tom alweendo : namibia ’ s monetary policy framework annual address by mr tom alweendo, governor of bank of namibia, windhoek, 6 november 2008. * * * introduction thank you for having accepted our invitation to come and listen to my annual address. this year i will focus my address on our monetary policy framework. this year ’ s choice of topic is motivated by our desire to be transparent in our conduct of monetary policy. international financial crisis allow me first to make few remarks on the global economic developments. by now we are all aware of the financial crisis that is afflicting the world economy and its adverse impact on economic growth world - wide. this crisis is made worse by the risk of high price - induced food and fuel crises. as a result, many countries are faced with the challenges of managing worsening balance of payments positions. for example, global economic growth is projected to decline this year and during 2009, potentially aggravating the financial crisis and thereby the loss of confidence in the financial markets. while the financial crisis is still only confined to the advance economies, there are uncertainties as to its impact on developing economies. depending on how long it may last, there is a greater risk that the crisis will spill - over to developing economies and that we will see further tightening in the commodity markets that will pose risks to growth in many commodity - exporting developing countries. in sub - saharan africa, for example, economic growth is projected to minimally slow from 6. 9 percent in 2007 to 6. 3 percent in 2008. in 2009 there is an expectation of a slow recovery to 6. 7 percent, due mainly to the relative macroeconomic stability in many of the ssa economies. however, it is likely that the region will be negatively impacted by conditions of food insecurity and inflationary pressure. in many of our countries in the region, the key challenge is therefore how to address the medium to long - term implications of the crisis with respect to macroeconomic stability, fiscal and current account balance, and growth sustainability. it is imperative that our policy should aim at improving infrastructure and to increase investment that is supportive of growth, strengthening the macroeconomic framework, and improving the business environment in order to avoid loss of competitiveness. the advanced economies that are affected by the financial crisis have responded by mainly using public funds to provide fiscal stimulus and liquidity support to their financial institutions. they argued that the long - term potential cost to society arising from the collapse of the

financial sector will be much larger than the cost to the public of bailing out ailing financial institutions. we also now know that these policy interventions have had mixed results in stemming the crisis. the main lesson to be learned from the financial crisis is that in the highly globalised financial markets, effective regulation is an indispensable tool to manage financial markets. it has been proven, on various occasions that the market is not always efficient. we must therefore except that there will always be occasions where the market will fail and when that happens there is a realistic expectation that governments should intervene. when markets are functioning as expected, proponents of minimal regulation generally consider regulation as an unnecessary constraint to the private sector. my view is that we need to be pragmatic and not wait until markets fail before governments intervene by having effective market regulation. let me also hasten to add that when governments do intervene to correct market failures, such intervention must be temporary and targeted. our financial system has been relatively shielded from the immediate negative consequences of the financial crisis. overall, therefore, there is no immediate concern about our financial stability. however, depending on how long the crisis may last, we are not altogether immuned from the long - term effects, such as slow economic growth. moreover, although inflationary pressures have started to abate, the outlook remains uncertain. it is, thus, imperative to manage our resources prudently, both at a national and household levels. it goes without saying that the financial crisis has created a challenge for monetary policy. a number of monetary authorities are faced with the difficult balance between maintaining price stability by tightening monetary policy without needlessly jeopardising economic growth. principles of monetary policy framework let me now return to my topic of discussion today, namely our monetary policy framework. before elaborating on the specifics of our monetary policy framework, i would like to highlight some principle issues that guide monetary policy frameworks world - wide. monetary policy has been acknowledged as one of the main tools that central banks and governments use for economic management. one can describe monetary policy as the action by the central bank to influence short - term interest rates, money supply and credit extension to achieve certain objectives. in many countries, including namibia, the objective of monetary policy is price stability. in an environment of stable prices, economic actors, both domestic and foreign, are able to plan better for the future. for instance, both domestic and foreign investors would be hesitant to invest in a high inflation