system with international financial markets means that the adoption of the key elements of the basel framework is desirable ; a strong degree of commonality between new zealand ’ s banking regulations and those of the major countries enhances our financial system ’ s international credibility. thus, while there might be efficiency gains from a more streamlined regime that is free of unnecessary complexity, there would also be efficiency losses if the new zealand regime ceased to be recognised as broadly in line with international standards. this could result in a higher risk premium in bank funding costs and potentially reduced access to international capital markets. as you might expect, much of the “ demand ” for adopting basel regulations in new zealand comes from the four major australian - owned banks, who generally seek to have a regulatory framework that is closely aligned with the australian prudential regulation authority ’ s ( apra ) requirements. the fsap report acknowledged the reserve bank ’ s close cooperation with apra and recommended that we strengthen this relationship further. we will continue to develop the relationship with apra but both sides are well aware of the differences in our circumstances and our different regulatory approaches. over recent years we adopted most of the key basel initiatives even when some have been less than ideally suited to new zealand circumstances. at the same time the reserve bank has taken on additional compliance oversight roles, some of which require specialised skill sets. two examples are the oversight of banks ’ internal capital models and the non - objection process for bank capital instruments. such activities do not sit very well with the regulatory philosophy that i have described. nor are they easily handled with the limited resources of a small central bank. such an approach has however been consistent with maintaining recognition of the new zealand regulatory regime by international investors and rating agencies. the imf takes the view that our framework needs to be brought more into line with the international orthodoxy. the recent fsap report 2 on new zealand found the reserve bank ’ s prudential framework to be less than fully compliant with the basel core principles in many areas. this assessment relates more to the reserve bank ’ s intensity of supervision than to its adoption of basel standards per se. the imf recommends that the reserve bank take on significantly more resources in order to : more proactively engage with the banks ; issue more comprehensive rules and guidance on key prudential matters ; and more frequently verify and enforce compliance. can we retain our regulatory approach and still achieve the benefits of international recognition? i believe we can. notwithstanding the views of the imf,

alan bollard : agriculture, monetary policy and the economy speech by dr alan bollard, governor of the reserve bank of new zealand, to federated farmers, nelson, 18 july 2006. * * * the experience of the last decade has been that agricultural prices and agricultural production remain as important as ever to the new zealand economy. ten years ago we expected to see an economy evolving with a gradually diminishing relative role for primary production, fewer tonnes of produce, more specialised value added, less growth in labour and more value added. some of this has happened. but we have also seen growth in volume of exports and more labour participation. and we still see a direct relation between the health of primary production and the health of the new zealand economy. we have been through huge technological changes signalled by the birth of the internet. but at the same time the renewed vigour of globalisation has brought some old - fashioned features - a big increase in emerging market economies'appetite for resources on the one hand ; and fewer obstacles to getting their manufactured goods to first world markets, on the other. at a time when the future of the doha round looks so fragile, it is ironic to see the gains we are getting from past improvements in global connectedness. related to this has been a strong supply of cheap capital into the world's financial markets. the new zealand economy has been through a long period of expansion since 1999, probably the second longest period of continuing growth since world war ii. source : rbnz. when we look for the causes of this we see two main factors. first, much of the world has also been through a strong period of growth ( despite some emerging market economies'financial crises, the 9 / 11 crisis, and the fear of deflation ). second ( and related ), we have enjoyed strong commodity prices through this period, and they are closely correlated to export prices. there is some evidence that these improved prices might be expected to continue in the future. source : anz national bank, statistics new zealand. as ever, a small open primary - producing country like ours can be subject to considerable volatility, much of it beyond our control in the short - term. we know that climatic factors, especially drought, can be big enough to make a difference to the timing and magnitude of exports. however, tracking these through changes in milk production, dairy product storage, slaughter numbers, onshore and offshore inventory, can be surprisingly complex and lead to