the external balances of our economy, its financial stability and the need to anchor expectations, constrained our decisions. i will elaborate briefly on these factors. faced with contained upward pressures in inflation, the central bank focused its attention on determinant factors of financial stability. by refraining from pursuing an expansionary monetary policy, the central bank did not exacerbate the pressures on the exchange rate which would than put additional strain on un - hedged borrowers and the bank ’ s balance sheets. furthermore, interest rate cuts had the potential to affect deposit withdrawals and cause liquidity problems and further depreciation. at the time these two were the main concerns to financial stability. the albanian economy did however receive some macroeconomic stimulus in the form of fiscal expansion. this countercyclical policy was made possible because of the previous work done to consolidate the fiscal position and to anchor macroeconomic policies and public expectations. albania approached the crisis with sustainable fiscal position in terms of deficit and public debt, creating room for maneuver and fiscal expansion to support economy before monetary policy could intervene. therefore the first lesson from the crisis for authorities would be to follow countercyclical policies, which will permit for bolder action in time of crisis. what are the lessons for the future? i think i already mentioned the first one. the second lesson, which relates to the price and financial stability, is equally important. price and financial stability do not conflict each other in the long run. central bankers should never forget that fiat money on which we base our way of life and prosperity, is a social contract, based on the society ’ s trust that every bill will be honored by the creator of that money, which in most of the cases is the central bank. this trust is one of the important pillars that guaranty not only the economic system but the entire society. in my opinion, even in the short run, the central banks are well equipped to pursue these two goals with the instruments at their disposal : main policy rate on refinancing operation ; macroprudential policies on a systemic level ; and, careful and diligent micro supervision of commercial banks. having two goals and at least two instruments should allow for an optimal mix of policies, at least in theory. in practice, as is indicated from our experience, central banks should not shy to lean against the wing in order to discourage or at least contain financial imbalances. furthermore, every time we face fundamental economic problems with potentially negative

portfolio of albanian government for lek 2. 3 billion or 30 percent less in comparison to the plan. this reduction constitutes 100 percent of the dropping of total income from operations. under the conditions of almost the same level of operative expenses, compared to the previous year, the net profit of the bank of albania over 2004 resulted to lek 5. 5 billion or lek 2. 4 billion less than in 2003. * * * * * * * honored deputies! allow me to emphasize once more the willingness of the institution i govern for meeting all the obligations deriving from the constitution of the republic of albania and from the law “ on the bank of albania ”. this will be achieved through further perfecting the framework of monetary policy and monetary operations and simultaneously through deepening our knowledge in terms of functioning and causative inter - dependence characterizing the albanian economy. i believe that year 2005 will be a successful year in terms of research, particularly in increasing the forecasting power on inflationary developments and in improving the bank of albania governance. i would like to cite that adaptation of inflation targeting regime remains our political aspiration, a fact that makes us be seriously committed to prudentially follow the relevant pre - conditions. for this purpose, we will continue the relevant theses we need for finding understanding and proper support of the assembly and other state institutions. i would like to ensure the assembly of albania that our recent steps and expected ones take into account even our national aspiration for a faster integration into the european union. we have already understood that no genuine integration can exist without financial integration. the country needs more income, more political stability, more social and cultural integration, but as much important is the financial integration as well. from this viewpoint, i think that the role of the institution i govern, the role of the banking system and of the financial sector is primary and we have many challenges ahead of us. strengthening of the country ’ s financial stability, enhancement of effectiveness of monetary policy and other economic policies, financial market flexibility, increase of geographical coverage of the country with banking business and financial intermediation rise are indispensable conditions for a real integration of the country with the developed part of the european continent.