durmus yılmaz : role and responsibilities of emerging economies in the global monetary system speech by mr durmus yilmaz, governor of the central bank of the republic of turkey, at the conference on " where is global finance heading? ", istanbul, 2 october 2009. * * * dear guests, i would like to welcome you all to istanbul. it is a great pleasure for us to host this conference and such a distinguished group of central bankers, academics and experts. i hope this meeting, together with the upcoming events, will be helpful in shedding light on the future of the global financial system. it has been almost two years since the surfacing of global financial crisis of epic proportions and we are still dealing with its repercussions. one can easily identify a variety of reasons for its occurrence : global macroeconomic imbalances certainly played a key role. deficiencies in financial regulations and lack of coordination among monetary authorities and regulatory institutions played even a bigger role. policy makers were quite complacent during the build up in asset bubbles. accommodative monetary policies enabled access to cheap money. high leveraged transactions magnified the amount of liquidity created through financial system. search for high yields led to excessive risk taking and use of complex instruments. compensation scheme in the financial sector encouraged short - term bias. above all, believed that with the use of complex financial instruments, one can wipe out the risk from balance sheets. however, risks only changed form and address in the financial system, just like the energy continuously transforms in the physical universe. almost all economists agree that we are heading to a slow, gradual and painful recovery. and as a central banker who has spent almost 30 years in this profession, i can tell you that it is a miracle itself to have so many economists agree on one issue with so much vigor and conviction. the future of the global financial system will be shaped by the lessons we derive from our current experience. the ongoing crisis revealed that preventive measures put in place at the local level by national authorities may not be effective to address global problems. it also underlined the importance of international cooperation and coordination in designing and implementing economic policies. it is clearly understood that the only way to prevent future crises at the global scale is multilateral cooperation. however to establish and sustain multilateral cooperation is not an easy task. as ( john maynard ) keynes once said, “ the biggest problem is not to let people accept new ideas, but

, our baseline scenario envisages inflation to reach the target of 5 percent by mid - 2013 ( chart 17 ). however, the target might be attained by the end of 2012, should the risk appetite improve markedly in the forthcoming period and the capital flows towards emerging economies re - accelerate, leading to a stronger appreciation of the turkish lira than assumed in our baseline scenario. bis central bankers ’ speeches at this point, i would like to emphasize that any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. therefore, assumptions regarding the monetary policy outlook underlying our inflation forecasts should not be perceived as a commitment on behalf of the cbrt. 4. risks and monetary policy in the last part of my speech, i would like to share our assessment of the risks on inflation outlook. the first of these risks is the possibility of second round effects that might stem from inflation hovering at high levels in the short term. three - month accumulated increase in consumer prices in the final quarter of 2011 was 5. 66 percent. this will stay in annual inflation figure for another three quarters. therefore, it is highly likely that annual inflation will stay significantly above the target until the last quarter of the year, even if the underlying trend in the forthcoming period eases to levels consistent with the target. although the monetary tightening delivered by the cbrt since october has reduced the possibility of second round effects, i would like to emphasize that inflation expectations and pricing behavior will be monitored closely and necessary measures will be taken to keep medium - term inflation outlook consistent with the target. ongoing uncertainties regarding the global economy call for a continuation of a flexible approach in monetary policy. the medium term outlook presented in the report assumes that problems in the euro area will be resolved gradually and the global outlook will not deteriorate further. however, the probability that the solution of the problems may take a more protracted and painful process poses downside risks regarding the global growth and risk appetite. on the other hand, perceptions regarding the global economic outlook may turn more favorable than expected, should the measures taken towards the solution are completed sooner and more decisively than envisaged. such a situation, coupled with the ongoing quantitative easing policies pursued by the central banks of advanced economies, may improve risk appetite and re - accelerate capital flows towards emerging economies. overall, ongoing problems in the euro area and uncertainties regarding the effectiveness of measures aimed at solving these problems suggest that global financial markets will continue to be volatile in