radovan jelasic : provision of credits to small and medium sized enterprises in serbia speech by mr radovan jelasic, governor of the national bank of serbia, at the roundtable organized by “ ekonomist ” magazine on provision of credits to small and medium sized enterprises in serbia, held at the national bank of serbia, belgrade, 13 june 2007. * * * ladies and gentlemen, allow me to welcome you on behalf of the national bank of serbia on the occasion of conference on medium and small size enterprise crediting in serbia. i would like to discuss two related subjects – stability of prices, i. e. inflation, and the role of the nbs in providing credits to finance small and medium sized enterprises. stability of prices and business environment represent one of the key conditions for the success of economy as a whole and particularly so for the success of small and medium - sized enterprises. in contrast to large enterprises that have “ connections ”, access to insider information and are more than aware of their economic and political power, medium and small sized enterprises are usually treated as an ornament, more as a social than economic category – and that serves them no purpose. as for stability in prices, it is currently at the level most people do not remember ever having seen before because, back than, they were either not yet born or were not really very much interested in such matters at all. inflation today, after 44 years to the day, matches the level recorded in 1963. in may this year, year - on - year, the rate of headline inflation equalled 4. 4 % and core inflation reached 3. o %. at the same time, our economy has been growing at the rate of around 7 % ( first quarter 2007 over the same period a year earlier ) and displaying a greater abundance and variety of cheap credits than seen in serbia in a long time, the exchange rate for the dinar has been floating freely for over three months now without any interventions from the nbs, and our foreign exchange reserves have grown in excess of us $ 12. 2 billion. stability seems to have brought about a number of unexpected effects of “ operating in a normal business environment ”, which almost whole of our economy has kind of grown unaccustomed to in the course of these last 44 years, such as the facts that : • market implies competition, glorifies success and puts a persistent pressure on increase in productivity. one can no longer get by with phrases like :

benefited directly from two of these measures. the first is the granting of easier and greater access to the mainland banking market under cepa from 1 january 2004 and the second is the introduction of personal renminbi business in february. these will in time help to broaden meaningfully, i am sure, the scope of banking business for banks in hong kong. i should add that there are other initiatives being developed, with the aim of positioning the banking system of hong kong to take advantage of further financial liberalisation in the mainland. i hope they can be agreed, announced and introduced soon. short - term risks however, the generally good news in recent months should not blind us to the problems that remain in our economy or to the risks that face us. while the economy has been recovering strongly, it has not been creating as many jobs as we all would like to see. it is also uncertain to what extent the budget deficit will be reduced, as government revenues recover along with the economy. to be sure, the difficult investment environment is not helping us in our attempt to meet the budgeted investment income for the fiscal reserves. disappointments on these fronts may affect market sentiment in the short term, although the determination and ability on the part hksar government in tackling the remaining, structural components of these problems should not be in doubt. furthermore, there is a risk that our financial markets could over - react to external developments, notably stronger than expected monetary tightening in the us, macro - economic adjustments in the mainland and sharp increases in oil prices. although it is unlikely that these external factors would derail our economy, and so this risk seems small, under extreme market conditions, short - term volatility in financial markets could have a bearing on monetary and financial stability in hong kong. in contrast, there are also concerns about the effects of continuing easy monetary conditions within hong kong. during the past few months, economic recovery has resulted in inflows of funds into the hong kong dollar to the extent that the aggregate balance of the banking system has become extraordinarily high ( despite some outflows recently associated with the corrections in the financial markets ). as you know, under the currency board system there is not much that we can do to dampen easy monetary conditions : this is a question that the sub - committee on currency board operations of the exchange fund advisory committee has given a great deal of thought to. if there continue to be capital inflows on the back of sustained growth and confidence