public - sector - based crises of those years were simpler. programs supported by the imf, and much less government borrowing from international institutions, were the main elements in the solution of those crises. the private - sector - based crises of today are more complicated and harder to understand. let me follow up this brief summary by focusing my remarks this morning on four main areas where lessons from the recent east asian crisis may be found. first, it was the countries ’ ongoing exchange rate policies that contributed to the build up of crisis conditions. the countries of the east asian region chose to pursue a fixed exchange rate policy, or one pegged to the us dollar, for about a decade after the plaza accord. in the beginning these policies contributed to stronger growth and low inflation in these countries. but starting in 1995, the appreciation of their currencies had begun to threaten their balance - of - payments positions. second, to offset the weakness of their economies, the authorities relied heavily on much short - term financing, which concealed the weaknesses of their macroeconomic policies. the nature and direction of the flow of short - term international capital had not been properly analyzed. the ratios of short - term debt to usable foreign exchange reserves were in the range of 170 - 200 percent for indonesia, korea and the philippines, much higher than the average ratio of 70 percent for the other major emerging market economies. third, transparency of banking systems, including central banks, is essential for analyzing ongoing developments in countries ’ financial sectors. in particular, trends in their off - balance - sheet items, cross - border interbank funding and their transactions with offshore centers should first of all be transparent and second should be available for making judgements about the system. the absence of a sufficiently thorough system of banking supervision and the lack of transparency not only became problematic before the crisis, but also caused confidence problems later on. fourth, the quality of the assets of the banking system is vital for the soundness of macroeconomic policy. in allocating savings to investment use, the banks should be extremely careful about the risks that must be taken for a variety of reasons. there are five main types of risk that the banking system and of course the appropriate authorities have to deal with : interest risk ; foreign exchange risk ; maturity risk ; loan risk ; and market risk. a sound financial system is the best assurance of efficient monetary and fiscal policies. in my view, all four of these factors contributed to the change of foreign perceptions and sentiment and produced a cutback

policy predictability. that, briefly, is how we coped with the macroeconomic challenges thrown up by the crisis. 3. conducting monetary policy in an uncertain world let me move on to my third theme. almost by definition, central banks operate in an uncertain world since monetary policy works with a well - known lag – a long and variable lag. conducting monetary policy against the backdrop of the global financial crisis and the ensuing economic downturn is a challenging task, particularly for small open economies like mauritius. the bank had to react appropriately and in a timely manner. here again, extreme vigilance was the order of the day. as i mentioned earlier, we reduced the key repo rate by a cumulative 250 basis points over a period of six months. there were extraordinary monetary policy committee meetings. the recent imf article iv consultation mission which left over the weekend qualified the monetary and exchange rate framework applied by the bank as “ hybrid - inflation targeting ” and declared it well - suited to the needs of the mauritian economy. the imf has gone further and concluded that, in its view, the mauritian regime can be usefully considered as a model for other emerging market countries. we are much encouraged by this high - level positive endorsement – which stands in sharp contrast to the brickbats thrown at us regularly in the local press, the business press as well as the popular press. while there are some positive signs of a budding recovery in our major export markets, the global economic outlook is still subject to a very high degree of uncertainty. the cycle of monetary easing by major economies appears to have bottomed out and increasing attention is now being focused on so - called “ exit strategies ” without, however, jeopardizing the nascent recovery. in the mauritian context, we do not really have an “ exit ” problem : the magnitude of fiscal adjustment required is not all that significant as the budget deficit is under control and our debt - to - gdp ratio is within normal prudential limits. the headline inflation rate has declined significantly from 9. 7 per cent at the end of december 2008 to 3. 6 per cent at the end of october 2009. however, over the medium term, the inflation outlook remains uncertain. potential risks stem from the future course of oil and food prices on international markets, which are factors beyond the reach of domestic policy - makers. on this score, too, policy has been very supportive by lowering inflation and stabilising inflation