taught us that assessing systemic risk is key, as are sound arrangements for the application of tools to mitigate it. the final crossroads is faced by economic policy, as a result of the changes i have described. in short, it can be said that the tasks at hand are shifting from the achievement of stability to promoting growth, and from crisis management to longer - term development. in terms of monetary policy, this can be seen in the monetary policy committee ’ s shift of its bias from monetary easing to neutral. this does not mean that interest rates cannot be lowered further, but it does mean that because inflation appears to have hit bottom, economic recovery has begun, and the effective policy rate is closer to equilibrium than before, it is not as clear what direction upcoming interest rate decisions will take. the next steps will be determined more by the newest indicators of economic developments and prospects than they have been in the recent past. at its next meeting, the monetary policy committee will probably assess whether and how the icesave referendum results and the newly published capital account liberalisation strategy will affect monetary policy in the near future. the strategy divides liberalisation into two main phases, with phase i dedicated to unwinding offshore krona positions by allowing owners to exit through auctions or by investing in the icelandic economy. only when these measures have generated acceptable results can controls on residents ’ capital outflows be lifted. if conditions are right, the latter phase could proceed relatively quickly, but if not, it will be executed more gradually. it is difficult to say how long phase i will take, as its duration will depend on a number of uncertainties, such as access to foreign credit markets. but it is important for near - term monetary policy that phase i be designed to minimise potential negative effects on the exchange rate and the foreign exchange reserves, at least at first. it is only in phase ii that the interest rate differential with other countries begins to assume much greater importance as regards exchange rate developments. in the recent past, monetary policy has been an element in the larger economic policy formulated by the icelandic authorities in co - operation with the international monetary fund. the key features of that policy have been exchange rate stability, fiscal sustainability, and financial system reconstruction. in spite of delays in execution, the programme has, on the whole, been very successful. our collaboration with the imf according to the current economic programme will conclude in august, but of course, our long - standing co - operative relationship with the fund

favourable economic developments that have characterised the economy for much of this decade. instrumental in the changes that have taken place has been the liberalisation, and i might say marketisation, of the economy. in our present situation it is of paramount importance to safeguard the stability of the economy and quickly reduce inflation again. the central bank will continue to pursue a monetary policy geared to that end. credit rating the success in economic management did not escape the attention of the rating agencies. the republic of iceland was first assigned a rating by standard & poor ’ s and moody ’ s in the late 1980s. the initial long - term rating from both agencies was in the middle of the single a category. in 1996, both agencies raised iceland ’ s rating by one notch and in 1997 moody ’ s raised iceland ’ s rating again and that time into the double a category, to aa3. the short - term rating is a - 1 + and p - 1. both agencies have assigned ratings to the long - term obligations of the republic of iceland in domestic currency, aaa and aa +. the improved rating demonstrated a welcomed recognition of the progress made in icelandic economic management in recent years. in our own view, the rating improvements were overdue, first because our economic performance was in quantitative terms fully compatible with that of countries with a higher rating than iceland, and, secondly, because it seemed obvious that the reception of icelandic borrowing operations in the markets indicated that financial institutions have consistently assessed icelandic risk differently from, or one might say more favourably than, the rating agencies. structural changes other speakers at this conference will touch on structural changes in the economy, particularly in the financial sector. i only wish to emphasise that it is not an overstatement to say that the icelandic financial system has undergone radical changes since the middle of the 1980s. the market was deregulated, a stock exchange was established, and new institutions and financial services flourished. last but not least, all restrictions on the movement of portfolio capital between iceland and other countries were removed as alluded to earlier. the market is now similar to that in other developed countries, except for volume of course, while the role of the government through ownership of financial institutions stands out. the privatisation process is under way and there is room for considerable improvements in efficiency in the financial sector. one should expect mergers of individual institutions to take place in the period ahead. competition among domestic financial institutions is fierce. in the rest of the economy, significant efficiency gains have been