net domestic assets since the second half of 1998. bringing these aggregates under control conveyed two basic messages : first, that public sector deficits would no longer be monetized with the central bank resources, and second, that henceforward the central bank will increase its turkish lira liabilities only to finance an increase in its net foreign assets. the substantial decreases in “ credit to the treasury ” item and overall net domestic assets, and the large increase in the central bank ’ s net foreign assets, are the result of these policies. here, of course, we should take account of the damage done by the russian crises. the capital outflows connected with these crises caused net foreign assets to decrease, which in turn produced an increase in domestic assets. even so, the source of the latter increase was not the increase in public sector credits but mainly the increase in central bank funding to the banks. another aspect of the central bank ’ s monetary program is related to exchange rate policy. the proposal to conduct exchange rate policy in accordance with the inflation target has important implications for expectations. first of all, it signalled to the market that the central bank endorsed the government ’ s inflation target. since the public can monitor the exchange rates daily, exchange rate policy becomes an important tool for moving the public ’ s inflation expectations towards the government ’ s inflation target. of course the continued success of this policy requires the authorities to set a realistic inflation target, which is to say an inflation target consistent with the public sector ’ s proposed budget balance. besides influencing inflation and inflationary expectations, exchange rate policy directly affects the external sector. a stable real exchange rate policy puts the central bank in a neutral position in this respect. that is, the central bank neither intends to use exchange rates to support exports, nor does it intend to harm turkey ’ s long - term trade competitiveness. the implication of the central bank ’ s stable real exchange rate policy is that the economy ’ s current account balance is determined by real sector developments. here the decline in domestic demand in recent months has made its mark. as imports decreased, the foreign trade balances improved significantly. as a result of this, turkey ended 1998 with a current account surplus of us $ 1, 871 million. in 1999, a small current account deficit is expected, mainly due to an expected rise in domestic demand in the second half of the year. the coordination of fiscal and monetary policies has succeeded in reducing the inflation rate from 91 % in 1997

is the optimal composition of the investment portfolio in the context of the transition from classic investment channels to other channels ( direct credit, real estate ), and in the context of the diversification of investments abroad? – what effect does the tension between the short - term measurement method of the plans ’ achievements and the need to create long - term yields and repayment abilities, which is what is relevant to the saver, have? does the method of measurement not create short - term competition, which is not necessarily optimal? – what is the proper extent of the investment portfolio ’ s exposure to investments abroad and to foreign currency? financial education : – what is the proper balance between the decisions of the individual and regulatory intervention? – what are the tools that need to be provided to the public in order for them to make informed decisions about their pension savings? questions for research : – can we estimate the effect of savings enforced by the mandatory pension law on developments in various markets ( household credit, and so forth )? – how does mandatory pension affect total savings? – how can we balance the need to direct long - term savings to support for business sector growth and the maintenance of a reasonable level of certainty for retirement age? in summation, the institute currently being launched has a great deal to do, both in the field of broad empirical research and in the field of research on questions of policy. the activity to increase the public ’ s financial literacy will help all of us make informed decisions regarding the question that is perhaps the most important in the area of household financial decisions. i wish the people of this institute success in your important endeavors, and i await the opportunity to learn from the fruits of your labor. bis central bankers ’ speeches