emit the same optimistic signals emanating from the real economy and from the balance of payments for an early easing of monetary policy. on the contrary, the reserve bank would still want to see clear signs of a slow - down in the rates of increase in bank credit extension and in the money supply before lending official support to a decline in interest rates, or an easing in monetary policy in general. 4. monetary policy and the budget for monetary policy purposes, the most important aspect of the fiscal budget is the deficit that must be financed through borrowing by government. a large deficit absorbs a greater share of the available savings of the private sector and therefore leaves less scope for expenditure in the private sector. a large deficit will force an increased demand from the private sector for more bank credit to replace what government is withdrawing from the savings pool. more bank credit, however, creates more money and increases the risk of higher inflation in future. the reserve bank is therefore particularly pleased with the determined effort made by the minister of finance to reduce the deficit in the budget from 5. 4 per cent of gross domestic product in 1996 / 97 to 4. 0 per cent in 1997 / 98. in absolute terms, the net borrowing requirement ( i. e. the deficit after taking the opening cash balance into consideration ) increased by only r1. 3 billion, from r23. 5 billion to r24. 8 billion. taking account of a much lower amount of maturing debt in the new fiscal year, the total gross borrowing requirement has in fact been reduced from r41. 0 billion in the current fiscal year to r36. 8 billion in the next. there are more reasons than just relieving pressure on monetary policy for reducing the deficit on the annual budget. one is, of course, the growing burden in the budget of the cost of servicing government debt. in the budget review document, it was indicated that total government debt as at the end of february 1997 amounted to r309. 5 billion, equal to 55. 3 per cent of gross domestic product. this is a relatively large deficit for a country with a relatively low overall savings ratio, and with massive needs for the development of infrastructure. for the 1997 / 98 fiscal year, total interest payments in the government debt will absorb r39 billion, or more than 20 per cent of the total expenditure. it is also laudable to note that the smaller deficit on the budget is being achieved through constraints on government expenditure, and not through an increase in

##7 finance ministers and central bank governors that i have attended over the past 18 years have proven an invaluable forum for policy cooperation on macroeconomic policies and when appropriate signals given to foreign exchange markets. g7 countries have also recognised the need to involve emerging markets in their discussions, and it is now standard practice for finance ministers and governors from emerging economies – and at times also from developing countries – to be invited to join the discussions of their g7 colleagues. a very recent example of a new form of informal cooperation is the heiligendamm process that started at the g8 summit this summer. here again the g8 acknowledged that there can be no solution to global challenges without active participation of emerging market economies. at that meeting, along with heads of state and government of brazil, china, india, mexico and south africa, all countries committed to embark on a high - level dialogue on a number of global challenges, specifically in the fields of cross - border investment, research and innovation, energy efficiency, and development. 5 such a process is welcome because it provides the chance to listen to different views on global challenges, to build a shared understanding and to develop joint proposals to address these challenges. also at the international monetary fund there are currently major reform efforts underway in the context of the medium - term strategy to adjust the institution to a changed environment and new constellations of players. one of these reforms – the quota and voice reform i already mentioned – concerns the representation of members in the institution and is thus considered as crucial for the future governance and the credibility of the fund. moreover, the introduction of multilateral consultations last year constituted a new approach to bring together countries with a shared responsibility for global issues. the first of these consultations was dedicated to global imbalances and involved the euro area, the us, japan, china and saudi arabia. we at the ecb welcomed these discussions as a way to foster the implementation of the agreed strategy to address global imbalances. more related to substance than to procedures, let me also mention the recent reform of the fund ’ s framework for surveillance, which should help to strengthen this important part of the imf ’ s mandate given the current climate of reduced imf lending. before moving on from important changes in the institutional set - up of the international system, i would like to highlight the financial stability forum ( fsf ). its creation back in 1999 was also motivated by the asian crisis. the fsf is today the only forum