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

the overall stability of the banking industry. it is logical to expect that strategic alliance would continue to develop, as the operation of financial institutions become more integrated and interrelated to one another. nonetheless, our expectation is that the bank sector would be able to continue to be the driving force in development of these new products. this strategic function can operate directly and indirectly. directly, banks can serve as the originator of such products. and indirectly, banks can act as selling agent, creditor to financial institutions or as owner of non bank financial institutions such as insurance and security companies. distinguished guests, fellow bankers, ladies and gentlemen 7 / 12 vi. future policy direction within the banking industry, we have long been aware of these problems and challenges. responding to this, we have worked together to map out actions and do what is necessary to ensure the sustainability of our banking system. our desired objective is for the banking system to regain its place as a reliable, trusted industry capable of promoting national economic growth. to accelerate this change and respond to the various problems and challenges that lie before us, we have formulated a number of policy directions for the banking system that we believe will set the course for the future dynamics of the national banking industry. these policy direction include the following : first, accelerate the consolidation process in the banking industry in the indonesian banking architecture ( api ), bank indonesia has laid out a series of measures to build the soundness and strength of the national banking industry. under this policy, the banking industry consolidation program is a key initiative that sets the course for the future of the national banking industry. within the next 10 - 15 years, the national banking industry must become capable of serving as a sound, strong, and dynamic backbone to the economy and of delivering results. however, as i explained earlier, the present situation and challenges and an array of unexpected events in 2004 have compelled us to adopt a shorter time frame for consolidation of the banking industry. in this regard, we must realize that to create a sound, robust, strong, and efficient banking industry, the industry consolidation will not be achieved without first going through a process of consolidation at the level of the individual bank. and, it is this process of individual consolidation that we must strive to complete in 2005. the picture is that an industry putting its house in order and striving for growth must first be sterilized of potential systemic risk that could arise from problems at individual banks. before the recent launching of the api, bank indonesia put