monetary stability ”. bi is no longer engage in lending activities known as liquidity financing to be extended by our banking sector to a number of the so called “ development program ”. bi is no longer giving a bridging financing to government. the task of bi is so focused on maintaining stability, that it was granted independence from any policy interference from anybody. bi “ has no function in development ”, but take care and nurture of the foundation of development, i. e., stability, without which there will be no development at all. ladies and gentlemen, it is within this mandate that bi is now trying to perform. in the past several months, we have been quite successful in curbing inflationary pressures. as measured year - over - year, the inflation rate at the end of july fell to 5. 79 %. this performance was largely due to the appreciation of the rupiah and slow growth in base money, in addition to favorable supply factors. for the year of 2003 as a whole, we are projecting an inflation rate of 5 % to 6 %, lower than our target of 9 %. the strengthened rupiah has a positive impact in capping inflation. during the second quarter, the rupiah appreciated over 4 % from the previous quarter. after falling in july 2003 when the federal reserve ’ s last cut us dollar interest rates, the rupiah has traded in a narrow band around rp8, 500. the appreciation of the rupiah during the first half of 2003 was associated with a positive sentiment towards the country, illustrated by higher dollar inflows, related to privatization, the sale of ibra assets, and the upgrade of indonesia credit rating by s & p from ccc + to b -. i should add, however, that, despite the recent strengthening of the rupiah, the foreign exchange rate remains competitive relative to regional competing currencies, including the thai baht, one of our main export competitors. the drop in inflationary expectations and the appreciation of the rupiah has allowed bank indonesia to pursue a monetary policy that is designed to facilitate an accelerated recovery process by guiding interest rates lower. the 1 month sbi rate declined 390 basis points from 12. 93 % at the end of 2002 to 8. 99 % on august 20. this has been accomplished while adhering to quantity targeting, whereby bank indonesia controls growth in base money within an indicative target range. throughout the year, the growth of base money has

threat ), as well as shocks in other countries, especially australia, that may be transmitted through our banking system. the serious mismanagement of an australian bank, or a major shock to the australian economy, could have serious negative repercussions for the new zealand banking sector and financial system. it is awareness of these potential vulnerabilities that motivates the rbnz's vigilance, and that has led to a particular focus over the last couple of years in assessing and reinvigorating how we go about regulating and supervising banks, as well as driving trans - tasman policy harmonisation. the rbnz's responsibility to supervise banks in new zealand is prescribed in the reserve bank of new zealand act. this act requires us to use the powers it gives to the bank to promote the soundness and efficiency of the new zealand financial system, and to avoid significant damage to the financial system that could be caused by the failure of a registered bank. for some time now the rbnz has taken a three pillars approach, based on a regulatory culture of self, market and regulatory discipline. this approach places risk management largely in the hands of those closest to it, and lays responsibility for outcomes with boards of directors, management, and creditors - that is, those who have the most to lose from a mismanaged bank. the first pillar is self - regulation. this is all about the policies and structures that promote effective governance by banks'boards of directors, including effective oversight by local boards of the local banks'managements. we expect high standards of corporate governance from the boards of new zealand banks, and this expectation is reinforced by some quite severe penalties that could apply according to iip data as at september 2004. should a bank's directors fail to properly discharge their responsibilities. in the wake of the enron - type corporate governance scandals and subsequent numerous reviews, the importance of good self - regulation has gained a lot more recognition recently with the passing of such legislation as the sarbanes oxley act. in its basel ii recommendations, the basel committee has also put a lot more weight on the importance of good self - regulation for ensuring bank stability than it did previously. the second pillar is market discipline. for many years, banks in new zealand have been subject to obligations to make quite comprehensive quarterly financial and prudential disclosures to the marketplace. these disclosures, combined with a policy of not bailing out failed institutions, help to strengthen market scrutiny of banks