of 1992 to 2 percent at the end of 1995. with no monetary accommodation from the central bank, unsustainable government deficits and debt caused real interest rates in canada to climb. while canadian inflation was below that of the united states throughout this period, canadians paid a substantial risk premium over u. s. rates to borrow. moreover, the canadian dollar came under persistent pressure. overall economic performance suffered, with gdp growing very sluggishly in the recovery from the 1990 – 91 recession and unemployment climbing as high as 12 percent. these economic conditions contributed to the election of a new government, which made a credible commitment to balance the budget. in the following years, the federal budget deficit fell dramatically. revenue increased, and government expenditures were cut sharply. by 1996, canadian interest rates had fallen below comparable u. s. rates. inflation remained subdued, real gdp growth picked up, and unemployment fell. equitable fiscal discipline. the canadian experience in the second half of the 1990s is suggestive of the third – and the only responsible – way to resolve our growing fiscal imbalance : by addressing its source in an environment of price stability. all seem to agree this is the way we would prefer to go, but of course the devil is in the details. at the outset, it requires an institutional framework committed to having an independent central bank. this discourages the fiscal authority from turning to its central bank and should it do so, strengthens the bank ’ s ability to say “ no. ” in the united states, the federal reserve ’ s policies in the early 1980s provide a vivid example of the benefits that arise from the exercise of central bank independence. during this time, high interest rate policies designed to lower inflation were deeply unpopular both among elected leaders and the broad public. but the federal reserve was able to exercise its independence and pursue long - term goals which systematically reduced inflation and changed the psychology of the nation regarding its expectation about inflation ’ s path. as a result, the united states has had nearly three decades of low inflation. knowing inflation is not an acceptable alternative to strong fiscal management, a government faced with rising debt levels must provide a credible long - term plan to reestablish fiscal balance. the plan must be clear, have the force of law and its progress measureable so as to reassure markets and the public that the country has the will and ability to repay its debts in a stable currency. to be broadly accepted, the plan must be seen as fair, in which there

other forms of backstops, like the imf ’ s flexible credit line, is highly advisable. also, the public and private sectors should pursue proactive debt management strategies, avoiding bunching of maturities, lengthening durations, and keeping an eye on foreign exchange rate mismatches. third pillar. promote economic growth by making the economy more competitive, increasing total factor productivity and thus potential gdp growth. this takes us down the road of structural reforms, which have huge potential in emes. this is the hard way to achieve sustainable gdp growth, but is the only reliable one that is left. so, in summary, the first and second pillars are meant to guarantee financial stability, not necessarily inhibiting economic growth. the real lever for promoting growth lies in the third pillar. as the saying goes : plan for the worst, hope for the best. let me conclude by saying that i am an optimist, even though my remarks might not project that. as you know, we central bankers, by design, are overly cautious, and we are “ worriers ”. all things considered, emes have sailed through the global financial crisis relatively well, notwithstanding the bumpiness in the ride. required policy responses have been implemented on a timely basis in most cases, and the underlying fundamentals are still strong. bis central bankers ’ speeches with regard to my own country, mexico, i can say that we have in place a plan that fully complies with the three pillar approach i just presented to you. macrofundamentals are in good shape, we have a strong external position, even under stress scenarios, and unprecedented structural reforms are under way. all this, hopefully with stronger economic growth in the united states – our main trading partner – should allow us to preserve financial stability even under turbulent times, and increase gradually potential gdp growth to reach a level close to 5 percent at the end of president pena nieto´s administration. thank you very much for your attention. bis central bankers ’ speeches