nevertheless for some time now been experiencing inflation within the target range and surveys indicate clearly that inflation expectations are more firmly anchored at lower levels. it is now more important than ever for us to stay the course as continued price stability is the most crucial pre - requisite for sustained economic growth and development in the years ahead. 5. exchange rate developments the exchange rate of the rand against a basket of currencies recovered by 16 percent in the year to the end of december 2003 and, on balance, appreciated by a further 12 percent in the six - and - a - half - month period to the middle of july 2004, despite the temporary setback to the international prices of commodity exports in the second quarter. while these movements of the exchange rate of the rand reduced the international competitiveness of south african producers, it also caused the prices of imported goods to record twelve - month declines over the past 14 months, notwithstanding a significant increase in the international price of crude oil over this period. goods price inflation was accordingly moderated, both at the production and consumer level, contributing to a reduction in twelve - month cpix inflation. despite the fact that the rand is at a five - year peak to the dollar, prospects for the economy have continued to improve. tourism has fared better than expected and manufacturing output has improved significantly. the trade sector in particular is thriving, consumer confidence is at record levels and the world growth outlook remains favourable, with the result that some analysts have announced upward revisions to their real growth forecasts for the south african economy for 2004 and 2005. this, together with indications of a possibly more favourable credit rating for the country, flies in the face of the projections of most doomsayers. the process of dealing with a strong currency has most certainly been painful but also beneficial as it has forced productivity improvements and increased competition in the economy. although business leaders continue warning of eroding profits and impending cuts in investment and jobs, the local economy has been adjusting well to a stronger, more stable currency. significant problems have certainly been experienced by many mining and manufacturing enterprises as a result of the strength of the rand. this has had serious repercussions for the profitability of these enterprises, as well as their investment planning and employment. the recovery in the exchange rate of the rand has, however, forced companies to restructure their firms to cushion the impact of the strengthening rand. the restructuring has contributed to increasing resilience of the south african economy. besides restructuring, the manufacturing

quality, accurate and timely information for decision making. monitoring, review and evaluation mechanisms, and agencies must also be aligned to support the process. the biggest challenge in this process would be coordination, collaboration and alignment at both the country and currency union levels. there are quite a number of good policies which have arisen from recent work by local, currency union and international agencies, but the lack of synchronization continues to minimize the tremendous impact these can make on both the local and regional economies. a very critical missing element is the capacity to manage, both within the public and private sectors. this management issue must be addressed with great urgency if we are to attain our objectives. a special project for management training and orientation must be fashioned to treat with this issue at the earliest. the size of these countries poses major problems with respect to economic viability. markets are very small and the cost of administration per capita is very high. even with the best policies in place, the potential for the production of goods, which are internationally competitive is limited if each country did not have access to the international economy. access is limited, however, by capacity and capacity is constrained by size. it is for this reason that the oecs countries have chosen to engage in deeper forms of integration. the countries have proposed to upgrade the treaty of basseterre to encompass an economic union, which is the highest form of integration, short of full political integration. the oecs countries already have a very high level of integration, far superior to that of the wider caricom. this is manifested in the following : • a common court ; • a common currency and central bank ; • a common stock exchange ; • common regulatory arrangements in the areas of - commercial banking - civil aviation - telecommunications • close functional cooperation in the areas of - health - education - environment - sports • common procurement of pharmaceuticals • joint overseas representation in ottawa, brussels and geneva further deepening of the integration process will have the following advantages : • increased economies of scale in administration, production, marketing and distribution ; • the spread of risks across a number of countries instead of a single one ; • the increased capacity to negotiate with third countries or groups of countries. deepening the integration process in the oecs will allow us to access and manage the csme process much better than we could as single states. this is critical for the success of the csme as a deeply integrated oecs is a necessary, though not a sufficient condition for the