it would be appropriate and relevant to touch upon the big picture and underline some lessons that we can draw from the crisis relevant to regulation, financial markets and the market infrastructure and reflect on these. we will continue to learn from the lessons as the crisis is still evolving but these are certain topical issues. ( i ) as was to be expected, the financial sector turmoil has triggered a reassessment internationally of the existing theoretics and metrics about the financial sector developments of the past two decades and the simultaneous evolution of the global regulatory framework enshrined in the basel framework. questions are being asked and answers being sought to some of the key issues regarding leverage, transparency, and liquidity underlying at the heart of the crisis. ( ii ) what the current crisis has done is to question the very fundamentals of the entire financial framework. what is the role of the financial system in an economy vis - a - vis the real sector? if the financial sector exists, as traditionally conceived to intermediate financial resources for optimal channelisation to productive sectors, then over the last few years the script has gone terribly bad. the world of finance, as had come to be epitomized in the market volumes and turnovers and derivative outstandings got disconnected by far from the real sector. ( iii ) the importance of containing systemic leverage has been underlined. while obviously there can ’ t be market stops and starts for this purpose but the whole incentive structure built in the public policy framework needs to be aligned with the objective of disincentivising leverage beyond a point. any future financial market reform measure and introduction of new innovations / products must be preceded by an assessment of the resultant leverage for the system in quantifiable terms. ( iv ) financial sector entities need to be seen and regulated as risk repositories in the system – any notion of their risks being dissipated into or outside the system is inherently flawed. there is therefore need for limits, prudential safeguards and adequate capital to support the risks. it is also necessary to understand the substance of a product and not merely the nomenclature. 1 once this understanding is there the income recognition and accounting treatment becomes clear. receipt of premia / fees for assuming a contingent liability will then not be treated as income but as funds for meeting potential future liabilities. ( v ) it is now recognised that the current microeconomic - driven prudential regulatory framework, including basel ii is procyclical which further worsens the impact

performing well reflecting the high consumer confidence. the increase in employment and the buoyant tourism industry together with higher remittances from abroad have supported this sector. a reduction in the rate of the top bracket in personal and corporate tax rate has also help raise domestic demand. in addition, buoyant collections of value added tax and rising imports of finished goods are clear indicators of this high consumption demand. strong growth in the wholesale and retail sector is expected to continue in the future. manufacturing the manufacturing sector is also growing. processed agricultural products, production of non - food items, and in particular garments, are the main contributors here. for garments, production is expected to rise this year following a decline last year. we are told by the industry that the larger garment companies and increased demand from abroad largely drive this year ’ s outlook. the future for this sector however, remains under some cloud. the imposition of wto rules and the global move to trade liberalisation will threaten market access and pose challenges to our competitiveness. a welcomed reprieve on this front, albeit temporary, is the australian government ’ s extension of the textile, clothing & footwear provisions under the sparteca. however, the looming expiry of the us quota is a serious threat to the future growth in the industry. sugar the daunting problems of the sugar sector are well known. as a result, sugar production has declined, and well below the record of 517, 000 tonnes achieved in 1994. production in 2004 is expected to remain stagnant at last year ’ s level. the lower sugar exports have left an $ 80 million hole in our annual export receipts - a gap that no other commodity has been able to plug up to now. it is obvious that the commercial reform of the sugar industry must happen sooner rather than later. we are running out of time! preferential sugar prices are being eroded more quickly and significantly than we earlier thought. this will put additional pressure on our trade imbalance. tourism the tourism industry has been the star performer in the past few years. tourism accounts for almost 15 percent of overall output and provides employment to more than 30, 000 people. although the industry suffered several setbacks due to the us - iraq conflict and outbreak of the sars virus, it rebounded quickly and registered record visitor arrivals in 2003. we expect to set a new record again this year. the performance so far in the first seven months supports this optimism with a 20 percent rise in