in the us, the equilibrium between demand and supply cannot be ensured at moderate price levels. in brief, there are, above all, structural factors at the heart of the current crisis which will take time to recover. this suggests that to accelerate the adjustment economic policies of a structural rather than cyclical nature are necessary. let's turn to those economic policies. what are the do ’ s and don ’ ts in the light of both economic analysis and of past experience? let ’ s start with the don ’ ts. what do the errors of the past teach us and, in particular, what was done in earlier crises, in 1929, 1974 - 75, 1992 - 93 and in 2001 - 2002? there are at least four errors that should not be repeated. the first error that should be avoided is to allow that some exogenous price increases lead to a generalised higher inflation on a permanent basis. the rise in headline inflation must remain temporary and limited to food and energy prices, and not spill over other sectors of the economy. from this standpoint, the gravest danger is to index wages to inflation and, in particular, to inflation of external origin. this is a well - known finding in the economic literature and broadly confirmed by experience. the countries with wage indexation mechanisms are those that have least capacity to cope with external shocks like the oil price increase. they tend to feed into a wage - price spiral, with negative effects on purchasing power and employment. this experience is not unique to the 1970s. even today in the euro area, countries like spain that still have indexing mechanisms have above - average inflation. unemployment has started to rise again – the first sign of an economic slowdown ; the unemployment rate in spain is at around 9 %, compared with 8 % in the middle of last year. in italy, where there is no automatic indexing, the unemployment rate is below 6 %, the lowest level since the early 1980s. it would be especially damaging for employment and inflation if the reform of the italian wage bargaining system currently under debate, aimed at tying wage levels more strongly to productivity, were to contain inflation indexation clauses. even worse would be the situation if a possible indexation were to be tied, as some are advocating, to a price index of frequently purchased goods, such as that developed by istat for analytical purposes and reflecting only the frequency of purchases, not their economic value. the second error to avoid is to tackle the effects deriving from a supply shock

barry whiteside : risk focused supervision address by mr barry whiteside, governor of the reserve bank of fiji, at the apecfrti workshop on “ risk focused supervision ”, nadi, 18 november 2013. * * * dr sungbok lee – apec frti / ksp secretariat ms sue jefferey – apec frti / ksp secretariat distinguished resource persons workshop participants ladies and gentlemen introductory comments good morning and bula vinaka. i am delighted to be asked to deliver the welcome address and open this very important workshop organised by the apec financial regulators training initiative ( frti ) in conjunction with the knowledge sharing programme of the republic of korea ( ksp ). i might add that the reserve bank of fiji is also honoured to host this event and showcase our country to our visitors. let me take this opportunity to extend to you, and especially to our foreign guests, a warm fijian welcome to this workshop, which is being held at this famous tourist destination of denarau island. i am informed that apart from the resource persons who are from korea, the philippines and australia, we have assembled with us participants from as far away as mongolia and zambia. we don ’ t often have visitors from these parts of the world, so let me say a warm welcome to gaadulam, said and joseph! indeed i see this gathering as an opportunity for great cultural exchanges, in addition to the specialised knowledge and skills you will be acquiring. importance of the workshop ladies and gentlemen, there could not have been a better time for this workshop than now, given the strategic importance of financial stability to the overall performance of our economies. risk - based or risk - focused supervision is a subject area which continues to receive the attention of supervisory authorities worldwide. the international banking scene has, in recent years, witnessed strong trends towards globalization and consolidation of financial systems. stability of our respective financial systems has become the central challenge to bank regulators and supervisors throughout the world. the multi - lateral initiatives leading to the evolution of international standards and codes, and evaluation of our compliance to these standards and codes, represent solid attempts to address this challenge. the key objective of prudential supervision is to maintain stability and confidence in the financial system in our jurisdictions, thereby reducing the risk of loss to depositors and other creditors. in addition, supervision is also directed towards verifying compliance with laws and regulations governing financial institutions and their activities. we cannot deny that the growing diversities and complexities of banking business