jul'03 oct'03 apr'03 jan'03 jul'02 oct'02 apr'02 jan'02 jul'01 oct'01 apr'01 jan'01 jul'00 oct'00 apr'00 jan'00 jul'99 oct'99 apr'99 price stability ( low inflation ) does not mean no increase in domestic prices as is the common perception. there are increases but at a low rate for a continued mo perio nth d of time. 70. 0 80. 0 60. 0 usd & aud 0. 4 0. 3 40. 0 0. 2 20. 0 0. 1 0. 0 0. 0 % 90. 0 0. 5'0'0 110. 0 0. 6 m s'm'9'0'0'0'0'0'0'0'0'0'0'0 s'm s'm s'm s m s m s m s m s'9 130. 0 0. 7 50. 0 twi & reer exclusion - based underlying cpi headline cpi jun - 08 mar - 08 dec - 07 sep - 07 jun - 07 mar - 07 dec - 06 sep - 06 jun - 06 mar - 06 dec - 05 sep - 05 jun - 05 mar - 05 dec - 04 sep - 04 jun - 04 mar - 04 dec - 03 sep - 03 jun - 03 mar - 03 dec - 02 sep - 02 jun - 02 mar - 02 inflation source : bank of png reer twi aud usd dec - 01 sep - 01 jun - 01 mar - 01 dec - 00 sep - 00 jun - 00 mar - 00 dec - 99 m exchange rates 120. 0 100. 0 30. 0 10. 0 - 5 qtr supervision with respect to supervision, our independence allowed us to clean up the financial sector. in 2000, we replaced the board and management of the troubled government - owned png banking corporation. it was revamped and successfully sold off under the government ’ s privatisation programme in 2002. the commercial banks were able to perform well following the reforms. the chart below shows the decline in non performing loans ( npls ) since 1999. non performing loans k'mn the clean up process included closing down 86 dormant savings and loan societies, placed other financial institutions under management, with a view of enabling them to trade themselves back into business, and liquidated a number of financial institutions that have been mismanaged and

were beyond rescue. the superannuation act also enabled the bank to effectively supervise the industry as reflected in the chart below, which shows a rapid increase in the profitability of the superannuation industry. superannuation funds - profit after tax k'mn transparency, public awareness, clear communication and close liaison between the central bank and the government, commercial banks, other financial institutions, the business community and the general public is also an important element of good governance. regular consultations take place at the senior management and technical levels, explaining changes to policy or operations with the other stakeholders ( government, commercial banks, etc ). for this, we must be objective in the advice we give and be professionally and technically competent in the analytical work we do. the success of any changes introduced by the central bank depended on the support and cooperation of others within the financial system and the community. for papua new guinea, we had to act at a time of crisis, which is not the most desirable environment to implement such reforms. however, in my judgement, the outcomes were very favourable and the results very positive. the way ahead there are several challenges we face at the central bank as we move into the new millennium. these are : • policy objective – maintaining price stability to assist economic activity. • financial inclusion – how to get the un - banked portion of our population into the formal financial system. • financial awareness and literacy – to educate the populace on financial matters and awareness against fast - money scams. • financial crime – improving ways of dealing with perpetrators of money schemes, financial fraud and theft, proceeds of crime, etc. • statistics – we continue to struggle to get reliable and timely data on other nonbanking and financial sectors. such information as the national accounts is outdated as well as the inflation basket.