and balanced policy response that will contribute to a more sustainable growth path for our economy. in an effort to do justice to the topic i was asked to address today, i will try and assess how we got into this unpleasant juncture, and what policy can do about it. but let me first say a few words about monetary policy in major advanced economies and its effect on south africa, given just how important a swing factor this is for our policy considerations. carmen m. reinhart and kenneth s. rogoff examined the evolution of real per capita gdp around 100 systemic banking crises. they found that on average, it takes about eight years to reach the pre - crisis level of income ; the median is about 6½ years. see american economic review papers and proceedings, may 2014 ; recovery from financial crises : evidence from episodes * http : / / www. nber. org / papers / w19823. bis central bankers ’ speeches diverging policies global monetary policies we know that the onset of the global financial crisis saw a synchronised response by central banks across the world. there was a coordinated effort to loosen monetary policy to cushion the world economy against what would probably have been a devastating collapse. these accommodative policies have indeed succeeded in helping to protect against a protracted global recession, and have also underpinned a global economic recovery. however, the pace and extent of recovery has been uneven, which has resulted in diverging policies across the major developed economies. after a disappointing start to the year, the us economic performance has been better than expected in recent quarters. the weather - related contraction of the first quarter was followed by a strong rebound in growth in the second quarter, with the strong momentum maintained into the third quarter. the economy is estimated to have grown at a better - than expected 3, 9 per cent in the third quarter, with leading indicators such as the pmi pointing to strong growth in the final quarter of the year. the job market has also improved considerably, with the unemployment rate declining to 5, 8 per cent in september, the lowest level since june 2008. in line with this stronger than expected performance of the economy, the fed concluded its quantitative easing programme in october and this has raised expectations of a policy rate hike in mid - 2015. the pace and timing of normalisation of policy rates, as repeatedly stated by the fed, will largely depend on the economic and inflationary developments and the fed ’ s interpretation thereof. with a lot

, however, taking the long view and considering the aspect of convergence of latvian economy, this provides no cause for optimism. historical data indicate that growth of the latvian economy in the post - crisis period is becoming slower and it does not go unnoticed that we are facing problems of a structural nature. these represent increasing obstacles, including : – the drop in competitiveness of goods and services exporters in the international markets, – slowing of the growth of the local lending market, – delaying reforms in education and healthcare, – and finally, fiscal policy. 2a. now about the most topical theme in latvian economy – the principles for drafting the budget. at the beginning of september i was asked what mark i would give to the 2016 draft budget. at that time i said that the draft deserves an eight, given the timely manner in which the finance minister and prime minister managed to develop and move along the draft as well as the determination of the government not to give in to the huge wave of expenditure demands by ministries, which would have washed away the prudent budget policy worked out with so much difficulty during the crisis years. i regret to say that i was too much of an optimist. right now, the budget only deserves a “ 6 ”. first, in two months several measures were implemented that were a serious blow to the business environment and the confidence of entrepreneurs in the stability and sustainability of the tax system. second, in the conditions where the risks of the external economic environment have increased but the latvian economy is still posting positive growth, the forming of a fiscal risk reserve has been rejected and a number of new, unexpected expenditure items have appeared. needless to say that ( given the non - existence of the fiscal reserve ), we are most concerned about the 80 million demand related to “ airbaltic ”. all the shortcomings notwithstanding, the 2016 budget has been adopted and we will have to live with it. so right now it is important to not lose time and review the budget drafting process, so that we could adopt the kind of budget for 2017 that would create a stable foundation for the development of latvian economy in the future. several principles should be observed in this work. ( chart ) bis central bankers ’ speeches number one, stability ; number two, a budget without a deficit and, number three, a zero budget. first of all, stability is essential for the latvian business environment, for attracting investments and for resuming lending. the proposal of auditing the tax system should be