 168, political economy research institute, university of massachusetts, amerhest bis central bankers ’ speeches standards or profitability. in short, when inflation is high, the behaviour of workers and producers increases the likelihood that it will increase further. putting the two together, one could argue that keeping inflation below the threshold at all times serves both the short term objective of macroeconomic stability, or minimizing the deviation of the growth rate from its sustainable trend, and the long - term objective of raising the trend by encouraging investment activity. do we know what the threshold is for the indian economy? the report on currency and finance, an annual research publication of the reserve bank of india, examined this question in its 2000 – 01 issue and came to the conclusion that the “ growth - maximizing rate of inflation ” for the indian economy was 5 per cent. 4 of course, in a rapidly evolving environment, this number could well be different now ; the average rate of inflation during the pre - crisis period high growth episode was slightly below this number. but, even if it is different, it is unlikely to be significantly higher. the current rate of inflation does raise concerns about the risks of spiralling, as high inflation becomes increasingly entrenched into the wage and price setting behaviour of workers and producers. in turn, if this were to adversely impact investment activity, the growth momentum would inevitably slow down. in essence, the trade - off is more between inflation now and growth in the future. before i conclude, i would like to briefly address the