. bank lending increased, acting as the engine for economic growth. total loans increased by 52 % in 1998 and by 15. 3 % in 1999, and 95 % of all loans have been directed at the private sector. credit growth has been accompanied by a gradual shift from short - term trade finance to increased lending directed towards the productive sector of the economy. in february 2000, the share of loans with a maturity of more than 5 years amounted to 16. 8 %, while at the end of 1998 the respective figure was 13 %. increased public confidence in the banking sector is also indicated by a 6. 3 % growth in residents ’ deposits in 1999. long - term deposits ( over 12 months ) grew by 82 % in 1999, thus exceeding the pre - russian crisis level. positive trends can be observed in other latvian financial markets as well. after the share prices fell during the aftermath of the russian crisis in 1998, the stock market has rebounded : in january 2000, the stock market index in latvia exceeded the 100 mark for the first time since the russian crisis. in the first three months of this year, the dow jones riga stock exchange index increased by 33 %. in 2000, the market for government securities has become both wider and deeper, as 3 - year government bonds were successfully launched in the domestic market for the first time in january, followed by 5 - year bonds in march. the share of government bonds with a maturity of 1 year or more amounts to 86. 5 % of all government securities. the development of yields on government bonds issued in international markets also shows increasing confidence in the economic policies of latvian authorities. the spreads on 5 - year eurobonds in the secondary market narrowed from 330 basis points at the beginning of may last year to 148 basis points in february of this year. a balanced central government budget for 1999 had been adopted originally. strict fiscal policy enabled the government to use the budget as an automatic stabiliser in the aftermath of the russian crisis and allow the budget deficit to grow up to 4 % of gdp in 1999. however, it is important to stress that this is considered an extraordinary one - time measure. the government has expressed strong intentions to reduce the deficit to 2 % of gdp in 2000, with a balanced budget remaining the target for 2001. as a result of these policies, all of which received public support, the unemployment rate dropped from 10. 1 % in march 1998 to 9 % in march this year, and real gdp development after a 3.

such a development. that doesn ’ t change the fact that we would all have to make a concerted effort to botch things in order to prevent the exchange rate from being considerably higher in a few years ’ time than it is today. but then we will have to remember to buy back the foreign exchange that we have used to support the krona in 2008 and 2009. if we do that, then we might profit on the whole arrangement. i expect this spurs questions about whether we need all of the loans that we have negotiated as a part of the imf programme. in my opinion, this is an eminently justifiable question. first of all, we need the loans in order to ensure that we have sufficient foreign exchange at all times to enable us to pay amortisation and interest on the foreign debt of the treasury and treasury - guaranteed entities. as far as the treasury is concerned, there will be little activity until late in 2011, when a loan of one billion euros, taken in 2006 to reinforce the foreign exchange reserves, will mature. but we can also use the loans to buy the bonds from this series and others offered in the secondary market at low prices, thereby easing the debt service burden and profiting on the whole arrangement. furthermore, we will need reserves in order to engage in moderate foreign exchange market intervention, with the aim of supporting the krona and reducing volatility. and last – but certainly not least – we need reserves in order to create confidence in the krona and fend off those who would attack it. but such an arsenal, which is only to be used in an emergency, is extremely expensive because it is impossible to invest the reserves at rates comparable to those on the loans themselves without taking an unacceptable amount of risk. thus it is important to avoid borrowing more than necessary and to emerge as soon as possible from our current state of imbalance. before i turn to the economic outlook and the monetary policy committee ’ s most recent interest rate decision, i consider it necessary to say a few words about the nature of the adjustment the icelandic economy is currently undergoing. first of all, it should be borne in mind that the year 2009 would have been extremely difficult in any case, no matter whether the banks had collapsed or not. this is because of the huge macroeconomic imbalances that developed in the icelandic economy in 2005 - 2007 and had to subside in one way or another. second, the collapse of the banking system called unavoidably