and the brazilian economy the exchange rate depreciated strongly and, as a result, we have observed an increase in the current inflation rate and a contamination of future inflation expectations. the conduct of monetary policy will have as strategic priority the avoidance of this transitory hike in inflation being perceived as permanent. we will fight, unrelentlessly, against the expectation of an increase in the level of inflation and the indexation of the economy. the goal is to bring inflation back to the trajectory defined in the targets already set by the national monetary council ( cmn ). the central bank will pursue a path of convergence to the already defined inflation targets, taking into account that this convergence will not occur instantaneously. it is a common practice among central banks in the world to dilute the convergence of inflation to the targets over a period longer than a year. this is particularly important when an inflationary bubble arises due to a supply shock, as has been the case in brazil. therefore, we will proceed by aiming at an inflation rate that takes into account the inertia inherited from inflation in 2002, and the supply shocks stemming from the increase in administered and monitored prices in 2003. therefore, monetary policy will maintain the goal of ensuring that inflation will return to its target path within a time period that does not result in unnecessary costs to the economy. transparency in the process is essential. at this juncture, the transparency of the process is fundamental through the detailed explanations of the actions and of the context in which the decisions were taken. following the purposes of the inflation - targeting regime, the timely release of the monetary policy committee minutes provides the public with the committee ’ s view on the economy and its prospects, providing the rationale for the policy adopted by the copom. ( at the same time, contact with analysts from several segments of the public was enhanced by the creation, especially for this purpose, of an institutional communications group, which allows a more efficient two - way communication through the use of surveys of expectations and other specific research. ) the production of reports and the release of studies and research is also fundamental aiming at increasing the transparency of the bank's activities to the public. in addition to the monthly bulletins and annual reports, other key reports are the inflation report, which deals with the inflation - targeting framework, the financial stability report, which deals with the stability of the brazilian financial system, the banking economics and credit report, development of the interest rates and banking spread project, the

henrique meirelles : good governance in the brazilian financial system speech by mr henrique meirelles, governor of the central bank of brazil, at a seminar organized by the international institute of studies of state law ( iiede – instituto internacional de estudos de direito do estado ), sao paulo, 5 september 2008. * * * 1. it is my pleasure to take part of this event dealing with an important and often overlooked topic : corporate governance in the brazilian financial system. this is an especially dear issue for the central bank and particularly for me. 2. to start, i would like to mention that monetary stability is a precondition for good corporate governance. in the inflationary environment brazil experienced for decades, the requisites for good governance vanished under the prevailing unpredictability and monetary confusion. there is no room for a transparent, disciplined and fair relationship among parties involved in a firm when predictability and stability are absent. in this sense, the main contribution of the central bank to corporate governance is to reaffirm its permanent commitment to inflation targeting in the conduction of monetary policy. 3. the brazilian institute of corporate governance defines governance as “ the system by which corporations are managed and monitored, involving relationships between shareholders, board, management, independent auditors and statutory audit committee ”. good practices of corporate governance focus on increasing the company ’ s value, facilitating its access to capital and contributing towards its stability and soundness. indeed, this general definition is very similar to the one offered by oecd, to whom corporate governance is summarized as “ a set of relationships between the administration of a legal entity, its board of directors, its stockholders and other stakeholders ”. 4. a question arising from these definitions is that of how to establish the ethical standards needed in the construction of governance to secure that relationship between the different corporate agents develop in a fair and efficient fashion. contrasting with more mature economies, which have more thinly distributed stockholding and relatively more liquid exchanges and in which there is more pressure on management to minimize the asymmetry of information, ownership and control in brazil are not comparably segregated, in spite of the significant increase in initial public offerings over recent years. 5. therefore, our ownership structure is still characterized by high concentration of stocks with the right to vote, typical of family companies or companies controlled by a restricted group of investors, by superimposition of ownership and management and by scarcely active minority stockholders. besides,