an exception was made for developing countries, whose debt had always been a bit dicey, with many of them becoming serial defaulters. the west could lecture the south on getting their economic policies straightened out before they could grudgingly extend some much - needed debt - relief. “ it ’ s the economy, stupid! ” as us president bill clinton famously put it. that was then. now that the us itself is drowning in debt, and runaway sovereign debt is raising the spectre of a eurozone break - up, it suddenly looks as if clinton should revise his stand : “ it ’ s the politics, stupid! ” would be closer to the truth. silvio berlusconi and george papandreou have already paid the price to placate the bond vigilantes. others may follow if they fail to navigate the treacherous waters between citizen and taxpayer revolt, on the one hand, and investor rebellion, on the other. france faces a threat of downgrade. even fiscally - upright germany failed to place nearly half the amount of ten - year paper on offer at a recent auction. moody ’ s is now threatening a generalized derating of eurozone debt. the us has lost its triple - a rating, as standard & poors derated it. to rub in the point, the agency berated washington politics and the fiscal brinkmanship characterising the us response to the crisis. in the words of standard & poors, the politicians have become “ less stable, less effective, and less predictable. ” and where ’ s mauritius in all that? we can count ourselves lucky that we are not hooked on foreign commercial debt. we do not face any rollover risk. we are not at the mercy of unforgiving markets. and all of us, and not just our politicians, can sleep easy on this score. how many of us know that, in their monumental work on economic and financial crises, this time it ’ s different, kenneth rogoff and carmen reinhart, paid mauritius – and a handful of other countries – an ultimate accolade when they called us “ debt default virgins ”? and, while we are on this subject, may i invite you, when you get the time, to cast a glance at the shape of the yield curve for government rupee debt? you may be surprised to discover how we have actually smoothed the curve and reduced volatility – and that, too, during a crisis. we do not know

at present, the maintaining of basic balances, i. e., the macroeconomic balance and the financial one, is our major objective. these two pillars represent our legal mandate. therefore, we must do the utmost to consolidate the inherited balances, by making cautious analyses and taking appropriate measures to best absorb all the risks posed to the country ’ s macro - financial stability. currently, the fulfilment of our legal mission has become a difficult and challenging task, full of surprises. our countries represent small economies, whose share and influence can not play an active or imposing role in the international arena. moreover, i am increasingly convinced that our economies are net importers of both material goods and international crisis. bis central bankers ’ speeches personally, i think that the moments we are currently experiencing constitute an historic opportunity for all of us, to leave a good name as competent managers in times of the great crisis. as long as things go well, we fail to understand the need for ongoing adaptation, for constant correction. this is the reason that mostly leads to creation of “ financial bubbles ” in the economy. apparently, decision - makers lack the ability or the willingness to stop blowing bubbles, and hence they burst. from this viewpoint, i assess that the bank of albania ’ s experience carries over elements of preliminary correction, i. e., preventive elements. let me be more specific. since early 2005, we have addressed the interplay between macroeconomic stability and financial stability prudentially. while there was a historic stability in keeping inflation in check, there existed many unclear things in the banking system stability. i would like to remind you, briefly, of the fact that we are talking about a period when the banking system was transformed into a 100 % private capital and when credit expansion dominated the banking business. since 2005, the outstanding credit to the economy has expanded by 7 – 8 percentage points of gdp. moreover, 75 % of credit was denominated in foreign currency and the hedging against exchange rate risk was frequently overlooked. it was the time when competition for market share increased tremendously among banks, even at the expense of credit quality. periodic examinations conducted by banking supervision identified several vulnerabilities that could threaten the financial stability of the system. i would mention : lack of an electronic credit register ; risk management weaknesses, structural weaknesses in internal audit ; lack of transparency in dealing with customers about the supplied products. one of the most important issues worth mentioning is bank management in