a permanent goal. inflation inflicts several burdens on a society : · overall, it introduces uncertainty into economic decisions and profit seeking. · it reduces the discipline of price and market systems. · it has negative effects on the cost of capital. · it directs resources to unproductive activities. in periods of high inflation, investments in real estate and financial investments become more desirable. · growth declines as inflation rises. in countries with high inflation, it has been observed that most resources are directed to the financial system. it is also known that the financial system undergoes a relative expansion during such periods. resources which have accumulated in the financial system cannot be rechannelled by the financial system to more productive sectors. a stable financial system and stable prices therefore represent the normal environment that central banks are committed to pursue and maintain. a central bank that stabilizes prices increases its credibility. a central bank that protects the value of the currency also helps increase the credibility of the country. the success of the monetary policy implemented to stabilize prices depends on whether or not the financial system is stable. and the price stability and financial system stability that are the primary responsibilities of the central bank are necessary for achieving economic growth in the medium term. let me mention some qualities that a central bank should have : · it should have continuity. central banks should not be diverted from their permanent goal of price stability by short - term political pressures. · it should be competent. a central bank should be completely professional. it should be technically dedicated in its structure, thorough and clear in its expression, and transparent in its actions. · it should be a responsible institution. in other words, it should be an institution that is reliable and able to justify its monetary manoeuvres. these are the characteristics of a modern central bank. central banks that have these qualities will unquestionably occupy a distinguished place in the international environment of the 21st century. i am sure that its long experience, accumulated knowledge and proficient staff make the central bank of the republic of turkey an institution that can fulfil these expectations. i am proud of this institution. i owe a great debt of gratitude to my colleagues, who have greatly contributed to our accomplishments and to our policy implementation.

especially emerging economies that are in deficit, still being in convergence stage, need to raise their production capacity to pay off their external debt accumulated during their catch - up. therefore, i strongly believe that a holistic approach is a must. while developing any kind of policies, including fiscal tightening or restructuring, one should pay great attention to negative externalities these policies may cause on other economies. in particular, we should avoid beggar - thy - neighbor type of policies. unless all participants provide appropriate contribution, the global economic recovery will not be safe and sustained. it is obvious that the emerging economies will be the major driving force behind the global growth but it remains crucial that each country with its capacity should make its contribution to revive global demand. currently, there are intense debates within the global community, particularly inside the g20 and fsb, to restructure the financial system and put in place a radical and quite ambitious financial sector reform agenda. it is imperative to repair and rebuild a well functioning financial system that can support growth while maintaining financial stability. these reforms are wide ranging, including implementing new capital and liquidity standards, promoting principles for effective supervision, looking at ways to constrain moral hazard, developing cross - border resolution mechanisms, agreeing to reforms on otc derivative markets to reduce systemic risk and improve market efficiency and integrity, and agreeing on a single set of high quality, global accounting standards. we very much welcome the work carried by the basel committee. strengthening capital and improving liquidity standards should be seen as the main tools to reach a more resilient banking sector. turkey ’ s experience shows that a sound capital base, appropriate liquidity and well supervised leverage are the key elements that assure a healthy banking system. the difficulties faced by advanced economies today may be unprecedented in scale, but not unique in nature. some countries experienced similar difficulties in the past and they developed comprehensive schemes to satisfy the principle of fair and substantial contribution of financial sector and taxpayer protection as well. for example in our case the amount of bailout we provided to the banking industry in 2001 was as high as almost 30 % of the gdp. so we developed a regulatory framework to assure that such a disaster does not happen again, and if it happens how the resolution would be carried and how it would be financed. before implementing comprehensive financial regulations on a global scale, all countries should undertake comprehensive impact studies and assess possible spillovers to emerging countries before putting such schemes into action. all necessary measures should be taken so that already fragile