providing both financial means and technological transfer. today privatisation is almost complete and one has to look for new engines pushing forward the catching - up process. currently, i see three main risks that have to be addressed as priorities by policy - makers : ( i ) ( ii ) ( iii ) increased financial vulnerabilities, in relation with fast credit growth and mounting external imbalances ; rising inflation pressures which hurt external competitiveness ; and the challenge of ensuring high future potential growth.. this third challenge belongs to the long - run as future economic developments will need to feed productivity growth beyond the dynamics of catching - up, through technological and production process innovation. it is however a present concern to the extent that recent signs of increasing labour market shortages and decreasing fdi inflows question the capacity to maintain gdp growth at the high levels recorded in the past. addressing these risks and challenges will require the conduct of prudent macroeconomic policies insuring short - term stabilisation, with fiscal authorities avoiding pro - cyclical loosening and generous spending policies, and monetary authorities preserving price stability and guaranteeing financial stability. however, macroeconomic policies alone are not sufficient to improve the long - term growth potential : they are aimed at fostering a stable and transparent business environment, but have to be supplemented by the implementation of structural policies designed to enhance labour market participation, labour mobility, competition in goods market, investment in education, r & d and infrastructure. it appears very clearly that the challenge of a stable and sustainable path for the catching - up process is closely interlinked with the challenge of a successful integration in the euro area. for that purpose, it is in the interest of the new member states themselves to be patient while accelerating structural reforms in order to meet both these challenges. euro area accession will come in due course as the well deserved reward for the efforts of each country in creating the conditions of its own long - term economic prosperity. i look forward to such accessions.

programmes of gear, for example to increase total saving in the economy, are being implemented with greater effect, the way will be paved for lower interest rates on a more durable basis. the contribution that monetary policy can make towards the attainment of maximum economic development and the creation of more employment opportunities is, after all, limited to the intermediate goal of maintaining a stable financial environment. attempts to use monetary policy for wider purposes or, more directly, to solve problems in the real economic sphere are bound to lead to an inflationary dead end. however sincere intentions might be, the inevitable result will eventually be lower growth and even less employment. - 13 - the policy of persisting with essential monetary disciplines in south africa at this difficult stage of general transformation is understandably being opposed in some circles, due to adjustment fatigue and frustrated expectations. it is imperative, however, for the sake of attaining higher economic growth of a more durable nature, to ensure overall financial stability that will also make access to the world financial markets easier for south african borrowers. this task demands the continuous implementation of monetary policies that will create a financial environment with low inflation, a sound banking system, and well - functioning financial markets. i wish to place on record my appreciation to minister trevor manuel, deputy minister gill marcus, ms. maria ramos, director - general of finance, and also all the officials in the department of finance, for their continued support and close co - operation over the past year. i thank my colleagues on the board of the bank for their undivided loyalty during difficult times. finally, thanks are also due to the three deputy governors and staff of the bank for keeping the many activities of the south african reserve bank at a level where the bank has come to be respected as one of the most efficient institutions of its kind in the world today.