it is crucial to understand this link between structural features and the dynamism of the economy, on the one hand, and the optimal monetary policy response to a downturn, on the other hand. here in the euro area we did not benefit from an economic structure and dynamism favourable to strong productivity enhancements, and we face labour and product market rigidities that stand in the way of a quick downward adjustment of price and wage cost inflation in response to an economic slowdown. this is most evident from the fact that during the three - year period from mid - 2001 to mid - 2004 unit labour costs in the euro area increased on average by around 2 % per annum, while they slightly decreased in the us over the same period ( after having increased substantially in 2000 ). i regard this as an important message, not least for those who argue that we should have lowered rates more aggressively, and almost at the same time, defend an extensive interpretation of the socalled european social model with all its implied rigidities and inflexibilities that make such a response so difficult, if not impossible. given the dynamics of shocks and the structure of the euro area economy, the policy easing that the ecb started in 2001 and the low policy rates that prevailed over recent years represented a rather accommodative policy stance over an extended period of time. policy rates over most of the last years were closer to the lower end of the range prescribed by the majority of policy benchmarks which one can estimate on the basis of the past policy conduct of the ecb and our legacy central banks. ( this is particularly true if one takes into account the build - up of excess liquidity over recent years. ) with the benefit of hindsight, we can now say that our stance was key in preventing a recession and ultimately facilitated the recovery. let me sum up. it is of course too early to draw firm conclusions on the conduct of monetary policy over the more than seven years since the ecb was set up. nevertheless, the following points can be made. first, the lower volatility of the policy rate in the euro area than in the us seems to mainly emerge from differences in the underlying economic structure and developments rather than fundamentally dissimilar monetary policy objectives and strategies. as you know, we would very much welcome structural reforms which enhance competition and flexibility in goods and labour markets. such reforms would not only support productivity and employment, they would normally also make it possible for the ecb

in 2006 that foreign funding contributed up to approximately 40 % of that year ’ s growth level. these foreign sources comprise of foreign direct investment ( fdi ), portfolio investments, and foreign corporate loans. therefore, it is apparent that the steps we must take in improving investment climate becomes the keys of success in achieving the level of growth we strive for. distinguished guests, ladies and gentlemen : the dynamics of the macro economy in its path to reach a new equilibrium will in itself impact developments in the banking industry. an example could be seen from the credit market. the increase in interest, the increasing burden carried by the real sector, and lowered purchasing power result to predictions of a lower credit demand. from the supply side, the increase of the real sector ’ s credit risk will cause the banking industry to be increasingly careful in considering the potential debtor ’ s repayment capacity. from the various discussion forums we have held, we are under the tentative impression and conclusion that the banking industry percieves that there are many risks involved in efforts to rejuvenate the real sector. the banking industry holds doubts regading the real sector. some of these doubts may have come from, among others, the economy ’ s level of competitiveness and and that of several commodities which nearly reached nadir levels, the limited information and the banking industry ’ s limited understanding towards the complexities of particular industries, and unclarity in development direction and development priorities chosen in certain industries in a particular period. all of this exist even though it is understood that clear information regarding to the above issues become a critical navigational tool for banks in allocating their funding. the opposite occurs in the fund market. the amount of third party funds collected by the banking sector has been continuously increasing. the community in general believes that the banking industry is an institution that is able to provide ease and benefits towards their business activities. it is our prediction that the third party fund growth rate continue towards levels similar to those of in 2005. despite the positive outlook, deposit growth in 2006 demands our deftness and care in management considering risk factors that are increasingly sensitive. as we understand, starting from 2006, guarantee coverage of the deposit insurance corporation will gradually decrease from rp 5 billion on march 2006 to become rp 100 million in march 2007. taking this into regard, the real competition in deposit taking should be in areas of management and service quality, and banks soundness. the ultimate effect of the developments i have elaborated are that profit and capital