is primarily in the hands of the authorities and the social partners. in my view, the timing of membership will be determined primarily by how quickly the general government debt ratio can be lowered towards the maastricht criteria. according to the formal requirements, general government debt must be less than 60 % of gdp or fall quickly enough towards that target. belgium, italy, and greece were admitted to the emu with general government debt in excess of 100 % of gdp – a decision now rued by many. iceland will probably be subjected to more stringent requirements, for which i am tempted to be grateful. on the other hand, there is no reason to despair over the task of reducing public sector debt to 60 % of gdp. the target iceland has set for itself in any case, partly by aiming for a fiscal surplus, which is stricter than the 3 % deficit set forth in the maastricht criteria. although iceland ’ s gross public sector debt will be close to 100 % of gdp as of end - 2011, net debt is only about 40 % of gdp. a large share of gross debt is due to large temporary foreign exchange reserves. once uncertainty about the removal of capital controls is behind us, the sovereign credit rating improves, and the refinancing risk related to foreign debt diminishes, the need for large foreign exchange reserves will diminish as well. furthermore, as a member of a currency union, a small country needs smaller foreign currency reserves than it needs to run an independent currency, which it must be prepared to defend, and possibly provide domestic financial institutions with foreign currency liquidity during times of distress. participation in erm ii, which entails reciprocal responsibility for exchange rate stability, would reduce somewhat the need for large foreign exchange reserves relative to a unilateral fixed rate regime. in addition, the government owns substantial assets that it could sell in order to speed up the reduction of gross debt, including its stake in the banks. 6 how iceland would stand vis - a - vis the other maastricht criteria, such as those pertaining to inflation, interest rate differential, and erm ii membership ( for two years prior to accession ) is also largely in the hands of the authorities. through fiscal restraint, they could also contribute to the convergence of long - term interest rates. the social partners could promote low inflation by exercising restraint in wage settlements. finally, the shorter end of the interest rate spectrum is determined by the market ’ s self -

loi m bakani : financial system reform in papua new guinea address by mr loi m bakani, acting governor of the bank of papua new guinea, at the launch of the fincorp downscaling initiative closure meeting, 23 june 2005. * 1. * * acknowledgement chairman of fincorp mr kerengua kua, staff of fincorp and mcc. thank you for giving me the honour to address the launch of the downscaling initiative closure today. firstly, on behalf of the microfinance steering committee ( msc ) and the bank of png as an executing agent of the microfinance & employment project, i would like to acknowledge and thank those involved in initiating this downscaling program, namely ; the staff of mcc, the staff & management of finance corporation limited ( fincorp ), and last but not the least the 500 or so micro entrepreneurs under the liklik bisnis finance loan program. this is another milestone in the development of microfinance in png, with a product provided based on mutual trust. 2. introduction let me congratulate you all for the success in running and expanding this program for one year now. like all other developing countries, png is constantly challenged to provide solutions as to how best it can wrestle the problems associated with poverty and lack of employment opportunities. png ’ s 5 million population of which 80 percent live in the rural areas have been denied development opportunities because of unfair or uneven distribution of the country ’ s financial resources & limitation in infrastructure developments. lack of serious attention to the declining state of infrastructure has forced many of the rural dwellers to migrate to the urban centres in search of employment opportunities and services of urban dwellings. with lack of education and entrepreneurial skills, many could not find jobs and had to resort to crime and other illegal activities as a means to survive. in addressing the lack of financial services to the rural population, the bank had agreed to be a party to the development of the microfinance sector, although is outside the core functions of the bank. we see this new development as an important milestone in the development of the financial system in png. this industry will complement the financial services provided by the existing financial institutions, but with different scope and mandate. we are encouraged by the huge interest in the microfinance sector as evidenced by the growth of the current two ( 2 ) microfinance institutions, namely, the wau microbank and the png microfinance limited