per economic sectors. by comparing these optimal vs. actual lending growth, we have some idea where excessive lending occurs and thus some instruments of macroprudential measures are justified and can be applied. this is the approach that we applied when introducing loan - to - value ( ltv ) ratio to lending to automotive and property sectors in 2012. we then strengthen the ltv ratio to lending to property sectors in 2013, especially to mortgages for the second, third, and so on purchases of certain types of housing and apartments. the measures are also complemented by supervisory actions to banks that we viewed exhibit excessive lending behavior. we note that the formulation and implementation of macroprudential measures require a much detail and complex analysis and calibration, as well as the need for clear communication to the banks and business community. our experience shows that the macroprudential measures and supervisory actions help in reinforcing the effectiveness of monetary transmission mechanism and supporting the financial system stability. even though lending growths increased in the period prior the implementation of these measures, probably banks and their customers wanted to utilize the interim period, they declined substantially in relatively short - period in the subsequent episode. the growth of mortgage on housing for less than 21 m2, for instance, declined from more than 100 % to the negative growth during the period of june to september 2012 ( graph 16 ). likewise, the growth of mortgage on apartment less than 21 m2 dropped from more than 300 % to less than 10 % during the period of january to november 2013 ( graph 17 ). it should be noted that the automotive and property sectors contain substantially large import content, and thus managing lending growths to these two sectors help in reducing the current account deficit. iv. financial market deepening the stage and depth of domestic financial market influence the transmission mechanism and policy response to global monetary factors, in both the ump easing period as well as the normalization process. preceding discussions clearly show the challenges that we face in indonesia. interest rate transmission is lagging in the absence of domestic money and fixed income markets that provide efficient mechanism interest rate and term - structure determination. the shallowness of domestic foreign exchange market often causes excessive volatility and overshooting of exchange rate movements in responding to global monetary and financial shocks. this is the rationale for our focus and priority on financial market deepening, as an integral part of our policy responses to the normalization process of the ump in the advanced countries. in addition to strengthening the economic

turn, boost the competitiveness of the banking industry, and the actors could enjoy a lower interest rate. b. direction of economic policy in 2007 with respect to the projections that i have been discussing, i would like to reiterate that distortions and the unfavourable investment climate are the primary constraints faced that could retard a balanced economic recovery in 2007. from bank indonesia ’ s perspective, all of the limitations i have mentioned could hamper the array of measures taken by bank indonesia to achieve and preserve macroeconomic stability. the economy will become more vulnerable and less able to mitigate the range of domestic and external shocks. our monetary policy stance would tend to be particularly cautious, especially when unexpected shocks occur that may trigger risk to price stability. in terms of the wider national interest, it will not be possible to permanently and continuously alleviate poverty and reduce unemployment without structural improvements that slash the high - cost economy and enhance the investment climate. i therefore see the benefits of the following policy strategy : 1. from the monetary policy side : the implementation of inflation targeting framework ( itf ), within the wider structure of macroeconomic policy, is a strategic step that must continually be taken by bank indonesia to maintain market confidence on macroeconomic stability and overall financial system stability. a number of issues related to capital flows, exchange rates and the interest rate within a liberal capital account regime and a floating exchange rate environment should be placed in the context of global economic adjustments and the kind of macro - monetary policy response that would be appropriate to deal with them. in this context, policies that provide incentives for long - term capital flows should be prioritized over policies that punish short - term capital flows. in addition, to support the financial market development and to improve monetary policy effectiveness, we also see the need to improve the operational structure of monetary policy. 2. in terms of financial sector policy : bank indonesia acknowledges the importance of bolstering the financial market development to mitigate economic shocks. to this end, and by observing numerous potential shocks in the global and domestic markets over the next 1 - 3 years, some policies to expand and deepen the domestic financial sector need to be instituted without delay in 2007. this requires a coordinated and collaborative effort involving bank indonesia, government institutions and banking institutions – as the primary component of the financial sector – as well as non - bank financial institutions. 3. from the banking policy side : bank indonesia sees the need to promote indirect banking intermediation through diverse efforts to foster