, which have been used for this purpose. consultation between regulators and regulated institutions ensures consistency between external regulations and internal risk control procedures. the sbp has developed a regular consultative mechanism whereby the views and comments of pakistan banking association are sought and incorporated in the draft policies, circulars and regulations. fourth, the role of market discipline and monitoring has to be enhanced. privatization of nationalized commercial banks ( ncbs ) is largely motivated by this particular consideration because these banks have ill - defined incentive structure and are not subject to the normal disciplinary pressures of the market. their owners - the government - do not systematically monitor their behavior and the market cannot exercise the corporate controls which, through the threat of removing incumbent management, is a discipline on managers to be efficient and not endanger the solvency of their banks. it is quite well known that management of the ncbs have faced pressures to make loans on political considerations. interference by the ministers and bureaucrats in the operations of such banks and the unwitting encouragement of bad banking practices can itself become a powerful ingredient in bank distress. after habib bank ’ s impending privatization, 80 percent of the banking assets in pakistan will be owned and managed by the private sector and thus become subject to market discipline and monitoring. it is for this reason that 20 percent of the shares of national bank of pakistan have been off - loaded for flotation at the karachi stock exchange. the feedback from the market in terms of its share prices will act as a powerful disciplining tool to the management and the board. fifth, intervention arrangements in the event of compliance failures ought to be credible and biting as they provide a deterrent against errant behavior by the bank managers, owners and directors. in the last three years, the sbp has cancelled the licence of one of the commercial banks - the first of its kind, has changed the ownership of two banks, allowed mergers and amalgamation of half a dozen banks, forced change in boards of directors and debarred a few directors and managers from banking profession. these punitive measures and weeding out process have helped strengthen the overall health and soundness of financial system in pakistan. sixth, the role of internal corporate governance arrangements within financial institutions has been defined, reinforced and closely monitored. in addition to the code of corporate governance prescribed by the secp the banks have been provided explicitly defined criteria for the selection of chief executives and directors. family representation on the boards has been limited to 25 percent and the remaining directors have to be drawn

mr backstrom elucidates the economic situation in sweden and describes the consequences it may have for future monetary policy speech given by mr urban backstrom, governor of the sveriges riksbank at foreningssparbanken, ulricehamn on 1 september 1999. * * * first a word of thanks for the invitation to visit ulricehamn and talk about something that is close to the heart of a riksbank governor, namely sweden ’ s economic situation. i shall be describing the situation as i see it and saying something about the consequences it may have for future monetary policy. unexpectedly strong trend the new statistics in recent months show that economic activity is stronger than most forecasters had foreseen as recently as in the spring. the growth of both domestic and external demand has been higher than expected. relative to the first half of 1998, the gdp growth rate for the first six months of this year is an estimated 3. 7 %. most observers are in the process of revising their forecasts upwards, if they have not already done so. in the inflation report last june the riksbank judged that growth this year would reach 2. 5 %, followed by 3 % next year as well as in 2001. when the executive board discussed monetary policy on 12 august, however, our assessment was that this year ’ s growth rate would be 3. 5 %. we also saw grounds for an upward revision of growth in the next two years, though the prospects for that period are more uncertain. it is not just total output that has exceeded expectations. the same applies to employment. in the first half of 1999 there were approximately 100, 000 new jobs compared with the same period last year. much of the increase occurred in the private sector. this has been accompanied by decreased unemployment, if one disregards the temporary seasonal upturn during the summer. however, the reduction of unemployment is less marked than the increase in employment because many people are returning to the labour market now that jobs are becoming available. meanwhile, price increases have been moderate. the underlying rate of inflation ( undix, which measures inflation excluding interest expenditure, indirect taxes and subsidies ) fluctuated during the spring between 12 - month figures of 1. 0 and 1. 5 %. other indexes also point to low inflation, despite an increase in some commodity prices, oil in particular. altogether, then, the swedish economy is developing very well. we are now entering the seventh year of favourable economic growth –