##termediation is significant, banks will be taking back on to their balance sheets conduit and investment vehicle paper or just holding onto loans for longer than usual before they can be sold onto the capital markets. perhaps nothing illustrates this as cleanly as the advent of credit derivatives. derivatives of any kind unbundle funding ( and so liquidity risk ) from the underlying risk to which an agent is seeking exposure via a particular contract. so a credit derivative unbundles credit risk from funding. this further complicates interpretation of the bank lending data ( m4l ). imagine that, due to their customer networks and screening capability, banks originate all credit, but that they use credit - default swaps to shed a great portion of the credit risk via cds to non - bank financial institutions. in the limit, this would be a world in which m4l correctly measured ( bank ) lending and m4 was one useful measure of “ liquidity ”. but it would also be a world in which shocks to credit conditions from capital and risk appetite worked largely through non - bank lenders, and in which shocks to liquidity worked largely through depositor confidence in the banking system. in the real world, this story underlines the need to look at total credit, and to analyse the monetary data with finesse. see bank of england inflation report, november 2007, section 1 on “ money and asset prices ”, pages 16 - 17. it cannot be ruled out that, for a while, the m4l growth rate may deceive as to the underlying pace of credit expansion in the economy. that is important because, in a nutshell, the turmoil in financial markets is not just a “ city ” event. how potent it will be macroeconomically will depend on how long current conditions persist, and the feedback loop between the financial economy and the real economy. as to its persistence, necessary conditions for an alleviation of the current strains in credit markets are probably at least twofold. first, that the us housing and household debt markets stabilise. second, that banks and other financial intermediaries recognise impairments to asset values, so that uncertainties about counterparty credit risks begin to reduce. on the financial - real economy interaction, we must try to avoid a vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other. a variety of policy responses are

savenaca narube : productivity and ethics opening address by mr savenaca narube, governor of the reserve bank of fiji, at the rotaract club of suva ’ s business seminar, suva, 28 february 2009. * * * introduction ms roshika deo, immediate past president of the rotaract club of suva members of the rotaract club ladies and gentlemen good morning and a very warm welcome to everyone. this is the second time that i have addressed your rotaract club early on a saturday morning! the first was in september 2007. a lot has happened since then in fiji and the world. back then everyone thought that the sub prime problem was virtually over perhaps with a short tail. how very wrong we were. as you know, the crisis has deepened and widened beyond anyone ’ s imagination. what is happening around us is unprecedented. while fiji is isolated from the financial mess, we unfortunately cannot avoid its economic fallouts. then the heavens opened up last month and flooded most of fiji. the impact is widespread and devastating. there is a lot of rehabilitation work to complete to rebuild livelihoods, businesses and industries. these two events have significantly effected our livelihood and we must do all we can to address them. if ever a time that the country needs to work together to build our economy this is one of them. the economy is our bread and butter. it is our livelihood. it puts food on the table. it pays for our children ’ s education. it protects the future of our grandchildren. so we should all play a part in building this economy right now. we should avoid the blame game. we should focus all our energy in getting things done in a coherent and consistent fashion. productivity if i may then ask, “ what is the role of rotaract in economic building, and perhaps on a wider scale, in nation building? ” how are you going about executing this role? productivity is an obvious way that your organisation can help lift the economy. i have talked at many productivity conferences. i have always emphasised that one of the easiest way to grow the economy is to raise productivity. fiji ’ s rate of productivity growth is extremely disappointing. my estimate is that if we raise productivity growth by 1 percentage point it will raise gdp by at nearly twice that. i ’ m very pleased that productivity is a theme of your seminar today. productivity is first a way of thinking and second a mechanical process. you can have