crisis had arisen. the fact that developments did not favour real growth in sweden or real wages becomes clear in comparisons with both other time periods and other countries, such as the nordic countries, germany and austria ( figure 1 ). when the fixed exchange rate target was abandoned in november 1992, after an unsuccessful attempt to defend the krona – you probably all remember the increase in the marginal rate to 500 per cent – it followed on from yet another cost crisis. at the beginning of 1993, the outlook for the swedish economy was bleak - we were in the midst of an international economic slowdown, the banking crisis was a fact, interest rates were high and unemployment was soaring. during the period with a fixed exchange rate fiscal policy had borne the entire responsibility for stabilisation policy, while monetary policy had been tied to defending the krona rate. it was evident that fiscal policy had not been sufficiently tightened in connection with the overheating to which credit deregulation contributed. it was high time to break with history – but how should this be done? a new stabilisation policy regime a comprehensive change in regime was implemented in order to take sweden out of the crisis and to create the conditions for a more stable and more favourable economic development. central government finances were consolidated and fiscal policy was subjected to regulations regarding an expenditure ceiling and surplus target to attain a long - term balance in public finances. monetary policy was aimed at safeguarding price stability. the interest rate, which had been a tool for balancing currency flows during the period with an exchange rate target, would now be used to affect demand in the economy with the aim of stabilising price trends. 1 / 7 the new target for monetary policy, to aim for a low and stable inflation rate, was announced in january 1993 and applied in terms of the consumer price index ( cpi ) with effect from 1995. the fact that there was some delay was partly due to the economy having just been exposed to strong inflation impulses, mainly due to the weakening of the krona after the fixed exchange rate was abandoned. the target for monetary policy, which was further manifested by being written into the sveriges riksbank act in 1999, is to “ maintain price stability ” and the riksbank ’ s interpretation of this is that inflation should be retained around 2 per cent a year, measured as the annual change in the consumer price index ( cpi ). there is also a tolerance interval of plus / minus 1 percentage point around this target. maintaining

equity investment, but now a considerable portion of capital inflows is invested in local currency - denominated longerterm bonds – this change has made foreign capital flows much more stable. on the other hand, the development of fixed income markets in the region has also brought new difficulties. first, as foreign investors hold a greater share of bonds in the region, bond yields are greatly affected not only by domestic economic developments or monetary policy, but also by global economic conditions. in addition, there are increased concerns about financial and foreign exchange market unrest in the event of a sudden reversal of capital inflows to the regional bond markets. there have recently been dramatic changes in global economic environment, including the continuing monetary policy normalization by the u. s. federal reserve and the rising trade tensions between the u. s. and china. in fact, some emerging market economies with weaker fundamentals have experienced large - scale capital outflows, resulting in more volatile stock prices, exchange rates and interest rates. so far, we have seen that the development of the fixed income market in the asia - pacific region has greatly contributed to better market functioning and a better policy environment, while 1 / 2 bis central bankers'speeches creating no small difficulties. against this backdrop, allow me to suggest some policy tasks that countries in the region must first pursue to enhance financial and economic stability. to begin with, we must enhance the overall resilience of the regional economy so that sudden changes in capital flows triggered by external shocks do not lead to systemic risk. to this end, we must reinforce our capacities and policy space to properly respond to external risks. this may be done by improving current account balances, holding sufficient foreign reserves, and enhancing exchange rate flexibility. next, we must continue our international cooperation to reinforce financial safety nets. asiapacific countries have striven to establish regional financial safety nets and develop fixed income markets through the chiang mai initiative multilateralization ( cmim ), the asian bond markets initiative ( abmi ), and the asian bond fund ( abf ). we also need to continuously expand our cooperation not only within the region but also with international organizations such as the imf and bis to strengthen global financial safety nets. last but not least, we have to continue our policy efforts to strengthen fixed income market infrastructure and functioning, such as by seeking diverse investors, making corporate bond markets more vibrant, and improving the processes for bond issuance and trading. i believe that these efforts would expand both