radovan jelasic : global compact, social responsibility and global financial crisis speech by mr radovan jelasic, governor of the national bank of serbia, at the regional conference on social responsibility in the chamber of commerce of serbia, belgrade, 4 november 2008. * * * the overwhelming interconnectedness of modern economy on the global scale has been positively confirmed over the last several weeks when the whole world was shaken by turbulences in international capital markets. their effects are evident across all continents and the bout of instability which ensued has again brought to the fore issues like confidence, transparency in private sector operations, the role of the state, profits and bonus payments, as well as the responsibility to educate financial services consumers. i am addressing you here today not only as the governor of the national bank, but also as a representative and a participant in the un global compact, an important initiative launched in serbia with the support of the undp almost a year to date. as you are certainly aware, this initiative promotes socially responsible behaviour, a notion of mounting significance in turbulent times such as these, the role of which shall no doubt grow in future. today, i wish to discuss briefly the effects of the events on the world financial market on serbia and the role of social responsibility within that context. confidence in the financial sector is particularly significant in serbia in view of its turbulent political and economic history. decline in economic activity in developed countries has three main features : 1. in general, people in the west tend to save more, and they save with banks. in serbia, however, there is a saying “ he who is bitten by a snake fears a lizard ” and, unfortunately, the volume of savings in serbia declined in october. however, by withdrawing their savings deposits from bank accounts citizens manage only to multiply the negative effects coming from abroad, and everybody involved stands to loose : citizens lose out on interest earnings, those needing money get smaller and more expensive loans and the state gets less in tax revenues as gdp declines! 2. decline in economic growth in western countries induces decline in inflation due to weaker demand. but in serbia we have often had stagflation, which means minimum / negative economic growth at increased growth in inflation, primarily induced by insufficiently developed market mechanisms, i. e. monopolies and oligopolies. 3. western governments offer sizeable amounts of money, i. e. implement expansionary fiscal policy. but in serbia, we implement expansionary fiscal

sg cme 08. 06.. 2004 the following chart shows a similar estimation using the quarterly figures that i just showed you. norges bank output gap for mainland norway, based on annual figures and quarterly figures annual figures quarterly figures - 1 - 1 - 2 - 2 - 3 - 3 - 4 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 - 4 sg cme 08. 06.. 2004 source : norges bank we must not and cannot fine - tune economic developments. we must therefore exercise caution in our use of short - term statistics and quarterly figures. changes in these figures may represent more noise than news. the challenge facing us is to identify the contours of cyclical developments. see inflation report 1 / 2003 for further discussion on the method of calculation. allow me to conclude. today ’ s monetary policy is based on the experience gained by norway and other countries, over the past 30 years in particular, and on the results of extensive macroeconomic research. important lessons are : – inflation is a monetary phenomenon. a country with a national currency can choose the level of its own inflation. inflation in a country is not something that drifts in with the wind from abroad. – if monetary policy is to function effectively, an institutional framework is required to reinforce confidence that overriding weight is assigned to long - term objectives. the institutional framework and guidelines for monetary policy in norway reflect developments in other countries. this is of particular importance for a small country because of the considerable influence international operators have on developments in our country. rules can anchor expectations, but they must be credible and robust to disturbances to international and domestic economic developments. inflation targeting is in practice a flexible rule that can stabilise expectations and at the same time provide room for adapting to the abrupt shifts our economy is exposed to. thank you for your attention.