has been happening so far, is that the financial industry must always be closely linked with the real sector activities, the fundamental economic. the indonesian economy and financial industry during turmoil as in some emerging economies, indonesia essentially has quite a strong fundamental, and much better compare to what was during 1997 / 98 asian crisis. however, as i previously mentioned the crises that caused global economic growth slump and the international trade volume squeeze, as well as a high degree of uncertainty that surrounded the international financial market has also weakened the domestic economic activities. yet, the economy is still able to expand. the indonesia ’ s economy grew at 6. 1 % in 2008. the indonesian economic growth reached the bottom in quarter ii 2009 at 4 %, a 0. 4 % drop from previous quarter of 4. 4 %. we expect that the indonesian economy will grow at 4. 0 to 4. 5 % in 2009, higher than previously estimated. the domestic economic growth is mainly supported by domestic demand which contribute more than 60 % of gdp and natural resources export. in 2010, we expect the economy will grow at 5 % to 5. 5 %. along with declining domestic economic activities in 2009, inflation rate has also descended. as of september 2009, the year to date inflation rate is 2. 28 %. inflation is expected back to its normal pattern in 2010 at 5 + / - 1 % as economic activities start accelerating. in addition, the domestic banking industry is also in relatively sound condition and well capitalized. the average capital adequacy ratio ( car ) is around 17 % and the gross nonperforming loan ( npl ) ratio is below 5 %. those facts show that the indonesian economy is relatively sheltered from the biggest turbulence since the world ’ s war ii. however, foreign investors tend to undermine those facts, and perceived risks exaggeratedly on the indonesian economic fundamental. despite that, it was true that the crisis caused panic and lost of confidence, in particular post lehman brothers collapsed on 15 september 2008, which led to the phenomenon of holding cash alike and safe haven assets, it has put significant pressure on indonesian economy and increasing volatility in the domestic financial market. risk perception on the indonesian financial market has been so high as shown in the hike of cds spread, that reach a peak of around 1000 bps in october 2008, the highest spread amongst countries within the region. further, the exodus from emerging market financial assets, led the government bond ( sun ) price index ( idma index )

auction mechanism. the auction mechanism is also aimed at averting, the negative “ stigma ” from banks ’ perspective in dealing with the central bank to obtain temporary liquidity in fair market price. all those measures, which in essence is similar to those taken by major authorities globally, even though differ in scale and instrument variety, has so far help the indonesian economy and financial sector, in passing by the most challenging episode during the crisis. along with improvement in global economy and financial market, those indicators have move back to their more normal level. the spread of jibor 1 month over bi rate, for instance, has decline significantly at around 15 bps. yield of sun has declined to 10 % - 11 % for the 10 years sun and longer maturity. the cds spread has also dropped to below crisis level of below 200 bps, close to the pre crisis level. meanwhile, the idr exchange rate has also recovered and hover around 9, 400 recently, despite still at higher volatility compare to the pre crisis period. however, the policy transmission into the real sector has been slowing down as uncertainties remain. the banks ’ lending, needed to support the economic growth, is still quite slow. the year to date banks ’ lending growth up to september 2009 is still below 5 %. in addition, the lending rate also does not decline as expected. despite that, this is sensible, in face with the declining economic slowdown and uncertainty, but is also closely linked with the way banking implement risk management. for some extent, this reflects, that they tend to avoid risk rather than, properly identifying and manage risk accordingly. we also observe that the way financial investors globally, do not show any change in their behavior, as mainly reflected in the high volatility of stock market. they tend to over react on every single news and data announcement, which indicates their eagerness, to try to recover their lost during the crisis, and nervousness of potential lost. this behavior, is potentially threatening the sustaining economic recovery. the risks and challenge ahead there are now more signs of global economic recovery and improvement in the prospect of financial market. however it is still too early to conclude, that the recovery path will be smooth and sustainable, since as i previously mention, the lag of policy transmission tend to lengthen and uncertainty remains. in addition, issues concerning the implication of extraordinary measures, that has been taken by major authorities, such as the widening of fiscal deficit in major countries, and the “