african financial sector. the bank has also made satisfactory progress with its own business continuity planning to ensure that the head office and branch activities would continue functioning in the event of any disruption. the attacks of 11 september 2001 have also contributed to increased international economic uncertainty, which has in turn resulted in lower economic growth in developed economies. the monetary policy focus in developed economies shifted from containing inflation to avoiding unnecessarily and undesirably low inflation. this has brought new terminology to the vocabulary of central bankers and economists. 3. domestic developments although 1998 is a mere five years ago, so much has changed in south africa in the interim that a brief reflection on that year is called for. by 1998, our democracy was only four years old and south africa was still re - integrating into the international arena. however, it was already obvious then that the country ’ s sound macro - economic policies were delivering the desired results. after a period of double - digit inflation covering the largest part of the 1970s and 1980s, inflation was in single - digits in 1995. it has averaged around 7, 8 per cent per annum over the last decade. the national government was also achieving success with its sound approach to fiscal policy. while the deficit before borrowing reached a high turning point of 7, 3 per cent of the gross domestic product ( gdp ) in the 1992 / 93 fiscal year, it equaled 3, 7 per cent of gdp for the 1997 / 98 fiscal year and declined further to 2, 8 per cent of gdp in the 1998 / 99 fiscal year. owing to the reduction in its deficit before borrowing, it was clear by 1998 that the national government had managed to slow down the growth in government debt to sustainable levels. not only had government proven by 1998 that it could avoid a debt trap, but it had also successfully reprioritised expenditure and consolidated the fiscus. the introduction on 9 march 1998 of the repurchase system of accommodation and liquidity provision to banks marked a significant change in the country ’ s accommodation system with the repo rate replacing the previous bank rate. in the five years since its introduction, changes have been made to the repo system to improve the transmission mechanism of monetary policy. the most important of these changes was introduced with effect from 5 september 2001, the date from which the sarb introduced a fixed repo rate to eliminate any ambiguity from monetary policy signals, which might have arisen under the previous flexible repurchase rate system. in 1998 we also experienced the

downside of international economic and financial integration : financial turbulence in a number of south - east asian economies. although south africa could not escape at the time the negative consequences of such financial turmoil, it became obvious during that period that sound policies, rather than crisis management, yield the best results in the long run. this has been a guiding principle for the sarb in the implementation of policy over the past five years. south africa barely managed to record an average growth rate of 2, 0 per cent per annum during the 1980s, but this has since accelerated to around 3 per cent per annum since 1994. despite the recent slowdown in the international economy and the short - lived global recovery, south africa ’ s growth performance of 3 per cent in 2002 was relatively sound. after peaking in the first half of 2002, south africa ’ s real gdp then slowed down to an annualised 1, 5 percent in the first half of 2003. 4. policy issues a number of policy issues have occupied the attention of the sarb over the past five years in dealing with these economic and financial developments. the most important of these are the adoption of an inflation target as the anchor for monetary policy ; the reconsideration of the bank ’ s role in the foreign exchange market ; the elimination of the oversold net open foreign currency position ( nofp ) ; and the handling of distressed banks by our bank supervision department. although the functions of the sarb have changed and expanded over time, the formulation and implementation of monetary policy has remained the centrepiece of our activities. the bank has used different monetary policy frameworks over time, such as credit ceilings and credit controls in the 1960s and 1970s, money supply growth targets from the middle of the 1980s, money supply growth guidelines by the early 1990s, an eclectic monetary policy from the middle 1990s and inflation targeting since 2000. successive mission statements of the bank confirm a fundamental commitment to low inflation. the initial mission statement, published in 1990, entrusted the protection of the internal and external value of the rand to the bank. this was changed by the middle 1990s to the protection of the value of the rand. in 1999 the mission was reformulated as the achievement and maintenance of financial stability. in february 2000, an inflation target set by the government was introduced as the anchor of monetary policy. this entrusted a single ultimate monetary policy objective to the bank : price stability. for targeting purposes inflation is measured as cpix ( cpi excluding interest on mortgages ) and the first target range (