and productivity. the second purpose of the program is to strengthen our international liquidity position. this means having the tools to deal with external turbulences. all the available evidence shows that a strong international reserves position helps to protect the economy of financial shocks coming from abroad, which in turn reduces the risk premiums of the economy. in our present bis central bankers ’ speeches conjuncture, the level of reserves we are pursuing with the program sets us on a very good foot in case of a major global disruption. holding reserves is tantamount to having an insurance policy. during the good times, it bears a cost associated with the differential between the yield of foreign liquid and safe assets, and the cost of the domestic liabilities that finance them. however, during episodes of global recession and financial stress, the available reserves permit to cushion the impact of the shock on the cost of the country ’ s external financing and provide increased flexibility to economic policies to mitigate the effects on the domestic economy. fluctuations in the international value of the peso cause significant volatility of our accounting results, as we have seen in recent years. in good times, the peso tends to appreciate, which generates accounting losses as the net worth is measured in pesos due to the effect of reserves revaluation. but during times of global slowdown and increased financial stress, the opposite occurs, with a peso depreciation and greater net worth in the books ( figure 5 ). as is typical of our yearly account to the senate, in this report we present the evolution of the bank ’ s balance sheet and its prospects for the next year. in the baseline scenario, if the gap between external and internal interest rates remains, we expect that the profitability of our assets will continue to fall short of the cost of our liabilities. although we foresee no further deterioration in the bank ’ s equity, it will continue to be negative. the recent increase in international reserves has a negative effect on these results, but it has to its favor the intangible benefit of a strengthened liquidity position. however, as we said when we announced the intervention program, the level of international reserves we will reach by the end of the year is close to the limits that can be absorbed by our equity position. still, this net worth – which originates mainly in the costly financial crisis of the 1980s – has not been an obstacle for the bank to conduct its monetary policy with independence and flexibility. to sum up, we face

of trust in the public finance management in some eurozone members and in the u. s., which prompted a new episode of financial stress in early august, and still another one a few days ago. the world economy is going through an extremely complex situation. certainly, chile has tools to soften the impact of adverse external conditions. but as we have said time and again in the past, we are not and cannot be immune to what happens outside our borders. we can mitigate its effects, but we cannot avoid them altogether. therefore, the external situation is likely to have repercussions on our economy and, consequently, on our monetary policy conduct. as i just mentioned, at the august meeting the board withdrew the tightening bias on the mpr it had communicated in previous minutes, which has reflected in the behavior of market interest rates. the baseline scenario i will be presenting in a moment assumes that the world economy will grow less than we anticipated just three months ago. first - half output figures were pretty bis central bankers ’ speeches weak in the developed world. recent financial turmoil could aggravate in the second half of the year. developed economies ’ households continue to tighten their belts in order to reduce their massive debts, but, in turn, this deleveraging process is restraining growth in domestic demand and employment, prolonging balance sheet vulnerability. in addition, the fiscal position of these economies has deteriorated after several years of fiscal deficit. remedying this situation will call for substantial adjustments in their public finances. some of them could be done in the medium term, for instance in the united states, while others need immediate action, as is the case in some emerging european economies. in moments of weak private demand, these adjustments could postpone the much expected recovery even further. add to this that monetary policy interest rates are at their all - time lows, with which the capacity of central banks to increase the stimulus is also limited. in short, the tools traditionally used to boost growth have little room for maneuver in the developed world. another source of risks that is being increasingly debated is the possibility of developed economies, especially the u. s., enduring a long time of slow growth. excessive private debts, particularly of households, and public debt, combined with weak labor markets, are determinants of this assessment. this could shape a similar situation to that of japan after the bursting of its housing bubble in the late 1980s, which gave way to a period of stagnation that has